THE PEANUT FARMER

In November, 1976 the citizenry of the United States of America elected a Georgia Peanut Farmer as President of the United States along with a Democrat Congress.  Little did anyone know at the time how that election would affect the retail automobile industry?

When the Peanut Farmer assumed office on January 20, 1977 the prime rate was 4.68%. On December 19, 1980 the prime rate had skyrocket to 21.50%, the highest on record.  Today the prime rate is 3.25%.

And you think today is tough.  Comprehend 22% floor plan interest rates coupled with twenty plus percent contract rates.

 REBATES

On January 12, 1975 the automotive rebate was introduced to the public on the tube by Joe Garagiola at halftime of Super Bowl IX.  “Buy a Dodge Dart or Plymouth Duster and get back $200 cash.”  The rebate was the brain-child of Robert B. McCurry, Jr., vice president of sales and marketing of Chrysler Corporation. From its modest beginning, the monster keeps getting bigger and has grown to where it is not unusual to see rebates in the thousands of dollars. Today $200 is chump change.  The reason for the rebate in 1975 was to move bloated vehicle inventories. 

Today it’s a way of life.

NOTHING CHANGES

Will they ever learn?  Much has changed over the years in Dealerland.  However, if there is one thing that hasn’t it’s the dealer’s mindset to spend most of the advertising dollars chasing new business in the vehicle departments while continually losing his/her service customer.

Recently I looked at a couple of 20 group composites; one from 1999 and one from 2009.  The 1999 group had 18 dealers and the 2009 had 23 dealers.  I then took the group’s advertising dollar expenditures and calculated the percentage of dollars spent in each department in 1999 and 2009.  The numbers below shows the percentage expense allocation.

Department    1999            2009

New                44%             52%

Used               37%             30%

Total               81%             81%

Service            13%             12%

Parts                 4%               5%

B/S                   2%               2%

Total               19%              19%

Over a ten year period the percentage of total advertising dollars spent in the new and used departments remained at 81% for both groups.  A fluke?   Maybe, but I don’t think so.

During my career I have looked at hundreds of financial statements and many 20 Group composites.  Rest assured these advertising percentages are not unique.  The dealer mentality is what it is. 

                                                  Didn’t Pa do it that way?