Special Report

Dealer 500

Another record year in total revenue for the prestigious Ward’s Dealer 500 – that is enough reason to break out the champagne and celebrate, right?

Many dealers are losing money; others have gone out of business while still others are barely hanging on. But the Ward’s Dealer 500 continues to sail along without a care in the world. Who cares that the total revenue for the group only increased a meager $39 million? It is still a record.

So if your dealership is on the list, go ahead and party. Grab your wallet and head to Vegas, or write a check for that yacht or plane you’ve been eyeing for years. Better yet, surprise your significant other with a trip to a South Pacific island. You’ve earned it.

Uhhh…not so fast. Better take another look at those numbers.

At first glance, they seem to indicate the Ward’s Dealer 500 had a strong year in 2006.

Dig beneath the numbers, though, and troubling trends begins to emerge. The number of new-units sold dropped by almost 40,000, for the first time in recent memory. Similarly, used-vehicle sales also fell by 16,000 vehicles.

If sales continue to decrease at this rate, dealers on the Ward’s 500 likely will see their overall revenue drop in the next couple of years. Sinking sales have a cascading effect on other areas of the operation, such as service, parts and financing.

Sam Pack, who has two Dallas-area Ford Motor Co.-branded dealerships (ranked 46th and 131st) on the Ward’s Dealer 500, admits it is a challenge offsetting the impact vehicle sales have on all of the operations.

“We study the markets. We are again trying to make sure that we’re taking advantage of the opportunities that exist,” he says. “We aren’t focused just on vehicle sales. We’re respectful of the impact of vehicle sales, but we also know we have to have the revenues of all the other departments.”

Pack’s Carollton store gained nearly $20 million in new-revenue last year, while his North Richland Hills dealership lost almost $30 million in new-car sales. Despite that, Pack says 2006 was a strong year.

“It was a year in which we performed from a competitive point of view at a very high level,” he says. “We were successful in growing our business and protecting our margins. And we continued to gain share of the market.”

Pack’s dealerships saw large jumps in parts revenue and in finance and insurance sales, while service and used cars provided modest gains.

“We were very disciplined in our approach to the market,” Pack says.

Dig into the overall revenue numbers a little deeper, and there is even more cause for concern. There is an increasing difference between the haves and have-nots, even for dealerships on the Ward’s 500.

For example, the top 100 dealerships on the list increased their total revenue by nearly $505 million, compared with 2005 revenue.

But dealers who make up the bottom 100 of the list may want to put away the champagne glasses. Those dealerships, as a group, lost more than $556 million in total revenue compared with 2005.

One can almost predict the brand trends. Not counting the single-point Porsche AG dealership on the list, Toyota Motor North America Inc. dealerships led all brands with an average store revenue increase of $6.8 million, good for $139 million per store.

Of course, it helps when you have Greg Penske’s Longo Toyota beefing up the numbers. The El Monte, CA, dealership continues to set new thresholds year after year in both total revenue and vehicles sold. In 2006, the world’s largest dealership sold more than 27,300 new and used vehicles, while generating more than $703 million in total revenue.

Interestingly, two domestic brands fared well, improving their average per-store revenue.

General Motors Corp.’s two Buick Pontiac GMC dealerships increased their per-store revenue by $3.9 million.

And Chrysler Group’s eight Dodge dealerships also increased their average revenue by $2.5 million.

However, the 11 Chrysler-Dodge-Jeep dealerships experienced a miserable year, watching their per-store revenue plummet by $9.7 million.

Cadillac dealers also had it tough losing, a whopping $16.9 million in average-store revenue.

Not surprisingly, Ford Motor Co. dealerships also suffered an average-store revenue short fall of $3.5 million.

So what’s the bottom line for these trends? It means the ability to grow quickly is becoming the sole property of a few large dealerships or groups owning large stores.

As large dealerships get bigger, their value increases, putting them out of reach of smaller and midsized stores. If the trend continues, it is not far-fetched to see a world in which only public dealer groups or large private investment firms have access to the type of capital that can net profitable and attractive stores.

Dave Conant, who owns a large group in Southern California – his Honda Superstore of Cerritos with $252 million is 18th on this year’s Ward’s Dealer 500 – is concerned about the trend.

He questions Irv Miller, a vice president for Toyota Motor Sales USA Inc., during a panel in May at an American International Automobile Dealers Assn. gathering, about a Toyota dealership in Arizona that recently reportedly sold for more than $15 million.

“How do you keep metro points in the hands of private dealers?” Conant asks.

Miller responds, saying prices for some of Toyota’s dealerships are coming down, and that the auto maker would like to keep private owners in control of their dealerships as much as possible.

“There will be a balance between public and private ownership of our dealerships,” Miller pledges.

Toyota, as do other auto makers can and does accomplish this, with strict framework agreements that dictate how many stores any one person or company can own.

But over time, as private dealers find it increasingly harder to grow their portfolios, one has to wonder if the future of automotive retail will be controlled by large corporations.

If so, that could signal the end of an era of strong, individualistic and entrepreneurial dealers.

– With Emily Prawdzik Genoff