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 But according to Robbie Long, service director for the dealer and
nearby Ray Chevrolet, what looked like "great adversity" has turned
into an opportunity.
The hundreds of customers bringing old cars into the family-owned
dealerships leave in clean cars with a bucket of goodies. Some drive
home a newly purchased car.
And the repairs, paid for by GM, are modestly profitable, dealers
say, helping to pay general expenses as well as bringing in
customers who might have been lost.
"In many cases these are customers we haven't seen in a long time or
have never met before," said Long. Although the script is not what
the dealership would have written, GM is delivering sales and
service prospects to her door.
Certainly, there are dangers if the dealer doesn't give good service
or if parts are backed up. Some cars are being called in for more
than one problem, and Long says her dealers are careful to schedule
only one visit per car.
“People just don’t want to see us that often,” she said.
But as of early July, the two dealerships run by brothers Ray and
Mark Scarpelli are humming. Ray's sales were up 13 percent on the
year and Mark's were up 20 percent. GM as a whole posted a 2.5
percent increase in sales in the first half of the year, just a step
behind the industry average of 4.3 percent.
Interviews by Reuters with dealers across the nation found similar
attitudes, for GM, Chrysler and other brands, several of which have
now announced multi-million car recalls.
Don Lee, president of Lee Auto Malls in Maine which has 14
new-vehicle stores, mostly Chrysler and various Japanese brands, as
well as GMC, said recalls provide "an opportunity to look over the
customer’s car at no cost to them," which often leads to more repair
business.
More importantly, he said recalls lead to more sales: he estimates
that 15 percent of new car sales at his Chrysler stores come via the
service department. GM this week said that it had sold 6,600 cars to
customers who traded in vehicles with defective ignition switches.
"Aside from the bad publicity, which is never fun, we welcome
recalls," Lee said.
The General Motors recall offers at least four opportunities for
business: fixing the recalled part, a roughly $250 cost for the
Chevrolet Cobalt ignition switch fix which led the recall wave;
other service and repair work; selling new cars; and, for those
dealers with loaner car fleets, providing transportation to some
waiting customers, paid for by GM.
Several factors have combined to turn what started off as a pure
public relations disaster into a strong sales year for some GM
dealers.
Dealers say GM has responded well to the crisis, with Chief
Executive Mary Barra publicly apologizing for failures and
distancing the "New GM" which emerged from bankruptcy in 2009 from
the "Old GM" which made many of the recalled cars. The automaker has
also benefited from a growing economy, and the highest profile
recalls, for ignition switches, mostly affect discontinued models.
And last but not least, auto recalls have become so common with 29
million cars called in globally by GM and millions more by other
brands, that consumers are suffering from "recall fatigue" and are
not paying attention, dealers say.
"I think perhaps people worry less about the recalls than the
newspapers do," said Herb Chambers, CEO of Herb Chambers Cos, the
14th largest U.S. auto dealership group with dealerships covering
several brands in greater Boston.
NEW HIRES
Rummaging through a box in his office, Mark Scarpelli pulls out
packages containing parts for recalls, including a simple-looking
gray plastic sheaf with a piece of black foam. It is a fix for a
seatbelt in the Chevy Traverse, a large SUV. In a comprehensive
safety review that followed the Cobalt recall, GM found the Traverse
seat belt connector could fatigue and separate over time, and it
recalled the vehicles.
The automaker pays the dealership for 45 minutes of labor to install
the new part, said Scarpelli.
AutoNation, the largest U.S. auto dealership group, had already
planned to hire 400 additional auto technicians for its 273
franchised stores in 15 U.S. states. Because of the GM recall, it
will hire "hundreds" more, said CEO Mike Jackson.
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However, while analysts had expected recalls by GM and other car
companies to boost AutoNation sales and profits, Jackson said the
overall financial impact of the GM recall on his business would be
negligible.
GM's legal liability from the recalls is unclear, although it took a
$400 million charge this week, which could rise, to set up a victims
fund. It has taken $2.5 billion in charges for recalls announced
this year, which is an average of about $85 per vehicle recalled,
although fixes vary in complexity and the labor needed to implement
them. Many of the recalls involve adding a piece of plastic to a
key.
GM declined to discuss recall cost details. The company, which says
it typically repairs 85 percent of cars within two years of a
recall, also pays for campaigns to contact customers, such as
sending a postcard every three months for two years to remind them
their car is part of a recall, managing the fix, and rental cars.
Analysts say the largest share of the cost is labor.
In the case of the Cobalt ignition switch recall, GM pays for 0.6
hour of labor for the ignition switch replacement, and a further 0.9
hour for a related lock cylinder and key replacement, according to
Ray Huffines, owner of the Huffines Auto Group in Lewisville, Texas,
near Dallas.
Labor rates vary by dealer, but at $100 per hour, that would be
$150, with another $89.68 for parts, he said, for a total $240.
Dealers make a profit on the parts and technician labor, and the
work helps pay for other service staff and overhead, Huffines said
by email. A service manager at Raymond Chevrolet put the total cost
of a Cobalt recall fix from his lot at $260 for GM. GM said the
repair took 90 minutes and declined to comment on the cost.
Huffines concluded, "Does the dealer lose money on recalls?
Generally, no. Does the dealer make a very nice profit on recalls?
Generally, no."
The biggest cost to GM, Huffines said, was car rentals offered to
ignition switch recall customers, which could be $1,000 to $2,500.
GM said 83,000 cars had been loaned to customers.
Dealers with their own fleets of service cars love the loaner car
option. Mike Bowsher, co-chairman of the GM Dealers Executive Board
and president of the Carl Black Automotive Group, based in the
Atlanta area, said his four stores sold 10 cars in one week to
people who came in for recall repairs. Some bought the loaner cars.
Meanwhile, his parts and service business has set records three
months running, thanks to the chance to upsell customers who might
otherwise bypass the dealership for repair work. "I would have never
had a shot at that," he said.
RECALLS, THE "NEW NORMAL"
A massive recall by Toyota in 2009 and 2010 had an immediate effect
on the Japanese auto maker's U.S. sales, in contrast to GM this
year.
GM's recalls have come at a time when the economy is healthier, and
the company has benefited from the fact that the recalls linked to
fatalities are from discontinued models, said Kelley Blue Book
senior analyst Karl Brauer.
There may be a bigger issue, as well: recalls have become
commonplace for almost every auto maker, turning into "white noise"
for consumer, say analysts and dealers alike.
Ray Scarpelli said that with all the other recalls from other
automakers, “customers just see this as the new normal."
(Additional reporting by Tim McLaughlin and Jim Forsyth; editing By
Peter Henderson)
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