Chill Out, Chicken Little

A series of recent industry articles and expert interviews describe how bad the current automotive business is.

They say that not only is our business in bad shape, but forecasts call for sales to worsen before we see any improvement.

According to many of these reports, if you are a domestic dealer, well, who knows? A consensus forecast of new vehicle sales for 2007 is somewhat of an oxymoron since published industry forecasts range from a low of 15.9 million units to a high of 16.7 million.

Yet dealers have shown time and again that they are fighters and survivors. Some of them thrive in the tough times.

Early in my career, I recall a successful dealer friend commenting: “There's nothing I like better than a good recession.” I asked if he were joking.

He told me he was serious for the following reasons:

First, business conditions forced him to make needed changes (i.e., eliminate the fat in his organization in order to excel).

Second, he felt his operation could gain market share in a “down market” because he had positioned himself to do business. Specifically, his used-vehicle inventory was fresh and clean, so his position was liquid allowing him the chance to be aggressive with his new-vehicle business.

Third, his fixed operation was aggressive and profitable allowing him a high percentage of fixed coverage.

I'm not suggesting we should be or are headed toward a recession.

But if the predicted impending slowdown of new vehicle sales does happen, it will force us to do the things we know are needed sooner than later. Remember the adage: “Good habits are developed in bad times and bad habits are developed during good.”

Although 2006 vehicle sales were off compared with the prior year, they still topped 16 million for the eighth straight year. Before that, sales had reached the 16-million mark only once, in 1986.

So, even if total-unit sales do decline in 2007 to the median forecast of 16.4 million units, the retail portion of that number should be fairly consistent with 2006, considering the announced reduction in planned fleet sales by the domestic manufacturers.

Besides the new-vehicle market, don't forget other opportunities.

For example, used vehicles, in total, again outsold new vehicles by 2.6 to 1 (42.5 million used to 16.5 million new) in 2006.

With increased new-vehicle dealer success in the certified vehicle market and the increasing sub-prime market, there is tremendous upside potential for many dealers.

According to used-vehicle industry research by CNW Marketing Research, new-vehicle franchised dealers' percentage of total used-vehicle sales were 34.7% in 2003, 35.5% in 2004 and 32.9% in 2005.

What about the service and parts business, and the opportunities that exist for the average new vehicle dealership?

Many customers defect from the dealership service department after their warranties expire. Considering the average number of units in operation per dealership, isn't there a way for us to increase our penetration rates, and lure back customers who have defected and are not utilizing our services for whatever reason?

My overall point is there are numerous opportunities available to us if we only concentrate on and make them a priority. Each new vehicle is sold by a dealer. So doesn't it stand to reason that we should have the lion's share of the business when that once new vehicle is again sold as used, and doesn't the same theory apply to vehicle services?

The Chicken Little falling-sky theory is not applicable to our business today or in the foreseeable future.

But this might the time to step back, take a look inside your business and then look outside to see if there are potential opportunities.

Good selling!

Tony Noland is the president and CEO of NCM Associates Inc. He is at [email protected].