Flashback to 1990: Japan's Rich Cars Enrich Dealers
02-04-10, 11:25 PM
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Flashback to 1990: Japan's Rich Cars Enrich Dealers
With all this negative press hitting Toyota and even my ramblings about them, I thought it would be the perfect time to post a positive story back from the early days of Japanese luxury car dealers.
Japan's Rich Cars Enrich Dealers
By DORON P. LEVIN, Special to The New York Times
Published: November 6, 1990
DETROIT, Nov. 5— Dealers that bet on the Japanese push into the luxury-car market are winning big. At a time when many dealerships in the United States are hurting, those selling the Lexus from Toyota, the Infiniti from Nissan and the Acura from Honda are being viewed as models both for their profitability and the lengths to which they and their car companies will go to impress customers.
When Rohrich Lexus opened in Pittsburgh, it did not expect to make money for at least two years. Many analysts warned that Japanese luxury franchises might fail because dealers would be required to invest an unusually large amount -- several million dollars to build a showroom. And they would have little immediate prospect of making a profit because the brands were new and unfamiliar and there would not be much revenue from repairs or used cars, which often provide more profit than new-car business.
But Rohrich has been profitable from the day it opened; its average gross profit on the sale of the $40,000 Lexus LS 400 sedan has been running close to $6,000 a car, as most of the cars sell close to "sticker" or retail price. Anecdotal reports from around the country suggest that gross profits -- the selling price of the car minus the cost to the dealer exclusive of all fixed dealership expenses -- have been averaging $2,500 to $3,500 a car for Acura and Infiniti models. It's Different at Cadillac
By contrast, across the street at Mr. Rohrich's Cadillac dealership, cars are selling for an average $4,000 discount to retail list price, resulting in gross profits of only $1,800 a car. And profits are even less, or nonexistent, for many other domestic models.
As for exemplary service, Rohrich Lexus has twice in the last six months run into service problems its mechanics could not solve, so Lexus flew in mechanics from its headquarters in Torrance, Calif., to make the repairs. Lexus also pays for overnight loaner cars for customers. And because Mr. Rohrich has the only Lexus dealership between Cleveland and Allentown, Pa., his mechanics often drive several hours to repair a car or to pick it up for maintenance. "Basically, we do whatever it takes," he said.
The luxury Japanese models began appearing in 1986, and at the time some competitors were surprised by the prices, which seemed low compared with those of European models. Some accused the Japanese auto makers of "dumping," or selling below their cost, to establish themselves, after which they would raise prices. But no one has been able to provide evidence, and the auto makers in Japan say they are making money.
Recently Acura raised the price of one model, citing the less favorable exchange rate of the yen for the dollar. But generally prices of luxury Japanese models remain quite competitive. They range from about $14,000 for the smallest Acura, to about $46,000 for the best-equipped Lexus.
The Government's budget package agreed upon last month will result in a 10 percent surcharge on cars priced at more than $30,000. That will affect some models from all three Japanese luxury franchises. In addition. the Infiniti Q45 is subject to a so-called gas guzzler tax of $500 because of its relatively poor gas mileage.
To be sure, the Japanese luxury-car dealerships have a significant advantage over competitors. For one thing, the car makers have purposely not blanketed the landscape with franchises, although they could have (all three say they have received thousands of applications from prospective dealers that they will never be able to fill). As more dealers open, competition for customers rises and profit margins on new cars fall, as has been the case with Acura, now four years old. The Importance of Quality
The quality of the cars, acknowledged even by competitors, has also played a part in their success. They are so popular that dealers have not needed to offer big discounts.
But an equally important reason, the dealers say, has been the Japanese car makers' strategy of sparing no expense or effort to improve the rituals of selling and servicing. In a survey this year in which more than 38,000 car dealers, many of whom own several foreign and domestic franchises, rated their car companies, Lexus, Infiniti and Acura received the highest ratings, while domestic brands got the lowest. A Lexus dealer in St. Louis wrote: "It's like the high-jump competition -- Lexus just raised the benchmark and now everyone will have to shoot a little bit higher."
"If you're not taking care of customers, you're not going to be in business in the 1990's," warned Greg Penske, general manager of Longo Lexus in El Monte, Calif., a company controlled by his father, Roger Penske. Greg's opinion reflects a growing belief in the auto industry that as the quality of all cars improves and they become harder to differentiate, word-of-mouth about dealerships may be the most critical factor in winning and keeping customers. A Training School
While all car companies recognize that training is important and offer seminars for dealership workers, the Japanese luxury franchises have raised the standard. For example, every owner of an Infiniti dealership and its workers are required to attend an eight-day training school at a model Infiniti dealership in Scottsdale, Ariz.
The Japanese car makers have also imposed rigorous and expensive design requirements for showrooms, service bays and customer reception areas. The showroom of Longo Lexus, for example, has leather upholstery and marble floors, rather than steel office furniture and tile.
One example of Lexus's attention to customers is a satellite data network linking all 106 United States dealers to headquarters in Torrance, Calif., allowing instant transmission of a customer's service history to any Lexus dealer, no matter where the customer is. Customer complaints and suggestions are also transmitted by satellite and dealers say they are acted upon. (Domestic auto makers have also been installing satellite and computer systems for their dealers, although some smaller dealers have resisted the expense and trouble of improving existing systems.) A Delivery Service
Another way of staying close to customers: Mr. Penske's workers pick up and deliver cars to customers' homes, a practice common in Japan.
Moreover, the Japanese luxury franchises often wash, wax and fill the car with gasoline when it is brought in for maintenance.
Operating under Infiniti's customer-first philosophy, Troncalli Infiniti in Decatur, Ga., has swapped new $40,000 Infiniti Q45's for customers when they have changed their minds about the color, and the dealership has occasionally repaired blemished cars free, although it was evident that the owner was responsible for the damage.
Charles D. Troncalli, owner of the dealership, said his business "runs more heavily off referrals from other customers than any franchise I've ever been involved in." That is particularly important to him, he said, because Infiniti's inaugural advertisements "didn't seem to be working." New Owners Surveyed
Nissan surveys new Infiniti owners to find out whether they are satisfied with the vehicles and the treatment from their dealers. If more than 90 percent of a dealership's customers are happy, Nissan pays up to $25,000 a quarter to the dealer; 85 percent of the division's 71 dealers have qualified for the top award.
Other Japanese luxury franchises also survey customers constantly and pay incentives and prizes for high customer satisfaction. Domestic franchises, on the other hand, have most frequently used customer satisfaction ratings to weed out bad dealers or limit their expansion.
Until recently, customer relations at the dealerships of most car makers often amounted to free coffee, a calendar at Christmas or a discount coupon for an oil change. Complaints about defects or quality often went unresolved. But the General Motors Corporation, the Ford Motor Company and the Chrysler Corporation and their dealers have begun to take pains to monitor and redress problems. Indeed, G.M.'s Saturn division, which started selling cars last month, has taken the same pains as the Japanese luxury franchises to insure that dealers and their workers understand the new car and the importance of extending an extraordinary level of service. Shift by Europeans
As competition from the Japanese has heated up, Mercedes, BMW and other European luxury brands have also been forced to improve customer relations to stanch defections to Lexus, Infiniti and Acura. The more progressive dealers, for example, provide loaner cars; and some car makers, like Oldsmobile and Volkswagen, are experimenting with satisfaction guarantees, even though the practice of taking cars back from unsatisfied customers remains an industry taboo.
Yet few auto makers would be able to match the financial commitment of the three Japanese luxury franchises, say dealers, who qualify as judges because nearly all of them also sell competing brands.
But the initial prosperity may still fade for the Japanese luxury-car dealers. The history of the Acura franchise, which has been in operation since 1986, may foreshadow the next stage of development for Lexus and Infiniti. In four years Acura has grown to 300 dealers nationwide -- three times the number selling Lexus -- which means that some dealers who had a vast territory to themselves now must compete with other Acura dealers. Gian Tosti, general manager of Ardmore Acura, in Ardmore, Pa., said gross profit on cars he sells has dropped to about $1,900 from $2,500 in the last two or three years because of competition from new Acura dealers.
A spokesman said a majority of Acura dealers are profitable, but declined to be more specific.
"We made some mistakes along the way," said Michael Spencer, a spokesman for Acura. "We weren't aggressive enough in emphasizing the importance of a used-car business -- not just used Acuras, but all cars. We didn't help enough in developing leasing programs." But now most dealers can depend on substantial revenue and profit from used cars and from parts and maintenance.
http://www.nytimes.com/1990/11/06/bu...pagewanted=all
Japan's Rich Cars Enrich Dealers
By DORON P. LEVIN, Special to The New York Times
Published: November 6, 1990
DETROIT, Nov. 5— Dealers that bet on the Japanese push into the luxury-car market are winning big. At a time when many dealerships in the United States are hurting, those selling the Lexus from Toyota, the Infiniti from Nissan and the Acura from Honda are being viewed as models both for their profitability and the lengths to which they and their car companies will go to impress customers.
When Rohrich Lexus opened in Pittsburgh, it did not expect to make money for at least two years. Many analysts warned that Japanese luxury franchises might fail because dealers would be required to invest an unusually large amount -- several million dollars to build a showroom. And they would have little immediate prospect of making a profit because the brands were new and unfamiliar and there would not be much revenue from repairs or used cars, which often provide more profit than new-car business.
But Rohrich has been profitable from the day it opened; its average gross profit on the sale of the $40,000 Lexus LS 400 sedan has been running close to $6,000 a car, as most of the cars sell close to "sticker" or retail price. Anecdotal reports from around the country suggest that gross profits -- the selling price of the car minus the cost to the dealer exclusive of all fixed dealership expenses -- have been averaging $2,500 to $3,500 a car for Acura and Infiniti models. It's Different at Cadillac
By contrast, across the street at Mr. Rohrich's Cadillac dealership, cars are selling for an average $4,000 discount to retail list price, resulting in gross profits of only $1,800 a car. And profits are even less, or nonexistent, for many other domestic models.
As for exemplary service, Rohrich Lexus has twice in the last six months run into service problems its mechanics could not solve, so Lexus flew in mechanics from its headquarters in Torrance, Calif., to make the repairs. Lexus also pays for overnight loaner cars for customers. And because Mr. Rohrich has the only Lexus dealership between Cleveland and Allentown, Pa., his mechanics often drive several hours to repair a car or to pick it up for maintenance. "Basically, we do whatever it takes," he said.
The luxury Japanese models began appearing in 1986, and at the time some competitors were surprised by the prices, which seemed low compared with those of European models. Some accused the Japanese auto makers of "dumping," or selling below their cost, to establish themselves, after which they would raise prices. But no one has been able to provide evidence, and the auto makers in Japan say they are making money.
Recently Acura raised the price of one model, citing the less favorable exchange rate of the yen for the dollar. But generally prices of luxury Japanese models remain quite competitive. They range from about $14,000 for the smallest Acura, to about $46,000 for the best-equipped Lexus.
The Government's budget package agreed upon last month will result in a 10 percent surcharge on cars priced at more than $30,000. That will affect some models from all three Japanese luxury franchises. In addition. the Infiniti Q45 is subject to a so-called gas guzzler tax of $500 because of its relatively poor gas mileage.
To be sure, the Japanese luxury-car dealerships have a significant advantage over competitors. For one thing, the car makers have purposely not blanketed the landscape with franchises, although they could have (all three say they have received thousands of applications from prospective dealers that they will never be able to fill). As more dealers open, competition for customers rises and profit margins on new cars fall, as has been the case with Acura, now four years old. The Importance of Quality
The quality of the cars, acknowledged even by competitors, has also played a part in their success. They are so popular that dealers have not needed to offer big discounts.
But an equally important reason, the dealers say, has been the Japanese car makers' strategy of sparing no expense or effort to improve the rituals of selling and servicing. In a survey this year in which more than 38,000 car dealers, many of whom own several foreign and domestic franchises, rated their car companies, Lexus, Infiniti and Acura received the highest ratings, while domestic brands got the lowest. A Lexus dealer in St. Louis wrote: "It's like the high-jump competition -- Lexus just raised the benchmark and now everyone will have to shoot a little bit higher."
"If you're not taking care of customers, you're not going to be in business in the 1990's," warned Greg Penske, general manager of Longo Lexus in El Monte, Calif., a company controlled by his father, Roger Penske. Greg's opinion reflects a growing belief in the auto industry that as the quality of all cars improves and they become harder to differentiate, word-of-mouth about dealerships may be the most critical factor in winning and keeping customers. A Training School
While all car companies recognize that training is important and offer seminars for dealership workers, the Japanese luxury franchises have raised the standard. For example, every owner of an Infiniti dealership and its workers are required to attend an eight-day training school at a model Infiniti dealership in Scottsdale, Ariz.
The Japanese car makers have also imposed rigorous and expensive design requirements for showrooms, service bays and customer reception areas. The showroom of Longo Lexus, for example, has leather upholstery and marble floors, rather than steel office furniture and tile.
One example of Lexus's attention to customers is a satellite data network linking all 106 United States dealers to headquarters in Torrance, Calif., allowing instant transmission of a customer's service history to any Lexus dealer, no matter where the customer is. Customer complaints and suggestions are also transmitted by satellite and dealers say they are acted upon. (Domestic auto makers have also been installing satellite and computer systems for their dealers, although some smaller dealers have resisted the expense and trouble of improving existing systems.) A Delivery Service
Another way of staying close to customers: Mr. Penske's workers pick up and deliver cars to customers' homes, a practice common in Japan.
Moreover, the Japanese luxury franchises often wash, wax and fill the car with gasoline when it is brought in for maintenance.
Operating under Infiniti's customer-first philosophy, Troncalli Infiniti in Decatur, Ga., has swapped new $40,000 Infiniti Q45's for customers when they have changed their minds about the color, and the dealership has occasionally repaired blemished cars free, although it was evident that the owner was responsible for the damage.
Charles D. Troncalli, owner of the dealership, said his business "runs more heavily off referrals from other customers than any franchise I've ever been involved in." That is particularly important to him, he said, because Infiniti's inaugural advertisements "didn't seem to be working." New Owners Surveyed
Nissan surveys new Infiniti owners to find out whether they are satisfied with the vehicles and the treatment from their dealers. If more than 90 percent of a dealership's customers are happy, Nissan pays up to $25,000 a quarter to the dealer; 85 percent of the division's 71 dealers have qualified for the top award.
Other Japanese luxury franchises also survey customers constantly and pay incentives and prizes for high customer satisfaction. Domestic franchises, on the other hand, have most frequently used customer satisfaction ratings to weed out bad dealers or limit their expansion.
Until recently, customer relations at the dealerships of most car makers often amounted to free coffee, a calendar at Christmas or a discount coupon for an oil change. Complaints about defects or quality often went unresolved. But the General Motors Corporation, the Ford Motor Company and the Chrysler Corporation and their dealers have begun to take pains to monitor and redress problems. Indeed, G.M.'s Saturn division, which started selling cars last month, has taken the same pains as the Japanese luxury franchises to insure that dealers and their workers understand the new car and the importance of extending an extraordinary level of service. Shift by Europeans
As competition from the Japanese has heated up, Mercedes, BMW and other European luxury brands have also been forced to improve customer relations to stanch defections to Lexus, Infiniti and Acura. The more progressive dealers, for example, provide loaner cars; and some car makers, like Oldsmobile and Volkswagen, are experimenting with satisfaction guarantees, even though the practice of taking cars back from unsatisfied customers remains an industry taboo.
Yet few auto makers would be able to match the financial commitment of the three Japanese luxury franchises, say dealers, who qualify as judges because nearly all of them also sell competing brands.
But the initial prosperity may still fade for the Japanese luxury-car dealers. The history of the Acura franchise, which has been in operation since 1986, may foreshadow the next stage of development for Lexus and Infiniti. In four years Acura has grown to 300 dealers nationwide -- three times the number selling Lexus -- which means that some dealers who had a vast territory to themselves now must compete with other Acura dealers. Gian Tosti, general manager of Ardmore Acura, in Ardmore, Pa., said gross profit on cars he sells has dropped to about $1,900 from $2,500 in the last two or three years because of competition from new Acura dealers.
A spokesman said a majority of Acura dealers are profitable, but declined to be more specific.
"We made some mistakes along the way," said Michael Spencer, a spokesman for Acura. "We weren't aggressive enough in emphasizing the importance of a used-car business -- not just used Acuras, but all cars. We didn't help enough in developing leasing programs." But now most dealers can depend on substantial revenue and profit from used cars and from parts and maintenance.
http://www.nytimes.com/1990/11/06/bu...pagewanted=all
02-05-10, 12:36 AM
#2
Good read, some good points.
The Importance of Quality
The quality of the cars, acknowledged even by competitors, has also played a part in their success.
But an equally important reason, the dealers say, has been the Japanese car makers' strategy of sparing no expense or effort to improve the rituals of selling and servicing.
Lexus just raised the benchmark and now everyone will have to shoot a little bit higher."
"If you're not taking care of customers, you're not going to be in business in the 1990's,"
The Importance of Quality
The quality of the cars, acknowledged even by competitors, has also played a part in their success.
But an equally important reason, the dealers say, has been the Japanese car makers' strategy of sparing no expense or effort to improve the rituals of selling and servicing.
Lexus just raised the benchmark and now everyone will have to shoot a little bit higher."
"If you're not taking care of customers, you're not going to be in business in the 1990's,"
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