Are You a Survivor?

Commentary

Each year, some of us so-called pundits like to sit around and predict what the theme for the upcoming National Automobile Dealers Assn. convention will be.

With this year’s “party” a few days from now in San Francisco, dealers seem to be falling into three groups: Survival, Back-to-basics and “Bring it on!”

If vehicle sales actually do fall to 15.6 million to 15.7 million units (or lower) as many analysts predict, many dealers will feel some pain.

There’s no doubt many of you will be asking the tough question within the next couple of years of whether you should just shut it down and retire. Many dealers already have made the decision.

Some dealers already have closed certain franchises, selling the property or turning it into a used-vehicle operation.

Others are hunkering down, cutting staff and reducing variable expenses, such as advertising, in an attempt to stay in business.

For some dealers who are a little older and wiser, downturns are nothing new. They survived the early 1990s, while others can tell stories of taking drastic actions in the late 1970s to stay in business.

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Bob Pietroske, a General Motors Corp. dealer in Manitowoc, WI, remembers in 1979 when he had to lay off 50 employees, including a man who now is his general manager. The store went from 69 employees to 19.

“We had to do it to stay alive,” Pietroske told me in 2006. Times were much worse then. Unemployment was near 11%, and the economy was in trouble.

“I told the employees we were going to be in business and be profitable,” Pietroske says. “Six weeks later, I was able to call many of them back.”

Everyday, I receive updates on the automotive retail sector from various news sources, and it’s rare for one of these updates not to have news about a dealership shuttering its doors.

Conventional wisdom says the Detroit auto makers need to eliminate several hundred – if not thousands of dealers. Whether that’s true is open for debate, but for now, it seems the market is doing the job for the auto makers.

In the last two years, Ford Motor Co. has lost about 400 dealerships. One problem, though, many of those stores are minority dealers. According to Ward’s estimates, more than 100 – nearly a third – of the Ford dealerships that have exited the market were minority-owned.

It’s not a problem confined to Ford. The inability for many minority-owned dealerships to survive is such a problem NADA is hosting a panel and breakfast at the Fairmont Hotel on Sunday to discuss ways to combat the problem.

Other dealers tell us they are in a back-to-basics mentality. A couple of large dealer groups aren’t sending anybody to the NADA convention this year, instructing their employees to stay in the showrooms and focus on selling and servicing as many vehicles as possible.

It’s a time to tighten the follow up and sales processes. This also is a time dealers should consider investing more in their sales staffs with training and compensation.

Dealership Consultant Mark Rikess believes managers are a critical component. If they sit at their desks doing paperwork, rather than actually training and managing the sales people, the dealership might not be in a position to survive.

The advertising component also is important. It’s true, many dealers may not be seeing a lot of traffic walk into the showroom, but data shows there is traffic online that is reaching out to the store – either through the dealership website or from third-party sources.

I’ve heard far too many stories of dealers complaining about not getting any traffic only to learn they have hundreds of leads in their Internet-lead management tool to which they have not responded.

The third group of dealers, with a “Bring it on!” attitude, are like hungry wolves sizing up wounded prey.

I recently spoke to several dealers at an event telling them how tough 2008 will be. One manager, from McCluskey Chevrolet, a large dealership in Cincinnati, who was sitting in the front row, appeared to be grinning – or maybe smirking – as I waxed eloquently on the pain that may soon be inflicted upon the automotive retail sector.

Later on, he remarked that his group was welcoming a downturn in sales. “Bring it on,” he says bravely. “All this talk of doom and gloom amuses me.”

While most dealerships are looking at 2008 as a year to make cuts in advertising and personnel in order to merely hang on, the manager says it will be a year in which the group expand its marketing initiatives.

“We look at it as a growth opportunity,” he says.

One large dealer 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. His group has been trying to rework some of its framework agreements with certain OEMs to allow for more flexibility in how many rooftops it can own.

Attitudes such as that are refreshing, but they often reflect a company that is large and has the resources and capital to survive a significant downturn.

Unfortunately, many dealers are bleeding money – and there is no end in sight. And that means it’s going to take more than a can do attitude to survive the next several months.

For those dealers 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.

The question is, will it be soon enough?

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