The Way I Understand the Car Business Is All Wrong
On the drive to Tahoe, we listened again to one of my favorite podcast episodes of This American Life: 129 Cars.
Ira and the gang spend a month at a Jeep dealership on Long Island as they try to make their monthly sales goal: 129 cars. If they make it, they’ll get a huge bonus from the manufacturer, possibly as high as $85,000 — enough to put them in the black for the month. If they don’t make it, it’ll be the second month in a row. So they pull out all the stops.
The car business is hard. Margins are as low as 3%, only slightly better than supermarket margins. Every month, every quarter, every year, the counter starts at zero. That’s how sales works, you say. The difficulty for a car dealer is that success is defined by a magical new sales target, handed down monthly from the manufacturer. Being profitable depends on making the incentive bonus every month.
It does make you wonder why car manufacturers keep a network of car dealers. It seems so expensive, and complicated with the many rebates, bonuses, inventory management, and competing nearby dealers from the same brand.
Tesla went direct to the consumer, except for in Texas where they weren’t able to bend the rules. I do not understand the protectionist laws in place favoring the network of car dealers.
The podcast episode also reiterates how sleazy this business is. If they do not make their money on with the price of the car, they will stuff profit into the extended warranty, or with some add-on protection packages. The customer doesn’t know how to gauge whether these are good items to purchase, and the dealer is not offering them in good faith either.
“Buyers are liars”, that’s how the dealer looks at the customer. There is also the cat and mouse games the sales agents are playing with the sales floor manager. It is one big bazaar, except that if you are in a Moroccan bazaar you know you are being swindled.
With the covid-19 pandemic, I expected car dealers to be suffering tremendously. You were to shelter in place, rather than shop for a car. Where were you heading to anyway, that you needed a car.
This could be a moment to make a great deal, and replace my aging 2005 Volvo as it neared 200,000 miles.
It was true for the first 3 months that few cars were sold. Then with the gradual reopening of businesses, Ira Glass commented in the episode’s epilogue that car sales went bonkers.
How did this make sense? Companies had been laying off people. Some companies even closed their doors for good. Congress passed a very large economic rescue package. The world economic news was terrible as well. This didn’t seem the time to make a large purchase. I figured people would reason that the resting piece of metal in their driveway, could make it another few thousand miles.
There lies the issue. Car purchases aren’t rational decisions. This is what Keynes meant when he wrote about Animal Spirits.
This is why the This American Life producer ended up buying a Jeep rather than the more reliable, more practical Honda Pilot she wanted to buy in the first place.
July 27, 2020
Great Support Is Golden (Or a Nice Bbq Brown)
The Fourth of July weekend started in mineur. My Camp Chef Pellet grill finally had arrived via Fedex. However it had suffered a little damage in transit. I hoped the hopper dent was only cosmetic. The assembly had been easy. But unfortunately, the auger had suffered a fatal blow and didn’t turn. No pellets made it to the burn pot.
In the Camp Chef Smokers Smokers Facebook group I had read rave reviews about the Camp Chef support team. It was time to put their support to the test. A few emails back and forth and new hopper assembly was on its way. The interaction had been smooth and response times (given covid-times) acceptable.
Today I heard the Fedex truck arrive and was giddy to get it all fixed. I installed the new hopper and auger and it worked right out of the box as expected. Installation was a breeze with 8 screws. As I write this, a pork butt has been on the smoker for almost seven hours. The picture below is from hour 5. In short while I will wrap it and do the final cook at 295F. I am following Aaron Franklin’s masterclass instructions on this cook.
Pork Butt Hour 5
I don’t know how Camp Chef is handling the costs of fixing shipping issues. Perhaps it is margin or perhaps it is covered by insurance. Nevertheless, the customer references surely are making up for it. Going into this, I knew they were going to make it right.
Protect your brand by handing great customer service. Don’t penny pinch.
July 18, 2020
Saturday Morning Outdoor office
July 18, 2020
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School Tv
California schools rightfully are very cautious to resume in-person classes. My daughter’s high school informed us school will start up again from her bedroom.
The administration has accepted the unanimous recommendation of the COVID-19 Task Force and has determined that the school will open in August in distance learning mode exclusively, with all classes taught remotely.
My son’s university offered an online option as well. I am glad he is not going to the campus in Los Angeles this fall. Many of his friends also opted for the study from home option.
It was good to hear on NPR’s Up First that the Los Angeles School district and teacher’s unions are on-board with online classes. Safety first.
This brings of course the problem that many poorer students do not have access to a computer at home. It may be very difficult for them to take classes from home.
But is that really a problem, or have we not considered all options?
First of all, many people, of all levels in society seem to have access to a smartphone. Hey Google, let’s put out a K-12 Youtube curriculum. Hey Quibi, this may be pivot you have been waiting for: record classes in phone format and offer them for free. Upsell the evening entertainment.
It is true that even if there is a smartphone in the home, it is difficult to share among all kids, or you may not have an unlimited data plan.
Thus, we need a second offering. Let’s put those Youtube curricula on regular over-the-air TV. Let’s repurpose public television to broadcast various grades of K-12 classes.
I grew up on some horrendous school television from the Belgian Radio and Television (BRT). Here’s an example about the Belgian Train System. Even sex education was available via school TV.
We don’t need to wait for Elon Musk’s Starlink for easy internet in remote locations. Let’s just go back old school and tune into channel 9 for today’s class from Ms Gonzales on the difference between ser and estar.
July 14, 2020
Stay Away From La
It is clear our son’s decision to take classes online this fall semester at LMU has been the right choice. When you look at the Covid-19 data for Los Angeles, it is obvious you should not voluntarily go there.
California Covid Cases - July 11, 2020
We need to stay vigilant an keep the curve flattened. The R-value trend is looking promising.
Santa Clara County was early in shutting down the county. We’re slowly opening up the county. The data looks promising.
Sources:
July 11, 2020
Two Bags
It was six a.m. when a white SUV stopped in front of our house. We are located in the middle of the street. The driver opened the trunk and dumped a carseat on the sidewalk. He then calmly drove away. It was a nice and clean looking carseat, discarded on the sidewalk of a suburban street.
Where is the decency? Who does this stuff? Why didn’t you want to take it to Goodwill so another family can use it?
Just before noon, I was heading with almost a year’s worth of recycled aluminum cans towards the recycling place, only a mile or two away from our house. I arrived at 12:01pm and parked the car. The gate was already closed. I walked up with my two plastic bags full of smashed cans towards the security guard.
“Sorry we are closed.”
“I only have two bags.”
I put on my friendly face, but it was hard to tell behind my covid-19 face mask. Perhaps my eyes gave away a friendly demeanor.
“Alright, go ahead. Enjoy your day.”
“You too, have a nice day!
I walked up to the recycling center, still in full swing, as the last customers were emptying their pickup trucks. The foreman of the recycling place saw me coming with my two garbage bags.
“No, no no. We are closed.”
“I only have two quick bags. It will be quick.”
“Sorry, it is 12:15 and we close at 12:00.”
And that’s when I sensed my Michael-Douglas-Falling-Down-mode.
Falling Down
I stayed polite, yet figured the customer is always right. I realize folks want to wrap up their day and go home. Yet, I didn’t show up with a truckload of metal. I showed up a minute after noon, with a meager two garbage bags of crashed coffee and beer cans. I didn’t inconvenience them. It would take them five seconds.
“NO! It is not 12:15pm. It is 12:05pm. I only have two bags. It will take no time.”
All I wanted was breakfast! was the line in the famous movie Falling Down.
Luckily that’s where the reference to the movie ended. He checked with the cashier that it was still alright. Within a minute or so, I was able to unload the bags and collect my $17.35.
A drive-by-litterer and by-the-clock-recycler were not my friends this Saturday morning.
There is a happy ending however to this story. An hour after getting home, a pick up stopped in front of our house. They were in need of a carseat and picked it up.
The world is back in balance.
July 11, 2020
Stevens Creek Reservoir
July 5, 2020
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What Makes an Exciting Sports League
Soccer is slowly starting up again in Europe. However, don’t expect many big surprises. You will see the same few teams dominating their national leagues. It is typically a battle among two or three teams: the usual suspects.
In Germany, my money is on … surprise … Bayern Munich. Bayern Munich won eight of the past ten Bundesliga titles. Borussia Dortmund won the other two in 2011-2012 and 2010-2011 championships.
In France, Paris Saint-Germain won seven titles and left some scraps for Lille, Monaco and Montpellier.
In Spain, the beginning of the season can be exciting when a team from Granada or Malaga can lead La Liga for a few weeks. After that, it is all Barcelona or Madrid. Real Madrid is on its way to win another title, bringing in to three in the past ten years. Barcelona won six titles however, with Atletico Madrid winning one title.
Manchester was home to most of the English Premier League title celebrations in the past ten years, with City taking five, and United, two. London celebrated when Chelsea won two titles. The biggest parties however must have been when underdog Leicester won or perennial loser Liverpool won this year, for the first time in thirty years.
In the Serie A in Italiy, Juventus has won 8 titles and is one its way to win again this year. AC Milan won the other one.
The top positions in each of the national leagues is for only a few very rich teams. The national leagues is just practice for the larger European competition: the Champions League. The Champions League has been largely a Spanish affair in the past ten years.
I advocate to level the playing field for all European teams. Build a broader base of potential winners. Games will be more exciting. The overall quality will go up. The economic winnings will be larger and more divided. When Seville has a shot at winning the title, the economy of that city will flourish. And when the next year, Valencia is doing well, plenty a paella will be served.
One way to achieve this is to mirror the salary cap in many US leagues. Some of them have a hard cap, whereas the NBA has a soft salary cap. Let’s look at the winners from the past ten NBA championships: Toronto Raptors (1), Dallas Mavericks (1), Cleveland Cavaliers (1), Miami Heat (2), San Antonio Spurs (1), Golden State Warriors (3) and the LA Lakers (1). It is a much wider group of teams.
Neymar was transferred from Barcelona to Paris st-Germain for a record 222 million Euros. Manchester City became the first club to spend a billion (!) Euros on its team. The cost of Leicester’s starting eleven that won the 2015-2016 Premier League title was 32 million Euros.
With those differences in transfer sums and squad salaries, you can get lucky and win the title once. That is if your star player remains healthy. The top teams have a bench of top quality players and the depth of their bench is key for winning at the end.
With a salary cap, your star players will be more distributed in the league. You get clusters of great players who bring the team along. In the NBA you can had Michael Jordan - Scotty Pippen, and now Stephen Curry - Klay Thompson, LeBron James - Anthony Davis - Dwight Howard, etc.
The players will still be extremely wealthy. But most importantly, you get a more exciting league where more teams have a shot to win it. Add in a play-off system and it is all a lot more fun.
July 5, 2020
Fourth of July Flank Steak
July 5, 2020
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