Keep Your Eyes on the Prize

Banks remain exceptionally skittish and will likely not begin lending at levels that will be productive for dealers. Much like 2009, floorplan lending is limited and working capital lines seem to be a thing of the past.

Many dealers were rescued from the brink of bankruptcy in 2009 by “Clunkers,” but 2010 likely will lack a similar savior.

Part of the recovery in 2009 was aided by low fuel costs. Those now are going up. There is a direct correlation between consumer discretionary spending and fuel costs; any comparable increase in prices may stifle the recovery.

The Fed will likely begin raising interest rates in 2010 in an effort to control inflation. This will impact most dealers' floor planning, working capital and mortgage costs.

Commercial real estate is not expected to rebound in 2010, impacting the ability of dealers to either tap equity in real estate or allow them to operate on a level playing field compared to dealers who entered the market post-2008.

High unemployment rates have enabled many dealers to significantly reduce compensation costs (a dealer's largest expense) to provide a competitive advantage over comparable dealers who have maintained compensation plans and level from pre-2008.

Manufacturers will undoubtedly use the pending economic recovery as an excuse to continue their trend of compressing dealer gross profits through modifications to dealer invoice discounts and back-end money.

Signs of economic recovery will re-embolden manufactures to return to the pre-2008 dealership facility image programs. Many manufacturers will begin to lift their self-imposed moratorium on pushing dealers to upgrade their facilities (GM exclusive facilities, Hyundai showroom within a showroom, etc.).

On average dealers represent approximately one-fifth of states' sales tax revenue. With declining sales, both state and federal governments will likely look to dealers to aid with making up with collection deficits (LIFO Repeal, Franchise Taxes, etc).

Dealer acquisitions will be primarily limited to large and well-capitalized. This will limit emerging dealers from participating in distressed store opportunities. In many markets, large groups will then be able to solidify their presence.