FLEMINGTON, N.J. — Steve Kalafer makes documentary films. He's working on one about Volkswagen's diesel emissions scandal, Backfire: The Volkswagen Fraud of the Century. He also is the founding chairman of Flemington Car & Truck Country Family of Dealerships in Flemington, N.J., about 60 miles west of New York City. The group's eight rooftops sell 16 brands, including VW, retailing about 18,000 vehicles a year.
Kalafer, 67, bluntly denounces some automaker practices, such as stair-step incentive programs. Last year, he sold a profitable Nissan dealership he had owned for 36 years, citing among other problems "the complexity of doing business with them."
Staff Reporter Jennifer Vuong interviewed Kalafer in May at his Ditschman/Flemington Ford-Lincoln dealership here.
Q: How do you see sales this year?
A: We're in for a very tough time. Manufacturers have overproduced, as they always do. They defer reality. The incentives are becoming gigantic. The inventories are backing up. The other shoe has to drop. We just don't know if it's going to be the right shoe or the left shoe.
So how do you cope?
Our greatest hedge against a market that is decreasing is our consistency, the people that we work with, our customer satisfaction ratings.
We are one of eight dealers in Porsche to be an elite dealer. We're one of the very few that are Audi elite. We won the Volkswagen highest customer satisfaction award. We're one of 20 in the nation to win the top Infiniti award. We're a President's Award winner for Ford and Lincoln. And Honda. I might have missed a couple of other awards, but that's our hedge: consistent delivery of quality to our customers.
There will be good years and bad years. We always beat the market. All we ever want to do is beat the market.
What is the biggest problem with the automakers?
The biggest issue today is they've really lost their contact with their customer. A lot of dealerships say the dealerships are the [automaker's] customer. They are the closest, the very closest, contact that these manufacturers have.
The best, most solid manufacturer who goes to market in a consistent way is Honda. They sell the dealer the car. The dealer sells it without stair-step programs, without these false programs. And let me explain, these programs are without question, false. All they are doing is trying to control — from Detroit, Munich or Tokyo — their distribution system to the nth degree. They are destroying themselves. Armageddon is going to come for these companies. They just don't know when. And they will blame the dealers for it.
Why did you sell your Nissan store?
In every business, you have to determine who you want to go to market with. Nissan [has] very high-quality product, as good as any other.
I found the complexity of doing business with them, the inconsistency of the way they go to market, their thought process, and their disregard for the retail dealers, something that was not for me.
I'm rooting for them to find their way. Sales gains of 10 percent — [that is] going to come back to haunt them. Fleet, fleet, fleet. When the manufacturer has a pretax margin that is 5 to 8 times the margin of their retailer, there's an imbalance. When that imbalance becomes so great, the same thing happens that always happens in every cycle.
Have you communicated with Nissan North America Chairman Jose Munoz?
I'm also an Infiniti dealer. I have communicated with Jose — in person, at an Infiniti meeting. When I looked at the slides and saw that the same thing was happening with Infiniti that happened with Nissan, I voiced my concern about it. I told him, "I sold my Nissan dealership." His response was, "Good." He had no concern at all.
What you're seeing across the country is, Nissan dealers — very well-known Nissan dealers — are saying, ["No more."]
Is there too much pressure with factory incentive programs?
Stair-step programs are nothing more than a replacement of the margin that was [taken back] by the manufacturers. They're not bonuses. What they are saying is, "You do exactly what we tell you to do. You do it on the day and the month, and sometimes in the 10-day period, then you will have the opportunity to make up margin that was historically taken away.
But some dealers think incentives help their business.
An incentive by its nature is something to have you do better than you would normally do. These are called incentives. What they are, are margin destroyers. They are brand-reputation destroyers. And it simply has gotten to the extent where somebody in the corner office — I don't care if it's the corner office in Germany or Detroit — somebody who only as a matrix of a budget, says this is how we can do it.
Has the value of your VW store improved now that there is a U.S. settlement over diesels?
The value of Volkswagen dealerships I've gone through five cycles of Volkswagen. Everybody in the U.S. is afraid of headquarters and so people just keep running into each other, making sure they make the same mistakes.
Will the Volkswagen value of a franchise improve? Only if they improve. Product? Excellent. Wonderful. People want it. The new Atlas? Competing against everything. But guess what? It's all in the execution. And it just appears they execute themselves.
Would you buy another VW store?
If VW had an opportunity that they thought I should look at, I certainly would.
Now that VW can sell repaired 2015 U.S. diesels, are customers coming back?
There was a bonanza for the diesel buyers and I'm happy for them. People want their diesels. They liked their diesels. I predict there will be an absolute shortage of diesels going forward. But the customers will know what they're buying and what matters is the truth.
Talk about your VW documentary.
I just returned from the Cannes Film Festival, and I can assure you that there is a lot of interest in Backfire: The Volkswagen Fraud of the Century [which is still in production with an undetermined release date]. But I'm unable to say anything further at this time.
Why did you want to tell the VW story, especially as a dealer?
The films that I make are really stories of social significance. People ask me, why would I make a film that might hurt me? It never occurred to me that it would hurt me. I don't want to hurt anybody. I just want to tell the truth. And if people don't tell the truth, what's going to happen in the future? So I think stories need to be told. And quite frankly, I'm very proud that we're doing it. And I'm very proud that we are not afraid of any manufacturer when they are doing something wrong.
This seems to go to the core of the automaker-dealer relationship.
When [car manufacturers] are subjected to public scrutiny — whether from a dealer, a consumer, a government agency — the truth has to be told. Just go back to the GM ignition switch. That was discovered by dealers. Dealers said there was something wrong. Can you imagine if General Motors was the manufacturer and retailer of the product? When would that have started?
The reason why there are franchise laws — and the car manufacturers [say,] "It's just a bunch of rich car dealers who want it their own way" — was to protect the consumer from the sole sourcing and sole say of a manufacturer. When you have that dealer in between, you really are protecting the consumer from a car manufacturer's unintended worst instincts.
You take stands against manufacturers but seem like an affable person. How does that work?
I've been in the business for 41 years. I have gone through recessions, money crises, product failures of every manufacturer that I represent. And the one thing I always did, I stood behind them. I never abandoned them.
This is not an indictment of them. They are all good people. But they can put you on voicemail. They can call you back three days later. A road rep doesn't hear the customer burning. We do. Every day. We live or we die by looking that customer in the eye and taking care of their needs. This is what I keep trying to tell the car manufacturers.
What keeps you going?
First and foremost are our customers and the people we work with.
I am thankful for the 41 years in business. It gave me the opportunities to produce films on topics that are socially important to me. It gave me the opportunity to found a baseball team. Can you imagine? When I was growing up, I wanted to own the New York Yankees. Well, somebody else got there ahead of me, but our family owns the Somerset Patriots — the six-time Atlantic League champions.
Any advice to dealers who face difficult relationships with manufacturers?
Here's what I tell every dealer. Every time you capitulate, every time you just say yes to something that is really hurtful to your business — a manufacturer's [facilities] upgrade, something that's just ridiculous — because you think they are going to take care of you tomorrow, I can tell you one thing: You're writing your warrant for bankruptcy.
Can a young person out of college become a dealer these days?
This business is so changed. I started 41 years ago. This year I spent more money on light bulbs in my dealerships than it cost me to go into business. The opportunity that I had and was able to maximize, sadly, really does not exist today.
The mom-and-pop days, they survived the last 20 years. My fear for them is not that they're not competent. Not that they can't do the job. But the manufacturers are crushing them.
Anything you'd like to add?
Yes. I so respect the manufacturers that I represent that I want them to do better. Because when they do better, we do better. I don't want anything thought that there's anger or angst toward them. I'm simply trying to protect them from themselves. And they do need protection.