“No one feels sorry for a car dealer!”
Last week’s headlines provided a perfect storm of bad news for anyone with links to Detroit’s Big 3. Investor Kirk Kerkorian is selling his billion dollars worth of shares in Ford Motor at a seventy percent loss; New York Times columnist Thomas Friedman’s recent column on green energy bemoaned the drop in gasoline prices fearing that it would reduce the positive, i.e. negative, pressure on Detroit to build more fuel-efficient models.
A story on the Internet was forecasting that thousands of dealers are about to go out of business for a hurricane of reasons: credit to finance their inventories is drying up, buyer financing approvals are harder to get than just a few weeks ago, new car leasing is being curtailed, and working capital is disappearing due to losses.
Add in a 30 to 45 percent drop in sales volume, and the “business model” for most small and mid-sized dealerships is no longer viable. I know, I lived and worked in thrall to that model for half a century. Even scarier was the statement by a spokesperson for General Motors conceding that GM’s business model also fails at October 2008’s sales volume. It’s scary because 200,000 American automobile worker’s jobs are at risk, plus one million UAW workers living on company pensions. Equally critical is that one in five American jobs depend on the automobile industry.
New vehicle sales comprise 30 to 50 percent of a dealership’s business, driving the activity in Service, Parts and Used Cars. In our family dealership I preached, “Nothing happens until a car is sold.” The goal of every dealer was to attain or beat the National Automobile Dealer Association’s average of 2 percent net before taxes. Yes, the margin is that small; it takes a very committed dealer to accept that challenge month after month, and year after year. There are easier ways to make a buck.
One Internet site just posed a variation of the question that every salesperson is trained to ask at some point in their presentation, “Are you in the market to buy today?’ Seventy-five percent of the respondents answered, “No.”
Today’s new car market for all makes and domestics in particular is awful.
This is a sad situation for a myriad of reasons. Even a small dealership employs around 30 people with a multimillion dollar payroll; employment can run to hundreds even thousands in larger dealer groups. Multiply those losses by the families that they support, and the cities, towns and states that their salaries, sales and excise taxes enrich and you can expect trouble, trouble, and more trouble in every River City.
I was a born “car guy” because my folks rented a 1930s gas station that in time grew into a postwar dealership. The excitement began with annual dealer shows where new models, restyled and marginally improved, kept on coming.
Flashy Broadway-quality introductions with nubile dancers, loud music, sales contests, and promises of a better year ahead kept everyone motivated. Movie screens in Atlantic City or Las Vegas or New York’s shows came alive with speeding cars, off-road vehicles and tough trucks. Creative Mad Men Madison Avenue marketing campaigns promised to overwhelm the competition in the same way they grabbed our senses.
Top management from George Romney, to Lee Iacocca, to some German guy named Dieter spoke from the heart to inspire us to sell our employees and the public. It may have been concocted and overly optimistic given the competition, but it was good honest American salesmanship that kept a lot of people producing prosperity from coast to coast. At any rate, it needs no apology and won’t get one from me.
The grief in today’s marketplace reminds me that I’ve seen this movie before. In 1979, our former dealership along with thousands of Dodge and Chrysler dealers was dragooned into service as unpaid lobbyists to fight for the company’s survival.
I still have copies of “Thank You” letters from Senators Edward M. Kennedy and Paul Tsongas. Both men were instrumental in setting terms for the “Chrysler bailout,” which was shorthand for the 1.5 billion-dollar government loan guarantees approved by Congress that December. Its tough terms required concessions from all the parties that benefited: labor, suppliers and management. Thankfully, due to hot-selling designs like the front-wheel-drive K-Cars and Caravans, the attached warrants soon returned a $300 million profit to the U.S. Treasury.
I can only pray that this year’s financial crises end as happily.
In 2008 it’s GM, Ford and Chrysler dealers that are on the bubble, along with all three companies. This nation and its leaders could do nothing better than to fund a new investment in the American economy represented by the Big 3, and their franchised but independent dealers. Every state’s economy needs the benefits, taxes and payrolls that these businesses represent. Based on my experience, it’s in the nation’s interest for our elected officials and driver’s everywhere to support America’s hometown dealers.
We’ll miss them when they’re gone.
“Detroit Three” Ask Government For $50 Billion Bailout; U.S. Automakers
The Ripple Effect of the US Auto Industry by GM