Of Car Dealers and Bathroom Tissue

17 08 2010

Is there anything as mysterious as the price of a car, especially a new one?  I’ve heard the various prices so much, long ago, that I’ve pretty much blocked them out of my mind.  There is the sticker price, dealer cost, factory invoice cost, blah, blah…blah, blah, blah.

Sooner or later the dreaded haggling begins.  I’ve heard that the buyer should always have the seller make the first offer.  I don’t think it matters.  I think the last time I bought a car I scrounged about on Kelly Blue Book’s web site, which has dealer suggested retail, private party (for used) and trade in values or something like that.  I figured if I could get the private party price from the dealer I’m doing well.  I set a price in my head and once the dealer gets to that point I’m ready to go.  You do have to be willing to walk away.  Actually, I don’t think I’ve ever given a “bid”, now that I think of it.

At Michaels, we’ve had several proposals for engineering services in the past year where prospective clients have asked for “discounts” if we were to get all parts of a multi-part request for proposals.  Or maybe they want a discount if the contract is extended from three to five years.  For one we even had to provide the salaries we pay our people and overhead factor so they can essentially negotiate a profit – not negotiate the price but the profit!  Personally, I don’t really care how much profit the seller makes.  I don’t care if he’s losing money.  I don’t care if he’s making 50% profit.  What am I getting for my money from dude #1 versus dude #2, is the question.

When I bought the Acura seven years ago, the price was practically the same as a Chevy Monte Carlo, depending on options.  Are you kidding me, I thought?  Chevrolet was probably making less profit margin (if any at all) than Acura/Honda but am I going to buy the kludge because they have a 1% margin, or my car for probably 10% margin?  It took two or three offers and Zimbrick Acura met my strike price and I was off and driving.  Like my previous car, a Mazda I bought in 1990 and drove for 14 years, the Acura has never seen the dealer again.

We have a modest profit built into our hourly rates.  We are not car dealers with a manufacturer’s suggested retail billing rate that that would be 10% more than the price it takes to make a decent profit.  Or, it isn’t like summer apparel come August and we can clear it out by chopping prices in half to make room for fall/winter stuff.

Here’s the problem with the “discount” – it isn’t equitable.  (I hate “fair” because it’s too often used by whiners).  You may remember 20-30 years ago, there was no such thing as the double or quadruple roll of bathroom tissue or paper towels.  Don’t you find it interesting that the new double roll is the same as the ONLY roll there was 25 years ago?  Today’s regular roll is about 1/3 the size of the rolls back in the day.  See what I’m sayin?  If we’re going to play this game, we’ll build bargaining slop into our rates.  The inequity comes when the client who just wants a great project for a decent price doesn’t ask for the “discount”.  What are we going to do?  “Oh, we didn’t really mean that fee.  Here is a 5% discount because we love you so much.”  Then they think what kind of scam artists are these guys?  Or we leave the rates stand and they get ripped off.

We are not a sleazy car dealer, not that every last one of them is.  We are not going to artificially increase our rates by 10% so we can tell our clients we are giving them a 10% discount.  We also don’t slash our rates by 25% because we’re desperate, because we are not.

written by Jeffrey L. Ihnen, P.E., LEED AP

No Free Lunch

23 03 2010

A few years ago, I took my beloved Acura to the tire store for new tires.  As I was sitting on their crappy molded plastic chairs at a Formica table working away on my laptop, a cheesy 20-something sales guy approached me and asked if I would like a free alignment.  “I don’t have a problem.”  “But it’s free.  No obligation”, he goes on.  “Ah what heck, go ahead.”  He returned a few minutes later as I’m hammering away on my laptop and he says my wheels should be aligned because…whatever.  I put on a scrunchy-face look and decide that even if it’s off a little bit and they can make it perfect…ok, go ahead.

On my way out of town that evening I immediately noticed the “A” on my steering wheel is now leaning left about 1 or 2 degrees maybe.  Now I’ve seen wheels that are out of alignment, the steering wheel may shimmy, and the tires get burned off in an expected pattern, but I have NEVER driven a car that is “crabbing” down the road.  I reached over to the glove compartment, pulled out the receipt for the phone number.  I called the 20 something snaky peon and blistered him so bad, I had to roll down the windows to prevent the dashboard from melting.  They took something that was perfectly fine as far as I knew and screwed it up and charged me seventy bucks for the pleasure.  I was a complete idiot to fall for the “free alignment” anyway.  I returned and they made it right, this time getting my approval of every setting.  Funny how that works.  It still cost me time, which I don’t have, and plenty of angst.

The moral of the story, of course, is beware of free services.  I don’t even like most free software and some free news sites because of the hassle, the advertising, lack of decent content, the garbage that may come with it and the “spam” lists they may put me on.  Just give me something that works well, provides value and leave me alone.  I’m perfectly content paying for it.

Which brings me to the “investment grade” energy study of large commercial or industrial facilities.  Investment grade means it is accurate enough to guarantee savings if that’s what the client wants.  Of course the guarantee isn’t free, but that’s a topic for another day.  I count five types of study funding.

  • The low-ball study.  The consultant offers a low-ball study cost that will be made up on the much more expensive design phase of the energy efficiency project.  Essentially, they do energy consulting to get what they really want: design and even more lucrative construction management.  They may not know a low-cost, high return-on-investment (ROI) opportunity if it shot them in the kneecap, but it doesn’t matter, they just want to design equipment and system replacements.  They can spot those babies for sure.
  • The “free” study with the contract that says you customer have to move forward with high ROI (defined ahead of time) measures, or else pay for the study, which will be a million dollars – as in performance contracting.  The company doing the study does the implementation with profit on the implementation cost.  Look, a study may really cost 20% to 50% of one year’s energy savings from cost-effective measures.  Implementation may cost 500% to 1,000% the first year’s energy savings.  Now how easy is it to stuff the project with about 5 times the real study cost, plus other markup built into the cost of implementation?  Heck the study cost doesn’t even matter.  Third party verification of savings is absolutely required.  This can work fine, but many end users have been burned badly, making performance contracting a pariah in some circles – more on this in another rant.  Does this outfit want to provide the best value for your investment or sell you all the equipment they can to fit within your payback criteria?
  • The open tell-all study.  The client pays an independent consultant to do the study with everything on the table.  We are typically in this scenario and have a hard time competing with the above David Copperfields for the study.  We may have the same profit margin as the performance contractor, but their sale is 10x or even 50x our sale.
  • The cheap and crappy audit.  Somebody who’s done 1,400 studies offers to provide an investment grade study for half the price of everyone else.  How do you suppose they’ve done 1,400 studies?  You just have to be a good cost estimator to deliver these crumby studies.  Costs come in with precise bald face numbers.  Energy savings?  Not so clear.  Cost effective measures may be scattered all over the place AFTER they are done as well.  Refer to the kneecap shooting above.
  • The cheap high level audit.  We do many of these too, and we go overboard, as much as possible to explain to the customer that this will NOT, is not, and was not investment grade material.  It provides plus-or-minus-50%, hand-grenade results to assess potential.  Some measures with a worst possible real ROI that is less than 2 years may go right to implementation, but probably more than half need further investment grade analysis, unless the customer just wants to roll the dice.

There is no free breakfast here.  Our long-term clients know this because the cost of cheap can be very expensive, or intolerable, and they know it.

written by Jeffrey L. Ihnen, P.E., LEED AP