Varela spoke with staff reporter Vince Bond Jr. at the NAMAD conference in December about challenges in selling electric vehicles as well as succession planning and how the pandemic has reshaped the retail experience. Here are edited excerpts.
Q: What do you think are the main challenges faced by minority resellers?
A: Right now electric vehicles. Partly because of the cost of playing in this area. Manufacturers have made it very expensive. And it doesn’t matter if you’re selling one car or selling 1,000 cars a month. It’s the same $100,000 to $200,000 to make. It’s wrong. They didn’t come and say, “You know what? The guy who sells 10 cars a month obviously can’t see his ROI as fast as the guy in a metro department store who makes a million dollars a month. He doesn’t care to spend $100,000. What are the guys in your store doing in the aftermarket? Choose not to sell it. The manufacturers didn’t say, “We’ll finance the equipment for you if you want to do it.
Do you think automakers are starting to be more open to more diversity programs since the death of George Floyd?
Yes, you see a lot of interest. Some are better than other manufacturers. The manufacturers therefore give us a lot of words and a little money. Commitment is not there for everyone. Maybe it’s partly because they don’t know what to do. They were unable to hire qualified minorities to guide them through the process. If you look at the OEMs and find out what minorities you have at the higher levels, there are none.
Remember that minorities are a growing population and sooner or later they will be the majority. Their dealerships should reflect the customer base. They need a little more than just throwing money away. When you just give money you think you are doing the right thing, but not always. An organization like NAMAD – an event like this with 800 people here, over 300 dealers here – I don’t even think NADA is having an event where 300 dealers sit in a room at the same time and spend four days together in the same hotel. As a manufacturer, I would have my best employees here. Shoot Jim Farley or Mary Barra. You come here and mingle with these people for 24 hours.
The population of minority resellers is aging and the succession is important. So what do dealerships do if they don’t have a relative interested in the business? Should they find a minority to sell to?
Ultimately, you are looking for green. Who will give you the most green? And that’s been a challenge because minorities, even though we want them to sell to other minorities, selling a dealership is tough. If you can mentor someone, I think we’d like to be able to — mentor someone who can be successful. If they are involved in organizations like NAMAD, we can help them find the candidate. And that will help the number of minorities to continue to grow. In the next few years, a lot of dealers are finally going to say, “You know, I’m going to retire, I don’t have anyone else to do it.” So I want the manufacturers to get this letter from the dealers – sometimes they kind of choose who they want with. They don’t necessarily choose minorities, and they should, because they have that option. There are good manufacturers. Honda did well to require certain dealerships to be sold to minorities.
If a Metro point goes up for sale, I don’t think I can name you a single point that went to a minority. They might say, “We’re going to put a successful minority in there.” We’re going to help fund them”—because $20 million is a lot of money—“and then let’s see what happens”. I told them once that when you developed a new gadget for a vehicle, you could spend $100 million and that gadget never made it to production. A hundred million dollars will buy you a lot of minority dealerships, and they’ll sell your cars. But their thought is “we’ll just give you $5 million and we’ll do our part.” Investing in the minority retail community will pay off.
What advice would you give to a young person who wants to buy a store?
Be prepared to take care of the customer. Because I think the prices are starting to be somewhat set, there’s the service side. You have to be really involved in the technology side, the online sales. So don’t think old fashioned. Step into new technology and step into new things. Show manufacturers that you can market cars, even if for me it becomes less important. They want to control our sales a little more.
What do you think of the development of NAMAD NextGen, a group focused on creating a pipeline of promising candidates for minority dealerships?
I think it’s a very good organization to train future dealers. Things that I maybe took for granted and learned on my own 20 years ago, we put on the table. They really embrace it. Their involvement is good, they are mature and they are growing. When you have a conversation with some of them about the business today, you’re like, “Wow, they understand what’s going on.
You talked about Netflix and how this model could come to automobiles. Where does this reflection come from?
A few years ago you purchased a vehicle equipped with XM radio and came with a one-year, maybe two-year subscription. Today, six months or less. They share this revenue with XM. You start looking at some of the navigation systems and you get two years free and after that if you want you will pay for it. These self-driving vehicles; Chevrolet has Super Cruise. They’ll give you that maybe for three years, after three years if you like it and you get used to it and you get addicted, you pay.
So they are slowly turning to subscription services as car prices are out of control. They have to generate income elsewhere. I imagine with electric vehicles, they’ll end up saying, “Here’s a service for $10.99. You can charge whatever you want.” So I feel like a lot of things are coming in the pipeline. As resellers, we probably need to be more upfront. He’s my client; I should get a percentage of the revenue and not just the manufacturers.
Do you think the large facility requirements are necessary, especially in this new pandemic era where people might not come to stores like before?
I don’t think it’s necessary, especially when a manufacturer tells you and makes you spend money selling online. It does not mean anything. They tell you to spend it — you have to buy this system, you have to train your employees, they want you to deliver it to your doorstep. They speak out of both sides of their mouths.
They want you to do everything online, but at the same time they want you to have a big setup and spend all that money. You gotta have the right carpet, the right tile, the right wall, and I just think I pay five times [more] for those things where I could go to Home Depot, but their demands are tunnel vision, and they have to wake up. As a dealer, I would spend more money on my after-sales service. Have a better store, customer lounge, loaner vehicles and smaller showroom because fewer people are coming there.
I’m talking about General Motors’ new brand for electric vans, BrightDrop. What does this tell you about what automakers are planning for the EV sales format?
I think they want to circumvent franchise systems. They want to make us a drop-shipping facility and a service facility and say, “Here, we’re just going to pay you X amount of money.” So it’s embarrassing for a franchise. Ford started doing it with the Mach-E, and did it a bit with the Maverick where they basically set the prices. So that’s the start. They do it with dealership agreements that bypass franchise systems, but Tesla started it. States haven’t been able to get their hands on it, even though they have laws against it.
Do you feel like your business has changed forever after the pandemic in the way you approach and treat customers?
Dealers have learned that it’s better to look after the customer, not the manufacturer. So that made us raise our level of customer service support and understanding. We will continue that. We may not go back to 100% online sales, but we will have a hybrid where we can make it convenient for the customer. People still like kicking tires. There are still people in credit difficulty who have to come to the store.
We need to cut some expenses as a business; we all know that. We understand that Tesla and Carvana make buying cars a little easier. We’ve been operating the same way for 100 years, so we probably need to find a way to attract better people to our industry. We have to go back to colleges and recruit a guy with a degree in marketing or something and offer him a salary. Change the way we pay our people.
0% interest deals were important when the pandemic hit. Do you think the days are numbered for these types of transactions?
You can already see that they are going up. They go to 1.9, 2.9. These are subsidized rates. It’s a marketing deal. The consumer is now so in tune with this. I think that prevents some consumers from buying it. They don’t pay attention to a $10,000 discount. They just think, “Man, I need that 0 percent.” Such a small percentage can claim it. But they’re bringing people in, so I think you’ll see that kind of fade away in a bit because the rates are going to go up. But if sales slow down a bit, they’re going to have to do something to keep the momentum going.