How They Cope with Crisis

In February, Paul Taylor, chief economist of the National Automobile Dealers Assn., and others were predicting 2009 light vehicle sales of about 15.7 million units, a drop from the 16.1 million sold last year.

As the year wore on and the economy worsened, Taylor adjusted his prediction downward to 14.5 million units.

That figure doesn't look so bad in retrospect, as Taylor once again lowers his forecast levels.

“It's impossible to get to the 14.5 million units from here,” Taylor now says. “The slow October start makes it difficult. We now expect 13.5 million light vehicle unit sales in 2008, with the help of falling gasoline prices.”

Part of the problem — and there are a lot of parts — is that consumers “stayed at home” while watching what's going on in financial market, he says.

Of 20,500 total dealers in the U.S., at least 25% of dealers are fiscally unprofitable in a given quarter when negative market conditions occur, according to NADA analysis.

NADA Chairman Annette Sykora, a Texas dealer, says the industry could lose 700 dealers this year, compared to 600 in an average cycle.

NADA actively lobbied for the Wall Street rescue package.

“We provided Congress with real life stories from Main Street that brought to life that the crisis was not restricted to Wall Street,” Sykora tells the the Automotive Press Assn. in Detroit.

NADA also encouraged dealers to tell their distress stories to Congress.

Sykora tells Ward's: “With our current economic climate everyone is working hard to stand out and make their goods or services more valuable to the consumer who is pondering their financial decisions more carefully than in recent times.”

In a volatile market, buyers are caught in the credit crunch like never before.

“The problem is huge — about 94% of buyers finance their vehicles,” Sykora says.

Dealers are reacting to the situation in different ways.

“Cash is king in this environment. We're luckily well-capitalized and have been able to reinvent ourselves,” says Jerry Seiner who operates Chevrolet, Cadillac, Hummer, Buick, Pontiac and GMC dealerships in the metro Salt Lake City, UT.

Salt Lake City is a microcosm of the U.S. market, says Seiner, who also owns Kia and Nissan stores. “Expensive homes are not selling well here. Most people here are commuters, so they are experiencing the oil pinch.

“When people don't know what to do, they do nothing,” he says. “If they're in market for a car, they wait for a more vibrant market to return.”

Dealers are in for even more belt-tightening among dealers, Seiner says. “We are watching every business expense.”

His dealerships have changed inventory mixes to include more better-selling vehicles such as smaller cars and cross/utility vehicles. The Seiner stores beefed up their used-car operations. But sales still are off.

“Our losses the past three months have been far higher than last year, really decreasing profits,” he says. “Overall, we considered ourselves a 7,000-year retail group, new and used,” Seiner says. “This year, we're hoping we'll hit 6,000 — and very well may not.”

He adds: “As a group we sell over 70% trucks, and truck sales are off much more than car sales. Actually, we were up slightly in Buick, Pontiac sales but down substantially in GMC truck. We're a very heavy Cadillac truck market and Escalade is off.”

A bright spot is the Cadillac CTS sedan, he says. “We're out of '08 CTS models and selling every '09 we can get in.”

Used-vehicle sales have been a saving grace for John McEleney, an Iowa dealer who will be the 2009 NADA chairman.

“We're impacted like a lot of dealers, but used operations have held up fairly well, says the president of McEleney Autocenter, Inc. in Clinton, IA, and McEleney Autoplex in Iowa City.

He sells Chevrolets, Buicks, Pontiacs, GMCs, Cadillacs, Toyotas and Hyundais. He sold his Chrysler franchise last year.

“It's difficult everywhere, but the Iowa region is fairly strong because it's tied to agriculture,” he says. “That's served to help us buffer the problems the rest of the country is facing.”

In Davison, MI, dealer Chris Graff of Hank Graff Chevrolet, believes General Motors Corp. is still viable, despite declining sales, talk of bankruptcy and merger discussions with Chrysler LLC.

“GM leaders are doing a lot of things right — and there's been an overreaction to their performance in the market,” says Graff, whose family operates 10 GM brand dealerships.

The family has been selling cars since 1914, GM products since 1982. Davison is a suburb of Flint, MI, a city that has been hit hard by a series of GM plant closings within its limits.

In 1992, GM was on the brink of bankruptcy, but there wasn't much talk or outside knowledge about it, Graff says. “Today there's much more transparency.”

GM has made strides in improving its product lineup, but obstacles remain, he says. “The challenge for GM is to get more products that consumers want, more fuel-efficient models, in the hands of more dealers.”

Chip Perry, AutoTrader.com president and CEO, offers hope for dealers and others who may wonder when will the hard times end.

“Those in the industry should remember that consumers cannot push off purchasing a vehicle forever,” he says. “We should see an increase in sales once confidence in the economy begins to improve.”