2005: Tough Year for Dealers; But Some Worried More for Auto Makers

Auto dealer H. Carter Myers III said he experienced a first-time feeling at a meeting between dealers and General Motors Corp. executives.

"For the first time I felt more sorry for GM than for dealers," said Myers, who sells five GM lines as well as six other manufacturers' vehicles in Charlottesville, VA.

He said "on everyone's mind" was whether ailing GM and Ford Motor Co. would get well again. "There is somewhat of a nervousness over the health of the domestics and how it will affect profitability in a highly competitive marketplace."

That nervousness extended to import-brand dealers worried about a potential backlash of retaliatory trade measures stemming from the domestic manufacturers' troubles.

"Things are looking grim for domestics because of unfortunate decisions out of Detroit," said Don Hicks, chairman of the American International Automobile Dealers Assn. "And now some people are using the ‘T’ word again: tariffs."

Related document: U.S. Dealer Used Car Sales and Prices, 1995-2005

GM Cleared Air On Cutbacks

The day after GM CEO Rick Wagoner announced widespread plant closings and job eliminations in late 2005, he was in New York for a regional dealer meeting.

The session already had been scheduled so it was a "coincidence of the calendar," said Wagoner. But it also turned out to be an opportunity to meet with dealers in a major market, answer their questions and ease their worries.

"It was a chance to put it in context," said Wagoner.

He said there was "massive confusion" among dealers who feared that curtailing production by 800,000 units down to 4.2 million would leave them thin on inventory.

Dealers at the New York meeting and a similar one in Los Angeles also expressed opinions, pro and con, on GM customer incentive programs. Some thought they were great, others hated them.

"There's really not a dealer perspective on topics," said Wagoner. "There are a lot of dealers, and they do their businesses differently and they have different perspectives."

GM in 2005 carried on with an initiative to bundle Buick, Pontiac and GMC into single dealership franchises, with each franchise having a limited lineup but a full one when put together.

That effort saw "great success stories," including "huge progress in LA," said Wagoner. "Maybe a little less so in the Northeast. Getting that aligned will help us and dealers because it will give them a better profit opportunity."

He said GM needed "to do a better job in a number of metro markets." He cited populous south Florida as one such market.

Ford: Dealer Profit a Priority

As Ford put the finishing touches on a restructuring strategy, dealers looked for signs the program would restore their profits to pre-2004 levels.

Dealer profitability was a high priority in 2005 for the auto maker, said Dan Hay, dealer principal at Jim Burke Ford in Bakersfield, CA, and 2005 president of Ford's national dealer council.

"Of course, we don't always agree on how to get there," he added.

Having a road-map to recovery was important, said Jack Quirk, a 53-year dealer based in Bangor, ME, whose 10-franchise stores were run by five of his seven sons.

"Dealers want to see a plan," said Quirk, adding that domestic-brand dealers have not lost all hope. "We're all selling cars. Even though there are some concerns, dealers' confidence in the economy goes a long way."

But dealer Jerry Reynolds, owner of Prestige Ford dealership in suburban Dallas, said he learned in 2005 "never to say this is the worst it can get."

Michelle Primm, managing partner of the Cascade Auto Group in Cuyahoga Falls, OH, wondered if some product lines might go away.

"You don't have to be a rocket scientist to know there are some OEMs that may have to cut some brands," she said. But for her import-only dealership (Audi, Mazda, Subaru and Porsche), 2005 was "a good year."

DaimlerChrysler AG's Chrysler Group meanwhile was looking at metro markets for opportunities to expand its "Alpha" project in which dealers get three-in-one Dodge, Chrysler and Jeep franchises in return for building a central dealership facility for them.

"We're doing it one at a time," said Chrysler CEO Tom LaSorda. "We've got Dodge stores that move 2,500 to 3,000 units. They don't need to combine.Where it makes sense, we'll do it. Where it doesn't, we won't."

He was impressed by two such superstores, Golling Chrysler, Dodge and Jeep in the Detroit suburb of Bloomfield Township, MI, and Field Chrysler, Dodge and Jeep in the Chicago suburb of Northfield, IL.

"They each spent $12 million-$13 million on new facilities," said LaSorda.

Dealer Earnings Results Mixed

How was 2005 for dealers around the country? It depended on who you asked, and what you asked about.

Clifford Anschuetz of Cliff Anschuetz Chevrolet-Cadillac in Alpena, MI, said, “Unit-wise, we did all right. Profit, on the other hand, was not so good. We do have a strong fixed operations department, and that does help.”

Robert Martinez, owner of Desert Sun Motors (Toyota, Chevrolet, Pontiac, Buick, GMC, Cadillac) in Alamagordo, NM, said 2005 was a tough year, particularly for his domestic brands.

“Our profits were down 20% even though our units-sold stayed the same,” he said. “I would say increased floor-plan interest (rates) cut into those profits.”

There was a bright spot, said Martinez. “Toyota just keeps rolling along.”

Bill Minsker, president of Buckhannon Auto Mall in Buckhannon, WV, said, “For anyone who has been around this business for a long time, the challenges are nothing new. The domestics have a lot of opportunity here to come back strong.”

He described 2005 as a strong year for his Toyota, Chrysler, Dodge, Jeep and Subaru dealerships.

“Toyota, of course, has shown us a lot,” said Minsker. “I think the mistakes in 2005 were all of the crazy incentives such as employee (discount) pricing.”

Tom Vann, owner of Hillsdale Chrysler Dodge Jeep in Hillsdale, MI, agreed.

“With all of the incentives and pricing strategies, it can get crazy,” Vann said. “One of the things we're fighting is incentives and the environment they create. They can cause dealers to do some crazy things to keep up profitability.”

David Chun, president of Honolulu Ford in Honolulu, HI, said 2005 “was tough on everybody. But that is kind of unfair because business has been so good to us. We've been spoiled the last several years.”

Tom Ahl of Tom Ahl Family of Dealerships (Chrysler, Dodge, Jeep, GMC, Buick) in Lima, OH, said, “It was a roller coaster year.”

Ralph Martinez, CEO of Town and Country Dealerships (Chevrolet, Chrysler, Dodge, Jeep, Mitsubishi) in Milwaukie, OR, said, the market went “kind of goofy” in 2005.

But Martinez had faith in the industry. “I recently sold a Ford store, but if I could buy one right now, I probably would,” he said.

[email protected]