The Great Dealership Downturn

From Now


To Then?


Cliff Banks
Ward's Dealer Business

Prediction time — Sometime, probably in early 2010, when Ward's run its annual number of roof tops and sales per brand, the automotive industry may be in for a shock because the number of existing dealerships very likely could be much less than it is today.

The total numbers for 2007 aren't in yet (check back next month) but 2006 finished with just under 22,000 dealerships.

By the end of 2009, that number could very well be between 19,000 and 20,000 rooftops.

We know the domestics are trying to reduce their dealership ranks. Till now, the “Big Three” officially have allowed the market to drive much of that process.
There are indications, though, that General Motors is about to become more aggressive in that arena. GM sales and marketing executive Mark LaNeve downplayed recent media reports of GM's aggressive stance, but the situation bears watching.

Ford appears to be on track with its plan, however, with approximately 400 of its dealers exiting the market in the last two years. One problem, though, we hear many of those stores are minority dealers.

The good news is, Ford dealers' profitability was up in 2007 — mostly at Lincoln Mercury stores. Still improvements fall far short what it was in the heady years at the end of the last decade.

It's anybody's guess as to what happens with Chrysler this year. For now, it appears there is no money set aside to facilitate dealers getting out of the game. A lot of you seem to be hanging on to see what happens but from here in Detroit, it looks like Chrysler is in for a couple of rough years yet.

Another brand working on a dealer reduction plan is Volvo, which has said it will eliminate about 20% of its 350 dealers.

When you start adding the numbers up, losing 2,000 dealerships isn't such a stretch.
And, if sales do drop to the 15.5-15.6 million level this year as many analysts are predicting, we can expect more dealers to get out.

It will be interesting to see at this year's National Automobile Dealers Assn.

convention in San Francisco, how Dale Willey and Annette Sykora handle their message to auto makers to leave dealers alone and let the market run its course.

There probably will be some tough meetings behind closed doors this year.

Another trend we'll see is privately owned dealer groups will get larger. One large group in Texas tells me it plans to acquire as many 50-60 stores in the next couple of years.

A director at another group in the Southeast says his company loves downturn years. “Those are years we capture a lot of share,” he says. They also are reworking some of their framework agreements with certain OEMs to allow for more flexibility in how many rooftops they can own.

For those of you who can hang on, the struggle might be worth it — some analysts are predicting the market to rebound to the 17 million-unit level by the end of the decade.



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John Kerry's SUV Hybrid Sitting On Used Car Lot

According to Kerry’s Chief of Staff, the senator is helping the fight against global warming and reduction of greenhouse gases by giving shorter speeches.

Ecorazzi.com that dubs itself “the latest in green gossip” headlined the news that Kerry’s used Hybrid is sitting on the used car lot at Koons Ford in Falls Church after having been traded for a 2008 Tahoe Hybrid.

Those interested in owning the used hybrid of a famous senator and past-Democratic nominee for President are urged to act quickly. There is no word on how many miles are on the vehicle, but a companion article found at WashingtonPost.com notes that the vehicle has a price tag of about $26,000.

The Washington Post.com asks the question, “But what is Kerry, Mr. Saving the Planet Jr. (Al Gore is Senior) doing getting rid of his hybrid? Is he going back to a gas-guzzling ozone-destroying emissions way of the past?”

Apparently they contacted the senator’s office with that question and were assured that this was not the case and that Kerry replaced his 2-year old Escape with a new Tahoe Hybrid, which they quickly pointed out was the 2008 Green Car of the Year. According to Kerry’s chief of staff, David Wade, it is a 40 percent increase in fuel efficiency.



As usual, when politicians use percentages you have to look for a little deception. In the Ecrorazzi.com version of the story, they are quick to point out that the senator traded a hybrid that gets 30 miles per gallon for one that only gets 22 mpg. Again, quoting Ecorazzi.com - “Tsk, tsk.”

You might recall that during the 2004 election Kerry was questioned about his family’s use of a gas-guzzling Chevy Suburban at their ski-country mansion - one of their many. Husband of super-wealthy heiress to the Heinz fortune, Kerry countered that this was not his vehicle, but was owned by “the family.” Apparently he has found a way to keep is big SUV and environmental conscience too.



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Lentz to Dealers - No Magic Dust for Success

By Marty Bernstein
AIADA Contributing Editor

Jim Lentz, president and CEO of Toyota Motor Sales, USA, told the 500+ audience at the American International Automobile Dealers Association’s 38th annual luncheon meeting in San Francisco, “There’s no Toyota magic dust I can sprinkle to make things better. It won’t happen, but I can tell you this… we will get through this year, the challenge will make us stronger and the long term outlook is very good.”

Lentz was responding to the industry events and days leading up to the luncheon in San Francisco. The general tone of conversations during NADA’s annual convention was cautious, careful and to some degree concerned as the slowing of the economy impacts the retail automobile business. Optimism was not rampant.

Yet from Toyota’s industry perspective all was not doom and gloom. Their projection for the U.S. market at the close of the year remains around 16 million vehicles, slightly down from 2007, but as Lentz noted, “Instead of seeing 2007 as the worst year in the last nine, we think it will be one of the best eleven years in automotive history.”


Continuing, “It wasn’t all that long ago when 16 million cars were seen as an incredible year.” Supporting this approach, he commented on the auto needs of an aging population, the growing younger demographic entering car buying years, low inflation combined with low interest rates, the Fed’s quick responses and Congress’ move to pass a near term stimulus plan. Toyota, he said, “Is optimistic about the future because people love cars!”

To make things better and brighter the automobile industry needs to understand and know how to help consumers through these turbulent times. Findings from the Scan Study by DYG, a research firm specializing in trends and motivations which his company uses, Lentz discussed how America is becoming a Super Saturated Society.

“Today’s consumers are super stressed and overwhelmed by too much information and too many choices. It’s the result of too much information, too many choices, multi-tasking, technological speed, non-stop media coverage and endless choices.”

Responding to the societal changes will require adapting to these changes proactively by eliminating the “hassle” out of car buying by providing low or no maintenance products, offering valet ownership plans, creating a faster, less complicated F&I process and generally, “reducing the time customers spend in dealerships.”

Another area which needs modification and change to meet customers’ needs the actual process of buying and servicing a car and making the time they do spend in a dealership more enjoyable. Both Toyota and Lexus the past year have urged their dealers to upgrade and improve facilities which add to the ambiance, comfort and convenience of a visit to a dealer’s store.

Next, Toyota’s president hit on improving the service department, “We were able to prove a direct link between a good service department experience and future car sales. To do this, each service call should be viewed as an opportunity to solve a problem by evidencing initiative and expertise that will be remembered.”

Lentz also chided his company for “causing needless confusion among dealers and customers by assigning different names to the same set of specs on a vehicle.” He said, “The goal is to weed-out and eliminate these inconsistencies and create a simple, common language everyone can understand.”


Alluding to the magic dust, Lentz cited the feeling that Toyota dealers are the company’s closest business partners. As such, “We try to get their feedback before making any major moves. All that give and take played out over 50 years has created a priceless trust that is the foundation of our success.”

Lentz ended his remarks by encouraging the audience to stay active in the AIADA and say involved with the legislative process in Washington. “Congress is always working on issues that can affect our business and we need your help to make sure our voice is heard. This made a huge difference last year before the crucial vote on the CAFE bill.”

The year ahead, he emphasized, is critical to the automobile industry on issues regarding vehicle safety, free trade, climate change, and the state-by-state movement to further regulate greenhouse gases. The importance of the election of a new president and new Congress will have major ramifications on our future.

“So, this is no time to be timid, lose focus or get complacent. We all need to stay informed, stay active, and stay united to protect our business. There is no magic dust; it’s about hard work and working together.”



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Jury finds Florida car dealer guilty in “out-of-trust” case

Former Pontiac-Buick-GMC dealer faces up to five years as a guest of federal taxpayers.

The former owner of Big Oaks Buick Pontiac GMC Inc. in Bartow, Florida, was found guilty by a federal jury in Tampa on 11 counts of wire fraud, 11 counts of bank fraud and one count of conspiracy to commit both, reports the Lakeland Ledger.

John Giovanetti, was charged with the theft of $2.5 million by having employees file fake documents to receive financing from SunTrust bank.

Mr. Giovanetti now faces up to five years in prison for conspiracy and up to 30 years for each count of the wire and bank fraud counts. He also faces a fine of $2.25 million.

The former dealer was convicted of conspiring with two former employees, the dealership controller and the general manager, to obtain funding from SunTrust to purchase vehicle inventory in 2004, according to the indictment.

During several months in 2004, at least 12 fraudulent documents were submitted by the dealership to SunTrust, listing at least 44 vehicles for purchase that had already been sold.

The money obtained from the bank was used in "the day-to-day operations of the dealership and to support the owner's lifestyle," the indictment read.

Before the trial, the dealership controller and the general manager both agreed to plead guilty to one count of conspiracy to commit bank fraud and testified against their boss.

Their plea agreements stipulated that the controller would forfeit $56,500 and the general manager $85,000, their respective total salaries for 2004 which represent "the minimum amount of proceeds obtained by the defendant as a result of the offense."

The Pontiac-Buick-GMC store was eventually bought at auction by Michael Holley.

Mr. Holley paid $3.6 million for the GM franchise and its assets.

Dealership employees “borrow” an Infiniti G35 to video street racing stunts

Bellevue Washington dealership employees “borrow” an Infiniti G35 to video street racing stunts - wanted video to post on YouTube

But bright, they are not. “Drifting”, the art of sliding the rear wheels sideways while burning rubber was the trick. A parking lot right next to the State Patrol’s regional office was the location. The outcome obvious - or should have been.

Late last Sunday night, two 21-year-old Bellevue Washington dealership employees got a great idea. An Infiniti G35 had just been traded in, and one can guess that their discussion somehow gravitated to street racing. So, who would know - they decided to take the car for a joy ride, apparently to demonstrate their “drifting” skills for the video camera. The video was intended for posting on YouTube.



“Borrowing” the car was not a bright idea to start with, but these two geniuses decided to compound the error with a series of bad decisions.

First bad idea: The chose a parking lot right next door to the regional office of the Washington State Patrol. A trooper returning to the Patrol’s office heard the wheels screeching and saw the car as it “drifted” through the turns in the neighboring parking lot. Both were arrested at the scene.

Second bad idea: videotaping the entire scene. Some of the video was shot by either Dumb or Dumber from the curb as the other drove. When the trooper spotted the video camera he confiscated it and was rewarded with video tape evidence of the entire episode.

Their voices were obviously recorded throughout the adventure. The final few seconds of the recording show the police cruiser approaching, while one says, “I’m going sh**, cop up here!” and then the recording ends.

Both were charged with felony malicious mischief and the driver with reckless driving. The charges sound serious enough but given the growing number of innocent victims killed each year by reckless “street racers,” it seems that this type of behavior should draw a more serious penalty.

Dealers Edge.

Toyota dealership employees will take it all off for charity

Employees at an Illinois dealership plan to raise money for charity with an unusual gambit.

The employees at Belleville Toyota in Belleville, Illinois, like to consider themselves one big family. And as a family, they do things in bunches. The dealership's employees have all agreed to do something outrageous in support of four local charities, according to a report in the Belleville Intelligencer.

Sixteen employees - both male and female - will say goodbye to their hair in a ceremony at the dealership. Even the dealership owner said he decided to shave his head after two close relatives died of cancer.

"I was adamant I was going to do it to show my support for people with cancer who lose their hair to chemotherapy. And I was taken aback when everyone here decided to join me," dealer/owner George Farlow said.

The group hopes to raise more than $10,000 for the local cancer society, a hospice, the lung association and the diabetes foundation.

Members of the public will drop into the dealership and make a financial pledge to the charity of their choice before the cut-a-thon.

Isuzu to exit U.S. car market

Isuzu exec: Competition hurt us

Financial problems in the early part of this decade and the intensely competitive U.S. automobile market led to the downfall of Isuzu's passenger vehicle business in North America, according to an Associated Press report.

Isuzu Motors, famous for developing one of the first midsize sport utility vehicles and an ad campaign that featured a salesman telling lies, announced that it will stop selling new pickups and SUVs in North America on Jan. 31, 2009.

The Japanese company had financial problems and restructured to become profitable again earlier this decade, but in doing so had to reduce investments and expenses, said Terry Maloney, president and chief operating officer of Isuzu Motors America Inc.

Isuzu's U.S. sales peaked in 1986 at 123,000 vehicles, mainly on sales of the Trooper SUV, but the company sold only 7,098 pickups and SUVs in 2007.

Isuzu said in a statement that it will back its products and dealers for years to come, honoring all product warranties and roadside assistance programs. Purchase an extended warranty for Isuzu through SmartAutowarranty.com
.

Mr. Maloney said Isuzu will remain in the U.S. with its commercial vehicles and diesel engine technology.

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website.







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