GM shops on front lines of handling recall crisis

Arkansas auto dealers are doing what they can to battle a negative perception and customer fears generated by recalls of millions of General Motors Co. vehicles.

Responsibility for interacting with vehicle owners falls on the dealerships, putting them in the position of intermediary between customers and the automaker. Service departments have been flooded with calls -- one dealership reported more than 400 the day after the latest GM recalls were announced.

Dealers said GM has been very involved in identifying owners of affected vehicles and then relaying that to local sellers. Renee Robinson-Durham, general manager at Harry Robinson GMC dealership in Fort Smith, said the number of calls regarding the recalls has led to talk of adding employees.

"You can't control what happens with the manufacturer, but you can control how you handle it for the customer," Robinson-Durham said. "We're definitely experiencing a higher volume of phone calls during an already busy service department season. We want to make sure we're handling the best we can."

Ideally, that means dealerships will not wait for customers to show up with problems. Dealers throughout the state spoke of the importance of contacting customers and being proactive.

Some of the affected vehicles date back to 1997 and the total number of recalls this year is more than 28 million. Primarily the problems have been traced to faulty ignition switches, though the company has said there is not conclusive evidence that the defaults have led to deaths. Recall-related expenses are expected to top $1 billion, the company has said.

Dealers are being paid to service the vehicles, which means more revenue, but at times also creates a backlog of service work. That's why being proactive -- and providing loaner cars to accommodate customers -- has been so important to dealerships dealing with the recalls.

"We've been making courtesy calls to our customers to tell them when a recall is available," said Tim Hall, general manager of Landers Chevrolet in Benton. "We are really proactive on our end, trying to communicate with as many as we could."

A more proactive approach would have benefited GM in this case and previously, said Warren Stone, a professor of strategic management at the University of Arkansas at Little Rock.

GM's handling of the recall is similar to problems the carmaker has faced all the way back to the 1950s -- mainly its failure to deal with problems and competitors until forced to do so, Stone said.

"They ignored the VW Beetle, they ignored the Japanese, and they ignored this problem," he said. "Now this is a major setback."

Stone pointed to Toyota as a positive example of managing a recall for its handling of perhaps even worse publicity several years ago from a series of recalls. That company eventually stepped forward and said it had a major quality-control problem, vowed to fix it and made good on that promise. Toyota recalled millions of vehicles in 2009 and 2010, taking an initial hit in terms of customer confidence. Since then, the manufacturer rebounded and is poised for a fiscal year profit of $9.3 billion, proof that minimizing long-term damage is possible.

GM tried to ignore the problem with its vehicles until the company couldn't ignore it anymore, Stone said, and only then moved to a strategy that was more open and transparent.

"It makes them look dishonest," he said.

Despite the national attention from the GM recalls, customer confidence doesn't seem to be substantially shaken. State dealers reported little drop-off in sales this year, even for GM-specific vehicles.

Fran Cavenaugh of Cavenaugh Motors in northeast Arkansas and president of the Arkansas Independent Automobile Dealers Association, said that aside from increased call volume, there had been "no real impact." There has been no noticeable dip in GM-related sales, she said. Hall said the Landers Chevrolet dealership has sold close to 2,000 used and new vehicles for the first half of the year, putting it ahead of 2013.

GM sales across the country were up 1 percent compared with last year, according to a company release Tuesday. There were two fewer selling days in June 2014 and when figures are adjusted to compensate, GM's total sales were up 9 percent compared with June of 2013.

The seasonally adjusted annual selling rate for GM's light vehicles in June was estimated at 16.6 million units, beating the 16 million mark for four months straight. The estimated seasonally adjusted annual selling rate for the first half of the year was 16.1 million, within GM's forecast of 16 million to 16.5 million for the full year.

According to the National Auto Dealers Association's Market Beat, in June GM held the largest market share of all U.S. light-vehicle sales at 17.9 percent.

David Gilliam, assistant professor of marketing at the University of Arkansas at Little Rock, said it's hard to gauge the public's reaction based only on GM's recent sales, noting car sales in general are up across the board. Dealers, he said, must deal directly with their customers when they take vehicles in for service, and be sympathetic and helpful on a person-to-person basis while not breaking ranks with the national brand.

"You have to own the problem," Gilliam said.

Martin Thoma, a principal at Little Rock-based Thoma Thoma, a brand leadership firm, and author of Branding Like the Big Boys, said the state's GM dealerships have a two-pronged task -- defend the national brand while reinforcing the dealership's brand to its established customers.

"They need to take the bull by the horns," Thoma said. "The dealerships need to manage their own brands."

Thoma said by making the recall process as smooth and hassle-free as possible, dealers can minimize the damage caused by GM's earlier actions. Thoma added the recalls will give the dealers a chance to express confidence in the direction GM is moving, noting current leadership seems determined to deal with quality issues and to do it openly.

Recalls in and of themselves are not necessarily bad for brands over the long haul, Thoma said. Some research indicates that after a recall, some brands have gained even more ground, he said, but GM has a lot of damage control to do. In the meantime, dealers can best mitigate damage by being proactive, Thoma said.

"They do have an opportunity to tell their customers they believe in the long-term viability of the company," Thoma said.

While industry veteran Frank Fletcher no longer owns a GM dealership, he understands what competitors are experiencing. Consumer confidence took a dip during the Toyota recalls and Fletcher, who noted GM trade-ins have tripled at his lots in recent months, said it takes time to rebound. Long-term damage isn't guaranteed, but it's a real possibility.

"Publicity might die down, but that doesn't mean the loyalty somebody built up over the years comes right back," Fletcher said. "I feel sorry for the individual dealerships. You've got to make a living. We've all been through this."

Business on 07/05/2014

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