We are fortunate, The Colonel is hanging out with us this morning. As you know he has been around the auto business for a few years. We heard that at one time he was criss crossing Canada to educate dealers on incentive programs, and leasing.
Its from back in the days when vehicles were sold "heads up" (no incentives, no programs), the customer was expected to have equity to do a deal.
Lets get this conversation going...
Q: Colonel, its December, as usual you are in good cheers this morning.
A: Thanks guys, another year almost done, Christmas around the corner, and a record for auto sales. Its a good time to be in the auto business in Canada.
Q: Tell us about selling vehicles "heads up" with no incentives, programs.
A: Simple MSRP, cost, do a deal somewhere in between. Trade ins were rarely upside down, and if it was upside down there was no basis to continue.
Q: The onus was truly on the dealer to sell vehicles and close deals.
A: Precisely....back to the showroom craftsmanship that is lacking today.
Q: We heard that incentives/programs had a negative aspect back in the day.
A: The auto business is product driven to this day. Incentives implied a weak product, an inability to compete heads up. The concern was always what happens when the incentives end?
Q: To digress for a moment, today we all know what happens when incentives end. Or when everyone gets on the incentive vector.
A: On the vector you move a ton of iron...
Q: Could it be that Lee Iacocca, K cars, buy a car get a check, contributed to the negative perception of incentives.
A: Its the classic paradox: Don't go there it can be addictive....Go there it moves iron. In addition to the mentality of "Our product is so good it does not need incentives"
Q: Leasing must have compounded the "fear factor"?
A: Open end (lessee responsible for the residual) leasing was a formidable fear factor at that time.
Q: Back in the day advising a dealer to get on the incentive program, and promote leasing would generate a good amount of push back.
A: Its sure did...the classic case of "We don't do it that way here"
Q: We heard that incentives, leasing, open end leases, arrival of the GST had a dramatic impact on the auto business.
A: Yes...very dramatic...imagine the manufacturers that promoted incentivised open end lease, and now the vehicles are totally upside down with the arrival of the GST.
Q: The customer was "hung out to dry" with an upside down residual.
A: Absolutely...but the manufacturer spent money (incentives) to capture this customer, and leaving him upside down was not productive for business...there was no continuity.
Q: This opened the door to closed end (lessor responsible for the residual value) leasing and planted the seeds for remarketing initiatives.
A: Closed end leases improved the continuity and loyalty. Although it was a scary thought at the time of carrying a massive residual value liability.
Q: Colonel...many points of this conversation resonate with 2014.
A: Yes...you can connect a lot of dots to 2014.
We will continue...