Category: Auto Industry

car warranties: buy one or just save your money?

Rob Morris 0 Comment Auto Industry, Business, Car Care

“Extended warranties.” “Monthly service plans.” “Repair insurance.” Should you buy some sort of warranty plan to help cover eventual repair costs on your car?

These warranties may be offered by dealers when you buy a car, or they might be offered by independent companies like CarShield or Endurance.

Our customers at lowell’s frequently ask us whether such warranty plans are worth it.

With a few specific exceptions, we think warranty plans are a waste of your money. Here’s why:

Insurance companies are like casinos: The house always wins

Warranties are a form of insurance, and insurance companies are structured like casinos. Like a casino, they’re betting that they will never pay out what you pay in for the warranty. They rig the warranty ‘game’ in their favor to help protect their profit. Based on our experience dealing with a variety of insurance companies, here’s how they rig warranties:

  • Friction. At every turn, warranty companies throw hassle and delay into the process of collecting on your claim. Long customer service wait times. Obscure phone mail menus. Unresponsive representatives. Multi-step, multi-day approval processes. By prolonging and overcomplicating the process, they hope that customers will simply give up before they ever have to pay.
  • Coverage. Warranty companies often severely limit what repairs they will actually cover. For example, they might promise to cover ‘powertrain’ repairs for the engine and transmission. But then they bury loads of exclusions – emissions, exhaust, steering, suspension, electrical components, brakes, etc. – in the fine print. And then, they classify most of the things which regularly go wrong as falling into those excluded categories.
  • Quality. When they will cover a repair, warranty companies often challenge our shop’s part recommendations. When we give them a repair estimate, they will often only pay for cheaper, lower-grade parts. As a shop that prides itself on providing durable, quality repairs, this second-guessing degrades the premium service our customers have come to expect out of lowell’s.

By installing barriers, limiting what they will cover, and sacrificing quality, warranty companies maximize their profit. And they are extremely profitable. That’s how they can afford to run non-stop nationwide  television and radio ads featuring minor celebrities. At most dealers, warranty and financing activities generate more profit than they get from selling cars. (The dealer’s service department also generates more profit than it gets from selling cars. Cars account for the vast majority of overall dealer sales, but the profits on car sales are very slim.)

In their ads, the companies scare prospects with big-ticket repairs that rarely fail (like engines and transmissions). But they don’t tell you that they won’t cover the stuff that most often breaks down.

While our experience is with automotive repair warranties, we think that the same critiques apply to many home warranty plans, like large appliance warranties and HVAC system maintenance plans.

These companies are in the business of making sure you don’t get your money’s worth out of a warranty.

When does insurance make sense?

Insurance makes the most sense when you face a potentially catastrophic risk. We carry auto, health, life, and homeowner’s (or renter’s) insurance because we need to hedge against really awful (and costly) possibilities – a severe illness, a crash, a fire, or a death. (And often we carry that insurance because we are legally required to do so.)

Automotive repair warranties may make sense if there is no other safety net for your vehicle. If, for instance, driving your vehicle is central to your job, or if there is no feasible emergency option to get where you need to go, then you might reasonably consider a warranty.

::

Instead of purchasing an auto repair warranty, we’d recommend that you save that money in some sort of rainy day fund (where it might also accumulate some interest!). Then, you can maintain full control over those funds without a warranty company trying to restrict your access to your money.

Thoughts on Toyota

Rob Morris 1 Comment Auto Industry

You have probably heard about the many recent recalls from Toyota. Toyota's quality problems have received an enormous amount of press coverage.  Today, Akio Toyoda – the grandson of the company's founder – will testify in a congressional investigation into Toyota's response to their quality issues.

If you own a Toyota-made vehicle, you may be concerned about your safety. You might be frustrated with Toyota's lack of clarity around the recalls. 

We share your concern, and wanted to let you know where we stand with regard to the Toyota quality issue. 

ToyotaAs an independent repair shop which exclusively services Toyota, Lexus, and Scion, we feel that Toyota's lack of transparency is frustrating, inexplicable, and, frankly, unacceptable. Anything which hurts Toyota's reputation can damage our business.  

We wish that Toyota had been more forthright about each problem, its extent, and its severity. 

That said, the issues with acceleration, braking, and steering still appear to be extremely rare: Thankfully, we know of no instances where a Lowell's customer has encountered these kinds of problems. 

We don't excuse Toyota for their recent quality problems (or for their poor reaction to them).  

But we do feel that the Toyota story has snowballed into an out-of-control overreaction.  As emotionally-charged stories about Toyota's issues lead the evening news, similar recalls for rare, sometimes-deadly defects from Honda, Hyundai, Ford, and Pontiac have received comparably little press coverage.

Toyota definitely needs to find and eliminate quality problems.  

But we would prefer that such intense media, congressional, and public attention be laser-focused on exponentially larger issues affecting American well-being – such as the many failures of our healthcare system or the loss of millions of jobs in the past two years.

Note to our customers: We at Lowell's have offered our assistance to local dealers in getting recalled cars fixed as quickly as possible. Currently, however, the only way to get a recall issue resolved is to go through a Toyota dealer. 

What you told us: How Zappos would fix cars

Rob Morris 3 Comments Auto Industry, Business, Customer Service, Fun Stuff, Ideas, Lowell's

This week we asked for your help in defining an astoundingly great car repair experience.  We summed it up this way: How would Zappos fix cars?

In Wednesday’s post, we talked a little about what Zappos does and why customers love them, including the famous I Heart Zappos post.  And in the past two days, we’ve gotten some really great responses on Twitter, Facebook, and here on the blog – including one response from a Zappos employee!

Zappos

Over on Facebook, Joan commented that she thought that Zappos was actually the “Lowell’s of selling shoes“.  (We heart Joan.)  We love that sentiment and will try to live up to it, but still think we have a lot to potential to improve our own customer service.

On Twitter, Jim suggested that Zappos “would come to your house and fix it at night while you slept“.  Allan and Mari joked about needing to buy parts online from Amazon (an allusion to Zappos’ recent purchase by Amazon.com).

But the strongest theme running through the comments: The need for greater transparency in auto repair.  I’ll run through some of the comments, and then talk a little about what Lowell’s does (and what we could do based on your comments).  On Twitter, Jupiter said he’d like to prevent that “being had” feeling, perhaps by getting greater detail on what was being repaired and why it was needed.  Ace Weekly chimed in “They would spoon you before giving you the bill?”  Here on the blog, Letha (a Zappos employee) shared a friend’s experience with a body shop which sent her daily text messages about the status of her car after a wreck, including a countdown to when it would be ready.  Jim added this comment:

“The thing the frustrates me about car repair is the unexpected nature
and size of the expense. It would be nice to provide as part of the
service an educational piece that says here are the expected life
cycles for key systems for your car and what you might expect to pay.
And here are indicators of failure so we can start to diagnose these
issues BEFORE they happen. At some point, owners need to start
BUDGETING for system replacement and failure and that takes planning
and information.”

What’s clear from this last batch of comments is that automotive service is all-too-frequently a kind of mysterious ‘black box’ where a car goes in one side and nasty, unpleasant surprises emerge from the other. 

At Lowell’s we try to prevent such surprises in the following ways:

  • On each invoice, we print a list of factory-recommended maintenance given vehicle mileage, including a rating of the severity or urgency of each one, and pricing.  We try to review that list with our customers when they pick up or drop off their vehicle.  We sometimes fail to discuss maintenance needs during busy pick-up and drop-off times.
  • We always get customer approval before doing work on a vehicle, providing customers with estimates of the costs before we do the work.  If they are available, we’ll also offer less-expensive alternatives, like fixing or cleaning a part instead of replacing it.  (Ace, we try to reduce the need for ‘spooning’ whenever possible.)
  • When we call a customer to get approval, we tell them what a technician found and explain why action might be needed.

Based on your comments to us, here are some ideas of what we could do:

  • Explainers.  For frequently-done maintenance and repair service items, we could provide detailed “explainer” sheets, including text and pictures regarding what the service is, why it is needed, and what a part might look like when it needs replacement. 
  • Schedules.  With ongoing maintenance, it is easier to implement Jim’s suggestion
    that we provide more of a roadmap of service.  And we do that, to some extent,
    with our list of factory-recommended maintenance.  But it is very
    difficult to predict with accuracy when something will break and
    require repair, and for many repairs there are few warning signs until
    something breaks.  When visible, we’ll tell customers about signs like
    brake or belt wear or engine leaks.  One idea: We could take pictures of the actual parts that are wearing or of the places that are leaking, to show the thing that needs service.
  • Convenience.  Not sure yet how we might do something like this, but Jim’s other suggestion of working on vehicles overnight is interesting.  Perhaps we could pick a car up and have it back in the morning for very basic items, but a big part of our process is communicating back to customers about what we find (and they probably won’t welcome updates at 2 in the morning).  But Jim’s suggestion got us thinking: Are there other ways we could make getting auto service easier?
  • Updates.  As a mechanical shop, most of our repairs are completed same-day, so we almost never have the 20-day delay in getting completed that Letha’s friend had at the body shop.  But Letha’s post got us thinking: Are there other ways you’d prefer to be contacted?  While the phone is our usual way of updating customers, we do frequently find ourselves in a kind of phone tag during the service approval process.  We could provide more contact alternatives: text messages, Twitter DM’s (direct messages), etc. 

Which of these things would matter to you?  What other things would create an astounding car repair experience for you?

We really appreciate your thoughts, and please, keep giving us ideas on how to improve.

LowellsSquare

How would Zappos fix cars?

Rob Morris 2 Comments Auto Industry, Customer Service, Fun Stuff, Ideas, Lowell's

We spend a lot of time thinking about how to make our shop a better place for our customers and our community.  We feel like we're pretty good at the basics.  Just a few examples:

  • We have an expert staff who know how to get cars fixed.
  • We have a lot of nice touches for customers who wait on their vehicles: 5-cent Cokes, complimentary coupons for a drink and snack at Third Street Stuff, and we encourage customers to take our waiting area magazines with them.
  • For customers who can't wait around, we have a complimentary shuttle to take them back home or to work.  For longer repairs, we provide complimentary loaner vehicles.

These (and many other) touches have helped us a lot.

But "It can always be better" is my personal motto.  This isn't some pessimistic, glass-half-empty statement; it is a fundamental belief that we can always improve the way we do things.

3So we've been thinking about companies that really excel in customer service, and one name keeps popping up: Zappos. 

Zappos is a world-class online shoe and clothing retailer who has gained a fanatical customer following because they do a lot of things right:

  • They offer free shipping (both ways).  While not promised, the shipping is often next-day.
  • They have a 365-day return policy.  If your shoes don't fit or don't look the way you expected, return them at no cost.
  • They have round-the-clock customer service.
  • They have a positive culture which puts a premium on providing astoundingly great customer service and having fun.
  • They have an enthusiastic staff which has permission to make things 'right' for customers with frequent pleasant surprises like this one.

Zappos recently agreed to be acquired by Amazon.com, and there has been a lot of concern about their ability to maintain their unmatched customer service. 

But for us, Zappos presents an interesting question:

How would Zappos fix cars?

What would an astoundingly great car repair experience be like?  Please share your thoughts in the comments below. 

We can't wait to see what you come up with.

UPDATE: What you told us.

LowellsSquare

Lowell’s Bluegrass Vehicle Report

Rob Morris 1 Comment Auto Industry, Bluegrass Vehicle Report, Community, Lowell's, Toyota

Today, we are pleased to release the Bluegrass Vehicle Report 2009.  Using state registration data, Lowell's compiled statistics on vehicles in seven Bluegrass counties.  We've put the results together in a fun and informative format which shows details about the automotive marketplace in and around Lexington.

In addition, Lowell's is releasing Lowell's School Tools.  School Tools is a companion guide to the report which helps teachers, parents, and student create their own fun and interesting findings from the automotive data.  More about School Tools can be found here.

Among the more interesting results from the Report:

  • Toyota is the #1 brand of vehicle in Lexington.  The 33,624 Toyota vehicles on the road put Toyota ahead of both Ford (31,018) and Chevrolet (29,712).  Toyota nameplates are on 15.4% of the cars on the road.
  • A lot of Toyotas.  All of those Toyotas, placed end-to-end, could fill all 4 lanes of New Circle Road, completely encircling Lexington.
  • A lot of gas.  Lexington drivers consumed over 156 million gallons of gasoline in 2008 — more than enough to fill Rupp Arena from floor to ceiling.

You can see all of the results here:

Bluegrass Vehicle Report 2009

View more presentations from Rob.

Or, you can download a PDF of Bluegrass Vehicle Report 2009 (1886.4K).

[where: 111 Mechanic St, Lexington, KY 40507]

Dealership troubles

Rob Morris 0 Comment Auto Industry, Business, Dealerships, Predictions

In January, the Wall Street Journal ran a page one story about the troubles facing two dealerships in southeastern Kentucky.  One of them, Johnny Watkins, had filed for bankruptcy.

At the time, we predicted that there would be a lot more dealership closures in 2009, especially in smaller towns. 

MaysvilleFordAuctionThen, a couple of weeks ago, we received an auction notice to liquidate the assets of Maysville Ford.
 
Why is this happening to dealers in small towns?  There are a few key reasons:

  • There really isn't enough critical mass of car sales to support a dealership in a small town.  So dealers have to draw customers from nearby cities, usually with discounts that squeeze their profitability.
  • The most profitable part of the dealerships come from service to vehicles after the sale.  When out-of-town customers purchase from a small-town dealer, they tend to have their cars serviced somewhere else, as the dealer is too inconvenient for frequent maintenance.  So small-town dealers lack the service customers that larger dealers have.
  • The heavy reliance on car sales (and the lack of substantial service sales) means that small-town dealers are much more sensitive to economic downturns.  As car sales plummet, the service business is what has sustained many big-city dealers.  The smaller dealers just don't have that cushion.

The economic realities of being a dealer in a small town mean that a lot of them won't survive over the next couple of years.

[where: 41056]

Toyota is #1. And will stay there.

Rob Morris 0 Comment Auto Industry, Business, Lowell's, Predictions, Toyota

In 2008, Toyota became the largest carmaker in the world, producing nearly 9 million vehicles.  Toyota surpassed General Motors, who had held that title for 77 years, by over 600,000 vehicles.

As Toyota specialists, we're pleased.  As lifelong fans of GM, we're also a little sad.

Both manufacturers downplayed the significance of Toyota's ascension to the top of the sales charts, which is the culmination of a decades-long steady climb by Toyota and a precipitous drops by GM, especially in the past year.

While GM executives are optimistic about a return to the top spot, the Lowell's Corporate Office of Fearless Predictions says that won't happen.  Toyota will remain #1 for the next 20 years or more.

As we've noted before, GM and the other Detroit automakers have structural disadvantages in their business design relative to Japanese automakers which their executives have been either unwilling or unable to decisively address.

Meanwhile, Toyota has historically invested in new technologies and new capabilities long before the market demanded them, and stood ready to take advantage of sudden shifts in market demand.

Toyota isn't always right — they released their huge 2008 Tundra and Sequoia models right into the teeth of $4 gas — but they almost always put themselves in position to be right.  With gas prices lower, their big models may get some traction, especially against similar GM, Ford, and Dodge models.  When gas prices shoot back up, they can rely on the Prius and their other hybrid models to continue their market gains.

Toyota consistently makes collections of bets which advantage the company relative to its competitors.  When those bets don't work out (witness the Tundra), the Detroit 3 suffers more than Toyota (witness the sudden implosion of Detroit's truck-heavy business).  And the other bets Toyota makes (like hybrid, solar, and electric vehicle techologies) more than compensate for the ones that don't succeed.

That's why Toyota will stay in the top spot.

Dealership Economics: Wall Street Journal Edition

Rob Morris 0 Comment Auto Industry, Blog, Dealerships, Toyota

Here at Under the Hood, we've spent a lot of time analyzing the automotive industry.  You might remember the three-part series about the economics of dealerships (Click here for Part I: Car sales, Part II: Service, and Part III: Toyota) or the entries about the problems of the Big 3. 

Today, The Wall Street Journal has Page 1 profiles of two car dealerships in London, Kentucky (about 75 miles away from us here at Lowell's).  The profiles echo a lot of the themes you've heard here:

  • How the financial fundamentals of dealerships have been deteriorating.
  • How the Big 3 have too many dealerships (look closely at the WSJ "Dealership Decline" chart).
  • The relative strength of Toyota and the Japanese carmakers versus those from Detroit.

My guess: In 2009, we're going to hear a lot more Johnny Watkins-type stories of dealerships going out of business, especially in smaller towns.

[where: London, KY 40507]

Toyota developing a solar car?

Rob Morris 0 Comment Auto Industry, Lowell's, Predictions, Toyota

In another example of Toyota's consistent ability to anticipate the future and develop for it, the Nikkei is reporting that Toyota has a completely solar-powered car in the works. 

This follows similar reports in July showing spy photos of a next-generation 2010 Prius which would help power its hybrid engine with solar panels.

Toyota already exemplifies how a relentlessly innovative company can come to dominate its industry.  It appears poised to continue that domination for a while.

The Big 3: Saving the industry

Rob Morris 0 Comment Auto Industry, Business, Dealerships, The Big 3

As the Big 3 executives have returned to Washington asking for emergency funds with gestures that are both symbolic (driving in hybrids and taking $1 salaries) and substantive (slashing the numbers of dealers and brands), the question remains: Should we bail out (or invest in) the auto industry?

In my last Big 3 post, I said that I couldn't support a bailout.  But that was before the execs got flamed for their corporate jets and came back to congress in hybrids with business plans…  What do I think now?

I'm really disappointed. 

While many of the figures in the business plans are truly staggering (GM plans to fire up to 35,000 employees), my reaction to the plans is this:  Not enough. Not nearly enough.  My criticism flows along three lines of thought: 

  1. There appeared to be no cooperation among the Detroit automakers in drafting their plans, especially with regard to an inspiring "moonshot" style project to create a new generation of vehicles.
  2. There was little to address the huge overhang of retiree obligations which created much of Detroit's disadvantage to begin with.  The labor concessions the UAW appears prepared to accept are minuscule by comparison to the ongoing burden the retirees pose.
  3. The measures outlined in the plans — while aggressive on the surface — offered little in terms of real, structural changes to the way the Big 3 operate.

The current proposals still smack of "life support" rather than a true plan for vibrant growth.

But rather than sit back and take easy potshots at the executives, I thought it might be more productive to outline what I had in mind.  So (using my beloved GM as an example), here is my not-so-modest proposal:

Scale Back the Brands.
GM has proposed scaling back or selling their Hummer, Saab, Saturn and (maybe) Pontiac brands — leaving them with Chevrolet, Buick, GMC, and Cadillac.  That is still 2 brands too many.

They should pour all mainstream car and truck efforts into the Chevy brand and clearly distinguish luxury vehicles with the Cadillac brand.  Just drop the rest.  To paraphrase John Moore, if Pontiac went out of business tomorrow, would any of us really care?  Buick?  GMC?

I can hear the objections: But Pontiac produces iconic performance vehicles like the Firebird and Grand Prix and GTO, right?  Oh, they don't anymore?  I think the nation will be OK without the G6 or the Torrent, as well-made as they might be…  The Buick brand is surprisingly strong in China, but the appropriate Chevy or Cadillac models should be rebadged as appropriate for that market.

Concentrating on two brands would rid GM of the ridiculous 8x duplication they have today in product development and marketing.

(Ford should drop the Mercury brand, and Chrysler should just become "Dodge" and focus exclusively on trucks and minivans.)

Revamp the Dealer Model.
GM's dealer network is broken — too many dealers chasing too few car sales, and doing so in the wrong way.  They've proposed cutting nearly a quarter of their dealers, but they should cut closer to half of them. 

One way to speed the process?  Get rid of dealers who won't accept the following: All dealers must accept a flat pricing model with no typical dealer shell games.  By adopting the major innovation that Saturn offered to the market (and which GM is currently offering through their "Red Tag Event"), GM might be able to offer a competitive difference in the notoriously awful purchase experience.  Doing so may draw buyers back to the showroom.

They'd also begin to align the dealer's interest with that of the customer.  The dealers that still want to use smoke and mirrors to drive their profit?  Get rid of 'em.

Moonshot.
Establish a semi-public National Automotive Technology Institute (or some such entity) with the explicit objective of crafting an inspirational next generation of smarter, more desirable, more fuel-efficient vehicles within the next 3 years. 

Force the Big 3 to contribute their energy and talent to the venture.  Connect the Institute to the best private- and public-sector initiatives on energy, artificial intelligence, and vehicle design. 

Motivate the best and the brightest individuals to develop a true national energy program in which we 1) drastically curtail petroleum use, and thereby 2) stop funding despotic regimes who dislike (or terrorize) America the most: Russia, Venezuela, Iran, and Saudi Arabia.

How to fund this?  Any dollars used to fund continuing operations at the Big 3 must be matched dollar-for-dollar with funds for the Institute.

Scale Down Retirees.
The one problem that there is no real solution for is the retiree obligations.  Both the UAW and Big 3 management colluded for years to create monstrous future pension and health obligations for retirees that both sides knew was untenable. 

They are both to blame.  So they both must pay. 

First, the retirees must accept significant reduction in their benefits.  As painful as that might be, it is better than the alternative of no benefits if the Big 3 go belly up.

Second, the company must meet what remains of its obligations to the retirees.  But everyone knows that they can't afford even a reduced set of obligations.  So, in exchange for a federalization of the retirement programs (as well as in exchange for a cash infusion), the companies must give up a significant chunk of their equity to taxpayers, to ensure that they are an ongoing concern.

As long as they abide by the other elements of this not-so-modest proposal, a public investment in the Big 3 should turn profitable within the decade as Americans (and the rest of the world) come back to attractive, affordable, and fuel-efficient American cars.

Have I been over the top?  Perhaps… But really saving the auto industry will not be accomplished through bland half-measures.

[where: Washington, DC]