Rough Days for the Ward's 500

Related document: 2009 Ward's Dealer 500 List

It is stating the obvious to say the Ward's Dealer 500 ranking numbers are down across the board this year.

But the depths to which the numbers have fallen are shocking.

The annual list, now in its 22nd year, ranks dealers according to total revenue, which plunged $26 billion from 2007 to 2008.

For the first time this decade dealers on the ranking averaged less than $100 million in total revenue, dropping to $92.2 million in 2008 from $117.5 million in 2007.

The last time the Ward's Dealer 500 average total revenue was below $100 million was in 1997.

Overall industry sales in 2008 dropped nearly 3 million units from 16.1 million in 2007 to 13.6 million, contributing to the unprecedented declines on the Ward's Dealer 500.

Dealers on the Ward's 500 accounted for 7% of the industry's new-vehicle sales in 2008; down from 7.6% in 2007 and 8.1% in 2006.

The cutoff point on the list this year is $43.6 million — a level not seen since the early 1990s.

Top dealers on the list were hit particularly hard. Fletcher Jones Motor Cars, topping the ranking the last two years, saw its revenue plunge $86 million from 2007 to 2008.

Dave Smith Motors dropped a whopping $181 million, yet maintained its hold on second place on the Ward's 500. The Idaho-based dealership sold about 4,500 less new cars in 2008 than in 2007.

Fletcher Jones, meanwhile, sold 800 fewer new vehicles.

Classic Chevrolet Ltd. was one of the big winners in 2008, climbing six spots from 10th to fourth on the list, with a decline of less than $3 million in total revenue.

The Texas-based dealership kept its title as the top-selling Chevy store in the world, even though its new-vehicle sales dropped about 800 units. Despite that, its new-vehicle sales generated almost $11 million more in new revenue in 2008.

It was the top-selling Chevrolet dealer for 11 out of 12 months in 2008, losing one month to Duane Paddock's New York dealership.

Unlike most dealers today, Classic carries a large inventory and markets that as a key strength, Justin Norwood, the store's Internet director, tells attendees at the Ward's Spring Training Conference held in March in Tampa, FL.

This year's 500 also witnessed numerous powerhouses not reporting their numbers, including Norman Braman's Florida-based group, which placed no less than five stores on the list the last several years — two of which were in the top last year.

“It's a matter of ego,” says the chief financial officer of a large southwest luxury dealer, who asked not to be named. “Our monthly sales dropped from more than 100 to less than 30. Sometimes, you don't want the competition knowing that.”

Other dealers, such the Bill Heard Automotive Group, which had 12 or more stores on the Ward's Dealer 500 the last several years, and the Lawrence Marshall dealerships, went out of business in 2008.

In a cruel irony, Frank Rodriguez's Greenway Chrysler Dodge Jeep store in Orlando, FL, ranked 385th this year, is one of the 789 Chrysler dealers the auto maker is eliminating.

Average store revenue from new-retail sales took the biggest hit on the list, falling more than $18 million.

The Ward's 500 dealers sold an average of 568 fewer vehicles in 2008 than in 2007, yet generated only $400 less per new-vehicle sale.

Average used-vehicle revenue, meanwhile, declined $4.5 million with 218 fewer sales.

David Ferraez's Green Brook Pontiac Buick GMC Hummer store in New Jersey fell from 138th to 251st on the Ward's Dealer 500, due to a $48 million decline in revenue.

The environment is such that dealers can only hang on, try to find opportunities in unusual places and hope business returns quickly.

“A bunch of us will say we knew this day was coming,” Ferraez says. “But I guess we lived in sort of a lala land thinking everything would work out.”

He says revenue “dropped like a lead balloon in October.” His Hummer sales went from 50 a month to only five. As a result, October was the first time since owning the store he lost money, losing nearly $250,000.

Despite the continuing difficult environment, Ferraez was back to being profitable the next month. Green Brook still is one of the largest GMC dealerships in the Northeast, Ferraez says.

He eliminated 55 positions to maintain a $9,000 gross per employee level. “I like operating at the level because I know I'll be profitable,” he says.

Ferraez is not hunkering down, though, like so many other dealers are. He is watching expenses but his personnel cuts in October were it for his defensive measures.

“I'm afraid to play defense,” he says. “In this economy, you have to think ahead and take chances.”

Although General Motors Corp. is shutting down the Pontiac brand, Ferraez aggressively is buying G6 and G8 models from other dealers who have retrenched and stopped buying.

“The only thing I know to do right now is to accentuate what I have now,” he says, and that includes Pontiac. “I'm just looking for opportunities that a normal sane person wouldn't look at.”

Dealers are dumping the vehicles to get rid of their inventory, which means Green Brook can buy them at a cheaper price. That strategy is helping the dealership sell more cars.

When Buick's new LaCrosse hits showrooms this year, Ferraez says he's only going to have three of them at first. He'll put them in the showroom next to the less expensive Pontiac G8.

“I'm going to use the Pontiac as my switch car,” he says, while admitting he's not sure if the strategy will work. It's not a bad gamble, though, because several of his customers recently have traded down to a Buick or Pontiac from luxury brands such as Lexus and BMW.

Although business remains difficult, Ferraez says there are promising signs. “Traffic is not bad,” he says. “I've got enough to triple my sales. We just don't have the wherewithal yet to put leases together.”

Since the credit crisis hit last year and General Motors Financial Services doing little leasing, Green Brook has lost nearly 95% of its lease turn in customers. But that trend is starting to improve as the store turned 30% of them into sales last month.

Although there are a few positive signs, the rest of 2009 will be challenging. Sales are hovering at a 10 million rate for the year, which is at least a three million decline from last year.

Combined, 2008 and 2009 will see about 2,500 dealerships eliminated from the marketplace. That may be good news for dealers on the Ward's 500, but in the short term, they will have to deal with a glut of inventory, both new and used, severe depression of real estate values and inflation.

Several experts are predicting inflation to jump sharply this year which will bite into what little profit there is today.

“Inflation is coming, we're seeing it already,” says Doug Austin, president of the Performance Management Group, a firm that helps dealerships manage their expenses.

Dealerships are paying more for transportation, uniforms, removal of hazardous waste and lubricants, than they were this time last year.

Austin advises dealers to avoid monthly contracts and lock in prices with vendors for at least the next 12 months. Otherwise, prices could get out of control quickly, he says.

Anything dealers can do to eliminate expenses should help reduce pressure from floorplan lenders that are conducting strict audits of dealership's financial books today.

Averages Per Store

New-Vehicle Revenue: $56,685,997

New-Vehicle Sales: 1,891

Used Vehicle Revenue: 18,499,600

Used Vehicle Sales: 1,052

Finance & Insurance Revenue: $2,918,068

Service Revenue: $5,359,056

Body Shop Revenue: $892,500

Parts & Accessories Revenue: $7,824,289