Dealers Leaner and Meaner

Domestic-brand dealers who survive the downsizing of ranks will be stronger competitors against foreign brands.

So say participants at an annual conference on dealership financial issues sponsored by the Michigan Association of Certified Public Accountants.

“Sales per domestic-car dealer will move up with the rebounding market, especially in metro areas,” says Chip Maher, a former Lincoln-Mercury dealer in Richmond, VA, and a veteran best-practices 20-Group moderator for the National Automobile Dealers Assn.

“That so many Detroit Three dealers should be peeled away in a single year is regrettable, but it's a big opportunity for the survivors,” he says.

“What's also working among the domestic makes is improved products, more economical trucks and rebounding residual values that revive affordable leasing programs.”

A panel of dealers shares Maher's optimistic outlook for a 2010 recovery.

Sam Slaughter, president of Sellers Buick-Pontiac-GMC in Farmington Hills, MI, says positive signs emerged with the summer's “Cash-for-Clunkers” government incentive program.

“The used-car market rallied, and we had our best September in four years,” he says. “New-vehicle purchasers mostly were non-intenders, and (General Motors Co.) and GMAC got back to leasing, which spurred the market into the fall months.”

Jeffrey Tamaroff, a Roseville, MI, Buick dealer with Honda, Nissan, Acura and Kia franchises, says the tight market before Clunkers prompted him to do more advertising this year than in 2008.

Across town, in Southfield, MI, his family lost its Buick and Dodge franchises, but offset that with import franchises in its portfolio.

“The Dodge loss in the (Chrysler Group LLC's) shakeout was a tough one, because of a dedicated building and the strong demand for the Dodge Ram truck line.” Tamaroff says. “It hurt when Chrysler switched our Dodge franchise to a Chrysler-Jeep dealer across the street from out dealership.”

Chrysler-Jeep dealer Robert Shuman, of Walled Lake, MI, survived the Chrysler dealer cuts, which were deep in the Detroit market.

“Fiat (Automobile SpA) is taking over Chrysler lock, stock and barrel,” Shuman says. “And we can only hope that their Fiat, Alfa Romeo and Lancia cars will fill the gap.

“We couldn't land the Dodge franchise,” he says. “But now that Dodge truck is being handled separately from Dodge car (since Chrysler split the division into two entities), we would welcome the truck line. Chrysler dealers have been through a lot this year, and we deserve to be adding new franchises instead of subtracting.”

Signs of an improving market into 2010 were cited by Comerica Bank's chief economist, Dana Johnson, who asserts that pent-up demand for new vehicles has not been diminished by the 2009 market downturn and the GM and Chrysler bankruptcies.

“The scrappage rate, always a good barometer of future new-vehicle demand, has risen and leasing has returned for credit-worthy buyers,” says Johnson. Other factors he cites include better residual values.

Meanwhile, the weak economy has driven down the value of dealerships, say Tony Colucci and Thomas A. Frazee of UMY Advisors in Sterling Heights, MI.

Using sales of publicly owned dealerships, Colucci and Frazee say stores valued at $2.6 million in December 2005, dropped to $1.1 million in June 2009. That reflects a downturn mostly in metro markets.

“This certainly is a good time to buy franchises at modern-day low prices for stores in metro markets, where the public dealer groups are concentrated,” Colucci says.

“Country dealers in single-point towns may find it harder to find buyers willing to pay Blue Sky values for future growth and profits, but that depends on the franchise,” he says.

Frazee says Hyundai Motor America Inc. and Kia Motors America Inc. are “aggressively” seeking stores in open-point markets, while domestic auto makers are “still looking to divest franchises which they regard as underperformers.”

Some closed domestic stores may become outlets for hot import brands, Colucci says. “We see dealership values bouncing back in 2010 and 2011.”