Dr. Talal's Honda.

Khanfar, Nile M. ; Loudon, David

CASE DESCRIPTION

The primary subject matter of this case concerns the consumer purchase decision process for a new automobile. Secondary issues examined include the ethics involved in certain actions by dealer representatives, how small businesses must tightly manage their sales efforts, proper business etiquette when dealing with customers, and understanding customer satisfaction issues in the automobile selling environment. The case has a difficulty level of four, appropriate for senior level. The case is designed to be taught in one class hour and is expected to require one hour of outside preparation by students.

CASE SYNOPSIS

Dr. Sultan Talal and his wife have made a decision that they need to purchase a new minivan to replace the older large-size van they own. Talal has decided on a Honda Odyssey, even without test driving the vehicle for confirmation. The case takes the reader through the various stages in the decision process from information gathering to decision and post-purchase activities. Talal experiences many typical consumer interactions in this environment. The case focuses on some of the ineffective actions taken by employees in the dealership including inadequate sales effort, rudeness, unethical behavior, and poor customer relations and follow-up.

BACKGROUND

Sultan Faisal Talal, Ph.D. and his family recently moved over 1000 miles from a medium-sized, mid-south city to the Ft. Lauderdale, Florida area where he began a new job as an Assistant Professor on the science faculty of a major university in the area. Although born in Kuwait, Talal had lived in the U.S. for many years and recently became a citizen. The county where Talal resides is ranked ninth in the United States in the number of millionaire households, according to a recent study conducted by a research group. There are approximately 70,000 millionaire households in the metropolitan area, with an average net worth of $1.5 million.

With an improved income (no longer a graduate student) and a growing family (wife, two children and another on the way), Dr. Talal decided the time was right to purchase a newer vehicle than his 6-year old Chevrolet full-size van. He wanted another van, but one that was smaller than his old one. He decided to purchase a new Honda Odyssey minivan. The choice to buy a Honda was not difficult since he already owned a Honda Accord. Also, the Odyssey was ranked highest of all minivans by Consumer Reports in safety and dependability. His quick search on the Internet turned up the following Honda 4-door minivan models, all with automatic transmission, 3.5-litre 6cylinder engine: LX (MSRP: $25,345); EX (MSRP: $28,395-$34,595); and Touring (MSRP: $36,595-$38,795). Extra options for the EX and Touring models include leather, entertainment and navigation systems.

Since the Odyssey was available in different models, prices, and equipment, he thought it was necessary to obtain a brochure from a local dealership in order to review the various vehicle and option alternatives. He checked the area Honda dealers and found the following three available within a reasonable distance from his home: East Coast Honda (4.5 miles), Performance Honda (16.3 miles), and Southeast Honda (26.2 miles).

Dr. Talal drove almost five miles to the nearest Honda dealership, East Coast Honda. At the entrance door of the dealership's large and beautifully designed building, a receptionist asked if she might help. Dr. Talal replied that he would like to speak to their top salesperson about a minivan. The receptionist recommended Mr. Ralph Donald. The following conversation took place between Mr. Donald and Dr. Talal:

Donald: "Hi! My name is Ralph."

Talal: "Hello, I am Sultan Talal. I am interested in purchasing an Odyssey van."

Donald: "OK." (He left and came back with a brochure to hand to Dr. Talal.) "Here is the brochure. Let me know when you are ready to buy."

Talal: "I am ready to buy now. If the price is right, I prefer to conduct business in this dealership since it is close to my house and work. I have worked as a sales and finance manager at Mercedes Benz dealerships for over thirteen years before I went back to school to pursue graduate school. Therefore, please give me your best price and make the transaction go smoothly."

Donald: "That is great! Please tell me which van you like and I will be more than glad to give you my best price tomorrow."

Talal: "I like the Odyssey EX with Leather." (He handed Mr. Donald his business card which showed his degree and university affiliation.)

Donald: "You are a professor? Great! Are you paying cash or are you financing?"

Talal: "Most probably cash."

Donald: "The price will be different because of factory incentives. You know.... you have been in the business."

Talal: "It will be a cash deal."

The following day Mr. Donald called Dr. Talal at his office and gave him a price of $26,994 plus fees. These fees included sales taxes, title, and license. Dr. Talal thanked Donald for his follow-up and told him that he will get back with him in the next two days.

Dr. Talal called a friend in his previous hometown who is the sales manager of the Honda dealership there. Dr. Talal told him of his vehicle purchase plans. He told him that because of the distance between the two cities he preferred to buy it locally. His friend understood and provided Dr. Talal with the following specific information available to the dealer:

THE PURCHASE

Dr. Talal realized that Donald had given him an attractive price; even Talal's friend told him that it was a very attractive deal and that he should definitely buy it. Based on Talal's experience, the quoted price should leave the dealership with about $650 profit and the sales rep's commission could be approximately $50-100. Talal did not want to drive too hard a bargain because he wanted to establish a relationship with the personnel and dealership for future needs. Dr. Talal then asked him which Odyssey model would give him the best value for his money. His friend replied that the LX model sells quite well. However, the EX-Leather sells better and has a higher resale value. Dr. Talal thanked him for the valuable information and then called Donald to order the van. The following conversation ensued:

Talal: "Hello Ralph. This is Sultan Talal."

Donald: "Hello Sultan."

Talal: "OK, I would like for you to get me a 2006 EX-Leather. The exterior color should be silver with a gray interior.

Donald: "I don't have that color in my inventory.... how about a green one?"

Talal: "No, that is not negotiable. If I am going to spend almost $30,000 for a vehicle, I will get my wife the color she wants."

Donald: "It will cost more money to get the vehicle from another dealer."

Talal: "Did you check the inventory of the other two area dealerships?"

Donald: "No"

Talal: "I can assure you, I will buy my wife what she wants. And that is silver with gray leather interior."

Donald: "OK, I will look for it and call you back."

A couple of hours later, Donald called Dr. Talal and said that he had located the vehicle and wanted him to come by and give the dealership a deposit. Dr. Talal was excited and told him that he would come by around 5:00 PM that day. At 5:00PM Dr. Talal arrived at the dealership in the company of his father in-law, Mr. Moreb. Mr. Donald led Dr. Talal and his father-in-law to his office and handed Dr. Talal a credit application to sign.

Donald: "Please sign this blank application."

Talal: "What is this for?"

Donald: "This is part of the privacy act."

Talal: "What privacy act?"

Donald: "You know.... the post 9/11!"

Talal: "No, I do not know. In fact this is the first time I have heard about this. I need to make a phone call to my friend at another dealership."

Donald: (apparently becoming frightened) "If you do not want to sign, it is OK."

Talal: "This is a cheap trick by the finance manager to pull my credit and get me to finance with the dealership."

Donald: "I agree."

Talal: "I am paying cash for the vehicle and do not want to have my credit pulled because I am in the process of buying a house, and pulling my credit will lower my credit score."

Donald: "Let me get you to just sign the purchase order and all the papers for the vehicle."

Talal: "How do you expect me to sign papers on a vehicle I have not seen?"

Donald: "I will have the van here in two hours and I need your signatures on the papers because it is the middle of the month and the dealership is offering a start-up bonus for salespeople if all paperwork is signed."

Talal: "I will not sign for an unseen vehicle. Why don't we come back in two hours to see the van and sign the papers?"

Two hours later, Dr. Talal, his wife, children, father-in-law, and mother-in-law arrived at East Coast Honda to look at the van. Dr. Talal's wife and mother in-law were wearing the customary Islamic scarf on their heads. Also Dr. Talal's mother-in-law was wearing the long traditional Middle Eastern outfit. The van had been delivered to the dealership and it was just what the Talals were looking for. This time, Mr. Donald was not available and another employee, Fred Johnson, came to greet the Talals and their party. He said that the van would not be ready until tomorrow because it needed to be detailed (cleaned and waxed). The Talals agreed. Then Mr. Johnson asked Dr. Talal if it would be okay if he paid for the full amount of the vehicle by a personal check that evening. Dr. Talal told him that the funds were in his savings account and he would feel very uncomfortable if he had not made the transfer first before writing the check. Mr. Johnson then left the Talals for a few minutes and returned.

Johnson: "If you bring a check tomorrow, the dealership will take only a cashier check and not a personal check."

Talal: (becoming very upset) "This purchase will either be done my way or we will walk out of this dealership and buy the van somewhere else. I am a loyal Honda customer. I have owned a Honda and am buying another one without even driving it. That is how much I love the vehicle. I am also a professor at a college and a former auto dealer sales manager, which means that I have lots of credibility! If my bank has approved me for a $350,000 mortgage, then I guess I can buy what I want."

Johnson immediately backed off and told Dr. Talal to calm down and that the paperwork would be ready in ten minutes. Dr. Talal waited for over 1 1/2 hours, and then finally told Johnson that because the kids were getting annoyed his group would have to go home. Five minutes later the dealer's finance manager, Austin Reed, appeared at Johnson's office and asked Dr. Talal for his credit card in order to charge a deposit on it. He left with the card and came back with a receipt for $2000. Based on Talal's Mercedes-Benz dealership experience, he was accustomed to requiring no more than $500 for a deposit. Thus, he was very surprised that the finance manager had not told him of the amount before making such a large charge; but since he was paying cash for it, Dr. Talal thought it would be alright.

Immediately following retrieving the receipt from Dr. Talal, Reed asked Johnson to seat Dr. Talal and his wife at Reed's office and he will follow in a few minutes to print all the van paperwork for the Talals to sign. Dr. Talal asked his wife and in-laws to come and wait with him in Reed's office. Mrs. Talal was in the finance office because she was a co-buyer on the paperwork. Her parents were there because if they were left outside the office it might be culturally disrespectful. The finance manager's computer had a screen saver with a photo of two young males wearing marine uniforms. When Dr. Talal inquired of the salesman about the two soldiers, he was told that they were the finance manager's two sons.

Minutes later, the finance manager walked into his office without acknowledging Dr. Talal or greeting anyone in his party. Instead, he simply printed all the papers and pointed where Talal needed to sign. After Dr. Talal and his wife signed all the papers, the finance manager left the office without saying congratulations or even offering a smile.

Dr. Talal later told Johnson that he will remember this behavior when the Honda customer satisfaction survey arrives. He also told him "How can a Honda dealership that is a member of the prestigious President's Club have an employee like this finance manager?" Johnson apologized and told Dr. Talal that the vehicle would be ready to be picked up the following day.

The next day, Dr. Talal brought a cashier's check for the full amount of the van and handed it to Johnson and Donald and told them that he was still amazed and could not believe the breach of company etiquette at the dealership.

Two days later, Dr. Talal received a letter from East Coast Honda congratulating him on the purchase of his new minivan. Dr. Talal called the telephone number of the dealer's General Manager listed on the letter to inform him about the ordeal with the credit application and the company's finance manager. Unfortunately, the GM was not available. Dr. Talal left a voicemail message on the GM's phone, but he never received a return call. A few days later, Donald called to again apologize on behalf of the dealership and told Dr. Talal that American Honda Motor Company, Inc. (Honda's U.S. corporate office) would call him with a survey and that Donald would truly appreciate high marks from him.

A few days later, a female researcher from American Honda called to survey Dr. Talal. He recounted everything that had happened to him and stated that he did not expect this type of treatment from a Honda dealership.

Nile M. Khanfar, Nova Southeastern University

David Loudon, Samford University Table 1:Pricing for 2006 Honda Odyssey EX-L Van Manufacturer's Suggested Retail Price $31,345 Invoice cost $28,268 Manufacturer incentives * 1,000 Hold-Back ** 923 Net Cost 26,345 * cash given back to dealer ** additional cash given to dealer to help with costs