GMs Letter to Dealers Re:Resale, Service/Parts Growth, CPG Companies Testing the Waters

August 2, 2022
There’s a lot to cover this morning as we dive into a letter from GM to its dealers penalizing resale of hot models. We also talk about the major current and projected growth of the service and parts departments, as well as the moves CPG companies are making to feel out the consumer mentality on value and luxury in the personal care products they are purchasing.
Listen On

GM Dealers receive notice about post-sale guidelines for customers

  • When vehicles are quickly resold, particularly by unauthorized dealers or other resellers that do not adhere to GM's standards, the customer experience suffers and GM's brands are damaged.  As a result, on certain high demand enthusiast products, we are limiting the transferability of certain warranties and barring the seller from placing future sold orders or reservations for certain high demand models (as identified by GM) if the vehicle is resold within the first 12 months of ownership.  
  • Currently, the products impacted by these changes include the following: 23MY Cadillac Escalade-V, Chevrolet Corvette Z06, and GMC HUMMER EV (SUT and SUV).  Certain warranties will not be transferable if the original owner resells the vehicle within one year of delivery.
  • Main issue: Warranty will be voided on sale or transfer of vehicle.
  • Take Away: As the mediator between OEM and customer, dealers MUST educate and lead with empathy when communicating these new guidelines.

Service & parts growth happening due to vehicle age creeping up

  • According to digital marketing agency Hedges & Company the average age of cars in the US  will reach 12.3 years in 2023
  • Houston based Group 1 has seen service and parts sales hit an 14.5% increase over last year on a same-store basis, the largest percentage increase of the publicly traded new-car groups and an 8.4% increase over 2019 pre-pandemic numbers
  • The group is shifting parts and service schedules back to the 4 day work week model they deployed pre-pandemic citing the ability to add more shifts, increase work per bay, make operating hours more convenient for consumers, and increase employee satisfaction
  • Take away: Dealers have most control and opportunity in service, a lot of these best practices don’t require capital injections but process and mindset shifts

CPG companies take blended approach of smaller sizes and premium upgrades

  • Many CPG brands like Unilever, P&G, Pepsi, Hellmans and more are doing what they can to predict what shopping behaviors will be if there is truly a downturn
  • Proctor and Gamble reported that consumers are using up products they have stockpiled over the recession and not restocking
  • Dove soap has introduced smaller sizes of its products and is leaning in on popular search terms like “bar soap” adding “More Moisturizing Than Bar Soap” to the name of its “Dove Beauty Bar Sensitive Skin”
  • In down times, as shoppers make decisions against luxuries like going to the salon, they will often make purchases of more premium self care products and simple pleasures like lipstick and chocolate

SPEAKERS

Kyle Mountsier, Paul Daly


Paul Daly  00:20

Yo, it's Tuesday, August 2, the second day of August, we have some interesting stuff to talk about today. GM wrote a letter to dealers, we'll talk through it service and parts growth and CPG companies testing the waters of consumers.


Kyle Mountsier  00:33

Oh, yes.


Paul Daly  00:36

Is CPG by the way, which stands for consumer packaged goods, Zoomer packaged goods, you know, using acronyms. When I first did some start doing some work with VaynerMedia. And I went, and I didn't know crap about crap. When it came to marketing. I just had a good feel for branding. They were using all these things. And I was like, is there all these terms? I said, Is there any book or something that has all of these in there?


Kyle Mountsier  01:00

said every new entrant to auto as well, right? Absolutely. It's the right like, you gotta put the VIP on the VDP with the SRP track and GA results in the in the GTM. Oh, what I just said doesn't make sense of even if you thought you knew what I was talking about all the fact


Paul Daly  01:23

checkers out there. Like I don't think Kyle knows anything about marketing tech.


Kyle Mountsier  01:27

He's been posted this whole dang time. Oh, man, so much good. So


Paul Daly  01:32

many good things happening. We just came off an early morning podcast interview with Otto leapstart, who has houses that are home based in Israel. So it's fun to like, have a conversation with someone who's at the end of their day now their future. Finally, I finally want to talk to them two days ago, you're gonna get that lottery ticket. That 1.2 billion. We did. You know, we had a conversation yesterday for the auto collabs podcast with Steve Greenfield. And I have to say it was probably one of the they my favorite interviews ever. I will put that up there and I've interviewed a lot of people and there was something so fulfilling about the conversation is number one I didn't know his origin story you're gonna have to listen to you have to listen to Absolutely, we're gonna it's gonna release this week. If you go to auto auto collabs co ll abs.com. It'll it'll link you up to all your platforms where you just search it on Spotify or iTunes and we talked about Steve greenfields origin story,


Kyle Mountsier  02:28

like like the like, just to toss this out there. Steve green, spoiler straight Steve Greenfield was the originator of the pyramid scheme in auto. Like, I'm gonna throw that out.


Paul Daly  02:43

Oh, man, that's gotta make some good cut right there. So you have to listen to it. Not only is it fun, listen to his origin story. But he is one of the most insightful people and the most thoughtful people that when it comes to what is over the horizon, his automotive ventures, auto Intel report is outstanding. It dropped this morning, you can get an automotive ventures.com Not sponsored at all. Just we really want more people to read it, because it's good for everybody. And so we'll talk about that as well. But yeah, just had me, you know, that podcast, this one. I'm just so excited that we're getting to talk to all of these people like rapid fire because of soda con is coming up. And a lot of these people are going to be at a soda con in person. And it's just spurring on this level of conversation. I've literally never had this many conversations around automotive, and that might be hard to believe ever at this velocity in my life.


Kyle Mountsier  03:35

It's super fun, because I even you know, as you have, and this is what I love about what we're doing with the Soto con, as you have conversations, and people ask questions, being okay, like having here's the here's the ground stuff, this is the stuff that I fully believe in. And that I know and that I've like I've decided on. But then there are things that even as we have conversations were like, Oh, that's a recontextualization of that that we might need to consider. And so like all of these podcasts, all these conversations, the texts, the conversations is like, hey, there's a new consideration. Yeah, we probably need to bring that into the fold. Oh, there's a new way to look at that. And it's been encouraging to me to just like personally, just literally personally, not even as as an associate partner is just, hey, I'm having just these reinvigorated thoughts around how we encourage and energize the entire end industry.


Paul Daly  04:31

Absolute and it's in the momentum is building if you if you don't have tickets, and you can be there auto auto so to con.com We have a lot of links these days. So to conduct calm, we still have tickets left. We hope you will join us September 11 through the 13th. And even if you can't attend the whole conference, even if you just work at a dealership and you're not like manager level where they'll send you to a conference, we're doing a Monday night event that is free for anyone in automotive is going to have entertainment and a band and if you work in at the warship we're letting you in for free. So if you want to drive in, fly in, walk in, however you want to get there, you'll be our guest for the night as the whole industry gets to do something together, regardless of whether or not you can pay or get the time off to go to the conference. Let's get into some


Kyle Mountsier  05:15

news. Let's get into the show. And then there's, we'll just say that there are some ruffled feathers around the automotive industry, right?


Paul Daly  05:26

It'd be, that'd be funny if you could walk around the industry and you could have a visual identification of who has their feathers ruffled. Or just like some ruffled feathers, because they'd be everywhere.


Kyle Mountsier  05:37

They'd be literally everywhere. So GM last Friday actually sent a notice to all of their dealers, that in just a couple of days, they'd be receiving more post sale guidelines that they're going to have to pop pass on to consumers. And there was a little bit of question on exactly what those post sale guidelines were going to be. In, in a letter to the to all of those GM dealers. The The company stated that can I


Paul Daly  06:08

just say something I've always wanted to say this. A SOTU has obtained a copy of the letter. Okay, I just thought I wanted to say that.


Kyle Mountsier  06:17

So essentially, what originally came out was just Hey, there, there are going to be, they're going to be barring and limiting on certain warranties and changing the ability for people to sell vehicles post sale from the originating dealer. And that what they're trying to do here that, in their words, these changes are being implemented to ensure an exemplary customer experience to ensure our brands remain strong. And to help prioritize ownership by brand enthusiast and loyal customers. These changes would not impact product recalls in any way. So the products that are being impacted by changes that we just found out yesterday, exactly what those changes are, are the 23 year, Cadillac Escalade V, the Chevy Corvette Corvette 06, and the GMC Hummer EV both the SU T and the SUV. So what came out yesterday, and what we just shown on the screen, and we can throw it up, again, is the note that on these particular vehicles, these three model lines, that if a vehicle is resold in the very first year, now this is not to the dealers, this is to the actual customer, if the vehicle is sold in the first year, they would not be eligible in the future, to place reservations on models that come out. So now you're barred from ever doing that, again, with the with the brand, you the vehicle will be stripped of its bumper to bumper warranty, not including the battery warranties, but including everything else, I like to the battery, the battery stays included, so the battery stays included, but everything else is not included. What's really interesting. And then the last they want the battery back is that a lot of consumer rewards are wrapped into some of these vehicles. And so up to $5,000, in in like rewards points would also be stripped of your GM account. So it's like, hey, look, these are special products, you should hang on to this thing. But if for some reason you don't, we're gonna penalize that out of you. That's a tricky issue.


Paul Daly  08:18

It is a tricky, tricky place to be for GM and for dealers, because they're trying to keep the products accessible, because nobody likes it when there's a product that's supposed to be available to everyone. And then, you know, just people with deep pockets come in and monopolize the inventory, right? And GM is looking at that be like that is bad for the brand. We want someone to own this car, who wants to own the car, not someone who is actually just looking to flip for a profit, really just changing the whole demographic of who can even get in the car and well who it's intended for. So a very unconventional and first ever move by a manufacturer to limit resale of a vehicle. And then they put the dealer in the position where they need to do it, you know, but my hunch is this is that anyone who actually wants the vehicle and is actually excited about the vehicle is going to have no problem signing that document, if anything,


Kyle Mountsier  09:16

but but here's here's the here's the problem. So yes, I agree if you address more than one vehicle, but the major problem for me here is this is this right? That I go by a 06 and have zero kids in the house. Right? And then all of the sudden my family gets pregnant.


Paul Daly  09:42

So hypothetical, this is fully hypothetical examples like


Kyle Mountsier  09:46

never happens, reasons why you would need to change your trajectory change any life event, right change your job, change your family, anything like that. And all of a sudden nine months into that vehicle ownership, you've got to get rid of that car to get into another vehicle. Now what is going to happen because you've had a life event, you're now bound, bound in captivity by the fact that that GM was trying to manage profitability and manage brand. And now you can't actually pass on the warranty to the next person without waiting another. You know how I


Paul Daly  10:18

have long that I haven't fix, I have a fix for that problem. Go just just put a salary cap on that sucker. You can't sell for more than you paid for it. Easy, there it is, or a percentage over right. You can sell it for more than like, say 8% over because maybe the value goes up a little bit, but whatever's going to offset the sales tax in the states that have it like GM. Are you listening? You should do that right now, actually, because that'll fix Kyle's problem that he presented. Alright, what other problems? What other problems? Well, no, but that's real. It's so odd to you don't What else do you buy with handcuffs? Nothing. I can't think of a single thing. Nothing. I can't think of a single question I think we're making


Kyle Mountsier  10:58

this is what's crazy people make livings all over the place. I mean, this is what eBay is for. buying cheap selling high. Right? That's what NF T's are for. Nf T's are for I worked for. That's what the market does is you try and buy cheap sell high


Paul Daly  11:14

market demand. Yeah. But that's an interesting like a hardship and who wants to have to apply for like some kind of hardship exemption, like you feel like, oof. And so for dealers, I think just like any situation that is complex to communicate about, I do think this presents dealers with an option to increase the depth of their relationship with their customers. Every time something is challenging, guess what, if you lean in lead with empathy, listen, communicate? Well, I think you're on the winning side of it. And I think you know, the vehicles that were mentioned, you're going to have aside from the people that are just in it, to flip it, the people that are actually in it to drive it, I think it's actually a pretty, pretty smooth conversation. And if anything else, it'll it'll get some conversation going in some way.


Kyle Mountsier  11:57

And some people might even appreciate it, right? Because they, they want the vehicle value to stay high, and the brand of the stay strong. And all of those things that like if they're owning the vehicle, they want the same thing that the brand wants out of that vehicle ownership experience. Speaking of ownership, experience, segue that was coming. That just hit me right in the face. And I was like, yes, here we go. So reports are coming out that service and parts growth is happening. I mean, we know that this is happening because of like, people traveling more and things like that. But that vehicle age, creeping up due to inability to trade out of vehicles and find new vehicles is an important factor to the parts and service growth and affordability. Right, right and affordability matrix. So people are trying to keep their cars on the road longer. Actually, I was talking to a dealer just this weekend that their Toyota store or no sorry, their Nissan store. That is a pretty large store. I think they have like somewhere in like 13 to 15 Bay range and it's no no job, nothing to write not write home about. And they are out six weeks, six weeks. Dad's, you know, you know, Jason Newton, right? Yeah. Oh, yeah. Six weeks on their service base, right. Like you can't schedule to get your knees on service for six weeks. Wow. So according to digital marketing agency hedges and Company, the average age of new cars in the US will reach to 12.3 years in 2023, which is a significant increase over when when vehicles have mostly been in that like 10 to 12 year range as far as the average age of vehicles on the road. So groups are seeing a ton of increase in service and parts revenue. People are keeping vehicles, which means the older vehicles get the more work they need to get done out of warranty. And and people are starting to travel again, which means demand on the service side is also high higher than ever.


Paul Daly  14:05

Yeah, you've heard of group one right? Houston base group, one auto, one of the six Publix. They've actually seen service and parts sales up 14.5% year over year, and you're like, Okay, well, that same store numbers. But here's the kicker for me. They're up eight and a half percent from 2019. Like pre pandemic levels, showing a major major jump. This is more than just rebound traffic. And so they're actually shifting their parts and schedule services back to a four day workweek Model B before the pandemic we were hearing so much across HR conversations and service efficiency conversations about this four day work week where Tech's work for 10s and what that actually does is frees up more capacity. You can add shifts, because now you only have people in the store for four it really is about body count and Bay count. And so they're shifting back to four day workweeks are opening up more shifts. If, which means more bass bass, and also they said, it's opening up broader service hours, which makes consumers happy. So like they're responding to the service. And what I love about this whole movement. Service is something that is dealers can control.


Kyle Mountsier  15:17

That is a control the controllables, without a doubt, you know, just back to Steve Greenfield yesterday, and the Congress, all roads lead back, all roads lead back is is him and his dealer front is looking particularly for companies that are working on hiring, retaining, training and creating efficiencies within the service department. So, top dealers in the country are saying, like, we need help with this, this is a reality, this is going to be your reality long into the future. And especially in any level, any level of direct to consumer model. This is the control your controllers like this is actually what, like, I have everything that Jim Farley is saying he's saying, We can't handle the service side of things. Yes, that is absolutely necessary to have dealers in. So understanding how to hire, retain, train, and create efficiencies in the service and parts department, in my opinion is like top of the list, because that also speaks to customer lifecycle, and Rando,


Paul Daly  16:17

everything ever drives everything, it drives everything, and it doesn't take, like if you're gonna go and like do the work to shift schedules, and it's different. Yes, but everybody seems happy with it, the employees are happy with it, the consumers are happy with the p&l is happy with it. So why would you not do a little bit of work to see if you can squeeze some or restructure to do that. And also, it doesn't require any additional capital investment, right? You don't need to build a new building, buy a bunch of new equipment. It's like with the stuff you have with the space you have with the equipment you have. This is how you can squeeze more out of that orange. Last story here. We only have a couple minutes left CPG companies remember what is the stand for consumer packaged goods? Very good, very good. They're taking a blended approach of offering smaller sizes, and also premium upgrades to existing products because behaviors are changing. Many brands like Unilever, Procter and Gamble, Pepsi, Hellman's. They're, they're paying attention to what shopping behaviors are doing, because we're not in a recession. But they're like, what is the behavior going to do? If we do go into a deep recession? What is it going to happen? Like, how are people responding? And so they're saying consumers are buying less because they're using up stashes that they had from the pandemic, and they're not restocking them. They also are paying attention to I thought this was super savvy. Some words that people are searching like bar soap, right bar soap is cheaper tap technically are typically than like a body wash. So they dove has introduced smaller sizes of its product. And literally in the name of the product is now it says more moisturizing than bar soap. So when people search it, they'll actually get the name of the product. I mean, and the other the flip side of this is the fact that people who are now saying no to spa appointments, no to facials, and things like that are willing to splurge on some more premium products. So they're starting to up the premium products as well. So it's like this weird dichotomy of like smaller sizes of existing products, and more premium products on the market to what they call get this the lipstick effect, meaning when you don't have time or money for what would be considered luxuries in life, while you're willing to spend a little bit of money on some simple pleasures like lipstick, chocolate, things like that. So talking about consumer mindset shifting, and like what consumer goods, services are doing, like, what does this tell you about the consumer? Right? It tells you that they're approaching the approach angle. That's something we've been saying lately, the approach angle is a little bit different. Right. So there's no one approach.


Kyle Mountsier  18:51

There is like so much.


Paul Daly  18:54

I know. I know. I know, we have to go into another podcast right now. And Michael Cirilo is waiting for us at this point at 9:01am. We're recording this, we have to come back to this story. I got to


Kyle Mountsier  19:06

come back to that because there's so many dynamics in like how you approach the consumer and how you recognize like trends on the other industries that impact the way that you market your industry, right? Like, just just recognizing that this industry is doing x means you should be potentially doing why because consumers are like, saying, like, find Google Trends and understand the way consumers are shopping, and listening and asking questions, and then answer those questions in your industry. Because your industry is relatable within their like, within all of the ecosystem of their purchasing decisions.


Paul Daly  19:46

I think I'm just gonna cue the music there because that's a great spot to end. Look, read the show notes, you put links to all the articles inside those. If you haven't gotten the show to con tickets, get those and we're releasing more episodes of the auto collabs podcast this week.