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Consumer Gripes and How to Deal With Them (Hint: Auto Dealers)

Posted by Brandes Elitch | Fri, Feb 05, 2016 @ 07:00 AM
Consumer-Complaint-Gripe.jpgWe often hear the phrase, “the consumer is king.” It’s a pretty accurate assessment of the U.S. retail market given that two thirds of the GNP is based on consumer spending and a third of that is in retail. Consumer spending is what drives the economy, job creation, employment, productivity, innovation and more. Consumers have rights and they aren’t reluctant to use them. Sometimes they try to exercise rights they think they have, even if they don’t.

Building a business is about building a brand, a very long and continuous process. Nothing can build a brand faster than consumers who are delighted with the product or service, and nothing can kill a brand faster than unhappy consumers believing they were taken advantage of or given a bad product. Let’s take a look at the typical consumer gripes in no particular order.

  1. Car Dealers
  2. Auto Repair
  3. Auto Warranty
  4. Debt Collectors
  5. Credit Cards
  6. Home Repair
  7. Mortgage Servicers
  8. Online Purchases
  9. Telemarketing
  10. Slamming and Cramming

Notice a pattern here? Most of these involve high-ticket purchases while the last three items are not really all that surprising.

Of course, the two highest consumer expenditures are purchasing a home or a car. The average new car is $32,000 and the average used car is about $20,000, so there is a lot of money on the table. The next segment is credit card debt, although interestingly, student loan totals are now greater than credit card debt. Home repair is usually a high-ticket item too — complaints usually revolve around something taking too long, costing more than the original estimate, or shoddy workmanship.

Backdrop to the Car Buying Process

Let’s take a look at the first item and see if we can figure out what’s going on, or if there is a solution that would turn unhappy consumers into satisfied buyers.

Surveys consistently show that consumers consider the car buying process to be a very painful experience, one of the most stressful experiences in life. Buyers say they would rather go to the dentist than to a car dealer — seriously.

I think the stress is really about uncertainty. When people walk into a dealership, they feel the salesman is out to get them: sales people want to sell something you don’t want or can’t afford, and then pack it with options you don’t need. Furthermore, people fear they are going to end up paying more than they should have, or to put it another way, fear they are not going to get a good deal. Believe it or not, this is a big deal to the average consumer because every American thinks it is their given right to get the best possible deal on everything. Some act as if working a good deal is in the Bill of Rights or thereabouts.

Let’s put things in perspective. A new car dealer is not going to jeopardize their franchise by doing anything illegal. You might have heard an isolated story about dealer fraud, but according to NADA, there were 16,396 new car dealers in 2014, and I have not heard about more than a handful of dealer induced fraud in the last year.

Another thing to consider is that this is a highly competitive business. How competitive? Would you believe, according to NADA, that the net pretax profit as a percentage of sales was only 2.2% for a factory store in 2014? If you think it’s stressful being a customer, imagine how stressful it is being a dealer and having to deal with consumers, contractors, vendors, mechanics, detailers, salespeople, state licensing inspectors, the floor-plan company and employees all day long.

Consumer Buying Tips

Consumers can reduce the stress of the buying experience by taking a few simple steps.

  • Do your homework before going to the dealership.
  • Get your financing in order before you go to the dealer.
  • Ask for a warranty (if a used car).
  • Ask for an inspection (used car).
  • Review all paperwork before signing it and watch for add-ons or changes.
  • If you don’t want options like GAP, paint protection or extended warranty, then “just say no!”

This is not difficult, but you will always hear someone say the salesman pressured them into buying something they didn’t want. There are two sides to this story. Personally, I am skeptical that an educated consumer could be “taken to the cleaners” by a new car salesman. 

We are working with a different playing field in the used car market. Here’s why. Dealers buy used cars at auction and auctions are not cheap. The used vehicle gross margin for the seven publicly traded dealer groups this year was only 9.95%, and these firms are at the top of the game.

This is a fast paced environment. The dealer wants to buy a popular car at a good price and has only a few minutes to inspect it. Everybody else wants the same car. It’s an auction, duh. Buy an unpopular car and it could sit on your lot for 90 days before you take it back to the auction for resale. You will take a big loss unless you have put a lot of money into fixing it up, in which case you will take an even greater loss. A few of those big losses can put you out of business. A new car dealer has only so many other factory dealers in the same area with the same car, but there are always dozens of used car dealers just down the street with an almost unlimited supply of options.

Furthermore, modern cars are very complicated with miles of wiring and multiple computers. The software driving these computers is so complex that sometimes even the dealer can’t figure them out.

I have an old Lincoln Town Car that won’t start, and two mechanics have not been able to diagnose why. I acquired the factory shop manual and the chapter on the anti-theft system is so complicated that it looks like the wiring diagram for an IBM 360 mainframe. I have restored all kinds of cars, but have never seen anything like this. Of course, modern cars are exponentially more complicated.

Summary

In conclusion, a careful and educated consumer can limit the uncertainty during the car buying process by taking a few simple steps. It is still a four hour ritual, however, from the time you walk into the dealership to the time you leave with the car — even buying a house does not take four hours.

Car dealers are very concerned about their reputation and will make every reasonable effort to resolve a complaint. With the proliferation of social media (especially Yelp), dealers want to eliminate negative reviews as soon as possible. Dealers try to get inside the consumer’s head to make the buying experience as seamless as possible. It might be a good idea for the consumer to try to understand the complexity of the dealer’s world and at least take reasonable steps to be prepared before the start of the exchange.

CrossCheck plays a big part in simplifying the buying experience because most stress is related to wondering how you are going to qualify for the loan. In almost all used car purchases, and probably a third of new car purchases, this means making a down payment. Dealers are not going to take a credit card for this payment because they don’t want to pay interchange on a big number. Most consumers don’t have an option to place a few thousand dollars on their credit cards anyway. Increasingly, bank lenders and their bank regulators want to see the consumer make a down payment because they want to prevent the kind of “bubble” which affected the real estate industry back in 2007.

With Multiple Check, CrossCheck stands in real-time at the point of sale and gives authorization allowing the consumer to make two to four payments spread over 30 days to meet the down payment requirement. The consumer does not fill out a credit application or pay any interest to use this service. To learn more, click below.

hold check, multiple check

Topics: Brandes Elitch, Auto Dealerships

Written by Brandes Elitch

Brandes Elitch is Director of Partner Acquisition for CrossCheck Inc. A certified cash manager and accredited ACH professional, he garnered a Master of Business Administration from New York University and a Juris Doctor from Santa Clara University.