AutoNation CEO Mike Jackson is raising "yellow flags" about the industry's increasing reliance on incentives and leasing to sustain U.S. auto sales.
Citing a February incentive bump of 14 percent and leasing penetration rates topping 30 percent, Jackson worries that retailers and automakers are trying to maintain sales volume "that really isn't there."
I share his concern, and I would add long-term auto loans and heavy fleet volume to the mix.
But what really alarms me?
Faking new-vehicle sales. Reporting as "sold" new vehicles that stay on the lot as service loaners, rentals, demos or "executive" cars. Vehicles quickly resold as used at big discounts, with little or no mileage.
I'm not talking about normal demos and service loaners that see significant use before being resold.
Every calendar year, there's a discrepancy between reported U.S. sales and registrations, averaging 128,000 annually between 2005 and 2014. But in 2015, that jumped to 286,832. That's a lot of, ahem, service loaners.
Call it car punching. Call it fuzzy sales. It's probably not illegal. I'm sure some automaker can trot out a business plan showing it makes financial sense and is legit.
Car punching is still a bad habit.
And automakers should knock it off. Especially in a market still rising.
There are drawbacks to overdoing incentives, leasing, long loans and dumping unwanted vehicles into rental fleets. But the results are fairly predictable. Excessive leases or rental cars become gluts of returning used cars. Big spiffs crush profits. Long loan buyers stay out of the market longer.
But fake sales are toxic. Like acid, they slowly eat away at brands.
If at month end, an automaker pressures dealers to self-register several new vehicles -- as service loaners, demos, dealer rentals or dealer employee short-leases -- that may boost "sales" that month.
But it's a bad deal all around. The dealer's factory cash may not cover losses on discounted "used" cars. The factory pulled that bonus from other marketing funds -- or profits.
Meanwhile, the "one-time" deal erodes automakers' relationship with dealers and dealership employees.
And secret discounts on zero-mile used cars breed consumer disrespect for a brand's value proposition.
The intangibles may be worse. Brands with big fake sales lose respect from dealers, dealer personnel, reviewers and enthusiasts, the folks most vital to business success.
And once started, fake sales keep growing. Dealers know. Self register five cars in February and next year's factory quota will be actual sales plus the five fakes plus growth. So maybe 10 fakes next time around?
I've seen fake sales before in Europe. It once was an open secret that Fiat dealers were awash in "zero-kilometer used" -- self-registering cars every month to meet factory quotas, ratcheting up each lap around the calendar.
When he took over as CEO, Sergio Marchionne put a stop to it. Fiat's reported sales plummeted during the unwind and its finances got wobbly, but the bleeding stopped.
Car punching is a vicious circle. Punching harms margins -- automakers pay more for spiffs, dealers both get less on each sale and are forced to sell the deal rather than the product. In turn, automakers have less cash for future product and/or marketing and dealers make less.
Customers learn to expect steep discounts on fictional "used" cars. Full-price buyers may recognize that they subsidized the bargain hunters. Either way, brand image suffers.
The only way to avoid more damage to brands and dealers from car punching is to quit. Who has the long-view gumption to do so?
You may email Jesse Snyder at [email protected].
