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Jared Hamilton
From: Jared Hamilton
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Jared Hamilton

Jared Hamilton Founder - CEO

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Sorry, but I have to RANT a bit.  I just read an article by a VC who totally misunderstands the issues our industry is facing. As usual, I experienced the run of emotions when I read the post, but ended up somewhat fired up.  People just dont get it.

I do typically start out intrigued when I see successful business people criticize our industry and offer solutions. I believe we would be wise to look for outside influence in these times of reinvention. Then I chuckle a bit because these brilliant people are often in left field as to our industry's struggles.  This particular article argues the wrong reasons why Steve jobs could be the savior of the industry.  I contemplate the proposed solutions, fear sets in, then anger becasue this type of ignorance could really do some great damage.  There is a good chance congressional leaders and the Obama task force think the same way, or be influenced by these other wise successful people, but in the end if they greatly misunderstand our industry it increases our odds of having a lunatic driver steering the re-engineering of our industry. 

Our domestic industry is in a short term slump that people are mistaking as the real pain of the industry. We are in an economic downturn, (yes an unprecedented one) and thus sales are lower and capital is tighter than usual.  However lower sales numbers and capital availability are problems not unique to the Detroit 3, they are relative across the board for domestic and import companies.  That argument is a short term problem we face, but not the underlying cause of our frailty.  I believe today's sales numbers are an acute pain disguising the chronic business model and cost structure problems we have.  Most often people argue that the domestics don't build cars that people want to buy; this is a horribly short sighted argument.  If people didnt want to by the domestic products, why do they sell?  The question should be why can Honda be profitable and not GM when GM outsells Honda hands down?  The answer is simple.  Honda's cost structures and business models are in line with their business strategy.  If the nations sales numbers would climb back up to 15 or 16 million today the domestics would still be in hot water because they are not competitive for the long run.

To alter their cost structures they will have to:

a) Renegotiate with the UAW and reduce/eliminate legacy costs and put the current costs in line with the market.  They are carrying too much weight and it looks like negotiations are not moving along too well meaning CH 11 is very likely on the horizon.

b) There are too many dealers.  GM and Toyota sell very similar volumes of cars.  However GM does it with about 6500 dealers, Toyota does it with less than 1500 dealers.  It costs money to service those extra 5000 dealerships, especially considering they do so with duplicate products.

Our industry is seriously bloated with overcapacity, the invisible hand of the free markets will trim that. The situation we dealers face is not pretty.  I come from a long family legacy of car dealers so it hurts me at the core to say it, but the facts speak for themselves.The domestic auto industry is antiquated and needs to take two steps back so it can take three steps forward.  It will do so with less dealers.

The manufacturers DON'T need all new product engineering.  They need new manufacturing and distribution models.  That is how they will reinvent so that we can stay ahead.  Our industry has some breaking down to do so that we can rebuild.

Many dealerships and dealership employees are fighting for survival in a very literal sense.  Dont be a casuality of the restructuring.  Each dealer should have his store in order.  Each professional should be getting their house in order.  You need to be learning new disciplines, honing old skills, and networking all you can.  Our industry will NOT go away, but it will change and contract. 

Those with the innovative skills and the connectivity to put them to work have a great opportunity as the industry evolves through these exciting, yet scary times.  Those resting on their laurels may fall victim to the restructuring of our industry.  I hope the Govt can steer the restructuring ship so as to avoid a huge domino effect of collapsing companies. Regardless of how it goes down, work to get ahead of the game now and you will be fine in the long run.

 

Jared Hamilton
Amen Mark! Well said. Andy - I love the thinking but im not sure price incentives are the best. I like the idea of accelerated depreciation, tax incentives and some of the other creative incentives you brought up. Those could and will help in a good way and are smart concepts. Cash incentives and further discounting would only further erode the brand value of these already sinking brands creating a fire sale atmosphere. Any cuts in pricing needs to be long term to correct the inflated prices in the market- but the short term stuff makes me nervous.

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