Car Dealers Under Pressure
Friday, February 2, 2007
Many worry business won't be any easier in '07
Sharon Terlep / The Detroit News
A NEW BIG 3?
Times have rarely -- if ever -- been tougher for dealers of American cars and trucks.
Sales are down. Profitability is down. Vehicles are sitting on lots too long. And chances are, for many dealers who sell domestic vehicles, business will get worse before it gets better.
So when dealers from around the United States meet with industry leaders at their annual conference this weekend in Las Vegas, they'll push Detroit's automakers to come up with better marketing campaigns and more must-have vehicles.
But they'll also be coming to grips with the reality that a hit new car or catchy ad campaign won't change the fact that many of them won't be in business a few years from now.
"People are in shock," said Bill Keith, who owns two New Jersey auto dealerships. "You've been in this business your whole life, and it's always been a certain way. I think some people are still hoping for next week's special thing to come along. And I don't think its going to happen."
Fewer dealers needed
General Motors Corp., Ford Motor Co. and the Chrysler Group -- all in various stages of massive restructurings -- have said they need fewer dealers given their diminished sales. In the past 15 years, Detroit's automakers have seen their combined U.S. market share fall 15 percentage points -- the equivalent of 2.5 million vehicles.
That's taken a withering toll on dealers, who count on sales volumes for revenue and to generate business in the service, parts and warranty end.
The average Chevrolet dealer sells 583 cars a year. Ford dealers sell 631 vehicles a year on average, while Dodge dealers sell 375 on average, according to J.D. Power and Associates Power Information Network. All three are sharply down from previous years.
By contrast, the average Toyota dealer sold 1,685 vehicles, while Honda dealers closed 1,289 sales on average last year.
While foreign automakers sell nearly half of all cars and trucks in the United States each year, they have far fewer dealers. Ford, GM and Chrysler dealerships outnumber Toyota and Honda dealers nearly 5 to 1.
"Most dealers are in touch with the reality that there's too many," said Rod White, automotive retail practice leader for J.D. Power and Associates. "It's just a question of who's going to close their store. Every dealer thinks they're the best."
Adding to the pain is that some of the automakers' key strategies likely will make things tougher for dealers, at least in the short term.
Each of Detroit's automakers has made it a priority to reduce deep incentives, even at the risk of losing market share. Fewer incentives in the long run will mean automakers get more money for the vehicles they sell. But for many dealers, lower incentives will mean lower sales volumes.
Keith is a prime example of how the business of selling cars is changing. His two dealerships are less than 50 miles apart in New Jersey towns that are similar in size and demographics. Yet on one day last weekend, more than 50 customers packed into one store while only eight trickled into the other.
The difference: The crowded dealership sells Honda-made Acuras, the other sells Fords. "It used to be that we all went up and down together," he said. "But it's gotten to be more of the have and have-nots."
Few have been worse off than the Ford dealers.
In 2000, Ford, Lincoln and Mercury commanded 23.7 percent of the U.S. market with a 4,800-strong dealer network. Ford's market share bottomed out near 16 percent at the end of last year. Yet only a fraction of its dealerships -- 385 -- have closed since 2000.
Ford ranked last among the top 20 U.S. brands when UBS Securities surveyed dealers earlier this year about which brands they would most like to sell.
"It's dire," said Michelle Van Vorst, executive director of the Ford Dealer Alliance, which has been critical of the company. "I've been with the company 27 years and never seen anything like this."
Van Vorst said many dealers see this week's convention, hosted by the National Automotive Dealers Association, as a chance to get to know new Ford CEO Alan Mulally.
Cisco Codina, head of marketing, sales and service for Ford in North America, said he knows dealers are struggling. He plans to outline a three-part strategy in Las Vegas to boost retail sales.
First, Ford will focus its marketing efforts on key vehicles like the new Ford Edge to drive traffic to dealerships. Second, it will refocus its marketing efforts to highlight both product features and brand image. Finally, Codina said, he will emphasize the new products coming this year from Ford.
Codina said Ford will continue its dealer consolidation effort, which has eliminated 126 dealerships in overcrowded metro markets. "We've been very aggressive in our plans to reduce the number of dealers," Codina said.
'Dealer body is positive'
Chrysler's Tom LaSorda also will make his first appearance at the NADA convention as CEO.
Once the healthiest of Detroit's automakers, Chrysler stumbled this year after miscalculating its U.S. sales and overbuilding cars and trucks. LaSorda has said making Chrysler dealers more profitable will be one of the company's top goals in 2007.
"They're the only ones that bring revenue, and I've got to turn that around so that they're profitable again," LaSorda told The Detroit News last month. "I let them down, and I'm going to build the trust back."
Dealer Andy Palmen, manager of Palmen Motors Dodge Jeep in Kenosha, Wis., will be eager to hear Chrysler's plans.
With nine new vehicles in showrooms, dealers are hopeful, Palmen said. But getting consumers to come in and take a look at the new cars and trucks -- such as the Chrysler Sebring and Dodge Caliber -- will be a challenge.
"We need to get consideration for our products back up among consumers," he said.
GM dealers also have struggled in recent years as the automaker scrapped its Oldsmobile brand and lost market share. A flow of well-received new vehicles hitting showrooms, such as the Saturn Aura and redesigned Chevrolet Silverado, has sparked optimism.
"The feeling of the dealer body is positive," said Joe Serra, a large GM dealer based in Grand Blanc and president of the Detroit Auto Dealers Association. "It's going slower than they would like. But they're coming in with a more positive attitude than in the past."
Jim Dollinger, general manager of Suski Chevrolet-Buick in Birch Run, agreed: "With the products in the pipeline, it looks very good for General Motors going forward. I think things are looking up for us."
You can reach Sharon Terlep at (313) 223-4686 or email@example.com.