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Ouch, What a Feeling

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Ouch, What a Feeling

By Steve Finlay

WardsAuto.com, Feb 13, 2010 1:41 PM

Special Coverage

NADA Convention & Exposition

ORLANDO, FL – Asked how, as a Toyota dealer, he might capitalize on the auto maker’s sudden-acceleration recall, Bradley Hoffman quips: “By ending it really soon.”

Toyota Motor Sales U.S.A. Inc. is paying its 1,250 dealers to fix millions of recalled vehicles. “That helps,” says Hoffman, a Connecticut dealer. “But I’m not happy about the recalls.”

It’s hard to find a Toyota dealer who is, although at the National Automobile Dealers Assn.’s annual convention here many try to put a positive spin on the situation as they reaffirm their faith in the beleaguered auto maker.

But some dealers wonder about damage to the brand’s reputation, once thought to be bulletproof.

“We have a lot of brand loyalty, but the concern is that recalls might continue,” says Fritz Hitchcock, a California dealer who owns three Toyota stores. “Toyota is getting worried about recalls.”

The initial first recall is to fix accelerators that could stick, and another centers on Prius hybrid brakes.

Hitchcock says there is a public misperception that angry and panicky Toyota owners are descending on dealerships. “About 5% of them are unhappy,” he tells Ward’s. “The rest are just getting in line to make appointments for the repairs.”

Many Toyota dealers are making the fixes as easy as possible. Some stores are extending service-department hours, as they try not only to repair the cars but also the brand’s standing.

Dealer Fritz Hitchcock expresses faith in Toyota brand but worries about possibly more recalls.

“It’s the difference between being on your heels and being on your toes,” says Hoffman, whose Hoffman Auto Group has 10 other franchises, including Lexus, Toyota’s luxury lineup.

“We called all our Toyota and Lexus customers after the recalls,” he says. “We need to be proactive. Calling them helps in making them customers for life. We want to keep them in our family, even if they end up no longer being a Toyota customer.”

Toyota is a great auto maker, Hoffman says at a NADA convention-related conference put on by AutoTeam America, a group of dealership certified public accountants. “Toyota will be fine. But we want to end this quickly and move on.”

The recall-related issues are “real,” he says. “But it’s zero to one person in my market that has experienced any problems. Otherwise, my phone would be ringing off the hook. (The recalls have) attracted a lot of attention. But 99.9% of Toyota owners haven’t had a problem with their cars.”

AutoNation Inc., the largest U.S. dealership chain, has fixed thousands of recalled Toyota vehicles so far, says Mike Maroone, president of the company that owns 17 high-volume Toyota stores. Only a few customers “are really upset.”

Showroom traffic at AutoNation’s Toyota stores is down about 20%, he says. Some of that is because sales were suspended for vehicles with potential safety problems related to the recalls.

But dealer Chuck Basil says business at his family’s Toyota store in metro Buffalo, NY, is way down, and with the absence of customers, “sales people are talking to each other,” he says at a J.D. Power and Associates conference in conjunction with the dealer convention.

Toyota will win back share, Maroone predicts. “I think they will do that by offering aggressive incentives and financing.”

The recall fiasco could cost Toyota as much as a percentage point of market share, says auto analyst Erich Merkle, president of Autoconomy.com.

But Toyota dealers needn’t worry about being named in potential lawsuits that might be filed in connection with the recall controversy, says Richard Sox, an attorney specializing in dealer-franchise law.

“A provision of Toyota’s franchise agreement will indemnify dealers,” he says. “The real challenge for dealers is the public-relations aspect. A lot of my clients are appearing on TV to reassure people.”

Toyota customers coming in for recall repairs are “completely calm,” says Tammy Darish, vice president of Darcars Automotive Group in the Washington area.

But she slams Toyota for failing to keep its dealers up to date on the latest developments.

“None of the customers are unmanageable,” she says. “What’s unmanageable is us being the last to know about some of these matters. When we learn the latest from reporters, it makes us look bad.”

Sid DeBoer, head of the Lithia Motors Inc. dealership chain, predicts Toyota will rebound. “We have faith in the brand,” he says. “I wish we had 30% Toyota stores, instead of the 7% we have.”

Hitchcock expresses similar sentiments. “To me, my three Toyota stores aren’t enough.”

Forrest McConnell III, owner of McConnell Honda in Montgomery, AL, doesn’t anticipate his showroom traffic will increase from a potential flood of Toyota defectors suddenly becoming Honda buyers.

“I don’t think that will happen, and that’s not how I want to grow my business,” he tells Ward’s.



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Numb, blind with faith, all of them.

But when you have money and your job on the line, I suppose it's hard not to be.

Toyota will win back share, Maroone predicts. “I think they will do that by offering aggressive incentives and financing.”

Ask Old GM how this panned out. Once you start selling cars with a lot of cash on the hood and rock-bottom interest rates, you don't stop doing it. You simply can't. Take all of the rebates and attractive deals away from customers, and they will look somewhere else to buy because the cars do not possess any strengths in order for them sell to themselves. Then you begin to lose money every product you sell because you have no other choice but to keep customers on the gravy train you started. This is like an automaker's equivalent of being a junkie on methamphetamine trying to keep a room full of other junkies in rehab hooked with you.

But, you know, that's probably what Toyota will do. I'm already seeing local advertisements highlight that they're throwing a thousand bucks on the hood of every all-new 2010 4Runner.

We're going to watch Toyota unravel over the next few years if Congress doesn't throw them out of the country.

Edited by whiteknight
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