Dealers say what's what

Auto retailers from across the country speak out The economy is cooking, but for how long? The Internet is being described as a great selling tool, but for whom, really? And what's the deal with manufacturers getting into the car-selling business?

Those are some of the questions dealers raise as we close out our annual "State of the Industry" series. In the December edition, domestic auto executives shared their concerns and visions. In January's issue, import executives did the same.

Now it's the dealers' turn. Here's what they had to say:

As the oldest GM franchised dealer family, the Rinke dealerships on metro Detroit's northeast side have weathered a number of adversities while at the same time building a brand name and customer base "immensely valuable to our long-range future."

So says Kevin Rinke, president since 1988 of the 82-year-old dealerships and an astute observer of the retail automotive scene.

"We have retailed more than 100,000 new vehicles since 1917," notes Mr. Rinke, "but shrinking margins to below 2% have become a concern over the past 20 years on that side of the business. That's below $1,100 a car, and while I welcome the opportunities of the Internet and we have a website, I see the new online lead and sales generators as creating further pressure on new-vehicle and sales profits."

The profusion of sales incentives and rebates is difficult for dealer personnel to interpret for customers, says Mr. Rinke. He has counted as many as 360 combinations of incentives on new GM vehicles during slow sales periods.

Publicly owned consolidators and factory-owned stores "have not changed the landscape of the new-car business, which is 70% referral in our case," asserts Mr. Rinke.

"Nor will they. The franchised dealer system will be around for a long time because it serves customers so much better over long periods than anything else could."

Jim Moran, the 81-year-old patriarch of the largest-volume Lexus dealership in the U.S. and the five-state Southeast Toyota distributorship "walks the talk" about one issue he strongly believes every automaker should never forget in the new century:

"There is no more important grassroots input than what we learn from our dealers. When a factory manager orders a month's production of vehicles, he or she is making a huge commitment.

"No automaker can afford to have such a check drawn based on one person's judgment. No matter what a genius that person may be, you can't know the marketplace as quickly as it can change."

Distribution and allocation problems have been a constant in the new-vehicle business, Mr. Moran recalls from his storied days as a Hudson and Ford dealer in Chicago. He landed on the cover of Time Magazine in 1961 as a symbol of the post-World War II boom.

But he reminds automakers that failure to stay close to dealer and customer trends could prove costly. He says Toyota's success in recent years is because they've done that.

The new president and CEO of AutoNation Inc. is not sitting around licking his wounds after closing down 23 used-vehicle superstores last fall and calling a halt to the aggressive dealership buying campaign that scooped up nearly 400 dealerships in three years.

"We're going forward with our Internet and Tampa Bay Autoway initiatives," declares Mike Jackson. "We maintain many of the strongest dealers in top-volume markets and they've all had great years in 1999.

"The Internet site should bring in $1-1/2 billion in sales in 2000, up 50% from 1999."

Mr. Jackson went to AutoNation last fall from the presidency of Mercedes-Benz of North America as an advocate of responsiveness to the changing climate for new-vehicle sales.

"I haven't changed my convictions because of the problems at AutoNation," he says. "We went off on the wrong track with the used-car stores, but our new-car stores still brought in about $19 billion in revenue in 1999."

As keynoter for the 1999 NADA convention in San Francisco, Mr. Jackson expressed concern that manufacturers and their dealers might let outside on-line buying services take over auto sales.

He retains this view as CEO of AutoNation, asserting that "the old rules don't apply anymore and...circumstances call for very aggressive, progressive action."

In a "blue-collar" town of about 125,000, lacking any luxury-brand dealers, costs of doing business and staying competitive remain a constant concern.

That's the case for Vidmar Motor Co., a seven-brand dealership in the southeastern Colorado city of Pueblo, whose principal, Barbara Vidmar, is the new chairwoman of the American International Automobile Dealers Association (AIADA).

Cost factors facing co-owners Barbara and her husband William, who is NADA's Colorado director, include training for the Chrysler Five Star Award and requests from the store's top-selling brand, Honda, to relocate into a dedicated building.

"Our sales in 1999 rose about 10% to 980 new and 1,150 used," says Mrs. Vidmar, "but it's a very competitive market and if something happened to Bill and myself today, our three kids probably wouldn't be able to keep the business."

Mrs. Vidmar spoke on the day her longtime downtown competitor, Spradley Chevrolet, moved to a new building on the new Highway 50 auto row outside town.

The Vidmars own a nearby used-car facility on three acres, where a franchised brand could be moved. But that proposition is an expense burden they know many other smaller-city dealers share.

The Five Star status, for which Vidmar Motor has been recertified for another year, "is a wonderful boost for us and our 93 employees," Mrs. Vidmar says.

"I recommend that small-town dealers concerned about employee retention, customer satisfaction and building appearance go for it if they have a Chrysler brand or urge their factories to adopt a program like it."

As AIADA chairwoman, Mrs. Vidmar will focus on the association's pursuit of free trade to and from the U.S.

Vidmar Motor, founded as an Oldsmobile dealership by Mrs. Vidmar's father-in-law, Jake, in 1945, also handles Mazda, Chrysler, Plymouth, Jeep, Honda and Volkswagen.

Mrs. Vidmar raised three children while sharing actively in the dealership's growth and devoting the last 10 years to a role with AIADA. She says women have no reason to fear being a dealership principal and expects the number of women dealers to continue increasing.

Fletcher Jones Motorcars in Newport Beach, CA, had perhaps its best year in 1999 and ended the 12-month period as the highest volume Mercedes-Benz dealership in the country.

"I'm very concerned about the spiraling interest rates," says General Manager Garth Blumenthal. "If they rise too quickly, they could slow down the market."

Mr. Blumenthal also says he is concerned about the stock market. "If the stock market is unable to keep up its current pace it could stymie the creation of wealth that helps luxury car sales."

In addition, he's watching very carefully how Mercedes-Benz's new policy of non-negotiated prices plays out.

"I'm hoping that Mercedes-Benz has the character to closely control the supply of cars in the marketplace in order to ensure the viability of the negotiation-free process it introduced with the 2000 model year cars," says Mr. Blumenthal.

A successful minority dealer consolidator, Tony March is concerned that manufacturers may in the future prefer non-minority applicants for franchises because blacks and Hispanics often lack capital and experience.

The retail "revolution," says Mr. March, founder and co-CEO of March/Hodge Holding Co., "could virtually eliminate the access ability of minorities to larger, better dealerships.

"Consolidators have raised the values of franchises, especially in more desirable neighborhoods, and this has caused some automakers to take the path of least resistance on approving new dealers."

At minority dealer meetings with automaker executives before January's NADA convention in Orlando, the cause of minority-dealer growth was pressed on all automakers.

Mr. March reports that some progress has been made in 1999 in widening the number of minority-owned stores outside the Big Three domestic companies.

Factory-owned dealerships are a second concern of Mr. March, who co-owns the 19-dealership March/Hodge Holding Co. with Ernest Hodge, who is based in Atlanta.

Says Mr. March, "Retail-oriented dealers should be assigned to running dealerships, minority or non-minority, not factory people who have never run stores. This is especially true for young minority candidates who have never run stores."

In 1999, March/Hodge purchased a Toyota dealership in Rockland County, NY, from United Auto Group, and was assigned a Jaguar franchise in Alexandria, VA. It plans a new building for that.

Gary Ackerman is president of the Gaudin Automotive Group and operates two of the largest Ford dealerships in the Las Vegas market. He says his focus heading into 2000 is on the Internet, politics, the booming Las Vegas market and his workforce.

"I'm worried about the short- and long-term impact of the Internet," says Mr. Ackerman. "And will it change the franchise system?"

Speaking of the franchise system, Mr. Ackerman finds himself being thrust into the political arena more than ever before to protect his 70-year-old family business.

"Large dealers are having to get more involved in politics that manufacturers may see as adversarial to their goals."

He also is concerned about being able to keep up with an increasing number of customers as the booming Las Vegas economy continues to bring people to the area.

"A lot of people would say it is a problem they wish they had, but keeping up with CSI when the customer base is growing 20% per year is really a big management problem."

Add to that a difficulty finding quality employees. "It's a nightmare," he says. "I'm having problems recruiting, training and maintaining a quality workforce at every level."

As son of legendary Chicago Chevrolet dealer Zollie Frank, Chuck Frank has seen his share of unusual pronouncements from General Motors Corp. But none riles him like GM's plans to own dealerships under the General Motors Retail Holdings (GMRH) umbrella.

"I'm concerned that they are encroaching on the retail business and are going to disrupt the marketplace by competing with their own dealers," says Mr. Frank. "I'm very skeptical about their intentions."

Mr. Frank also is leery of direct Internet sales by large dealership groups like AutoNation and GMRH if it is successful, which he doubts. "If they get enough outlets in major markets, they could use them as distribution points for an Internet sales strategy," Mr. Frank says. "That could be pretty scary."

In 1999, "Z" Frank Chevrolet, located in urban Chicago, had its best profit in the 60 plus years in business. Mr. Frank credits a large-scale cost-reduction plan for the bottom-line improvement.

Despite a more efficient business, Mr. Frank, like many other dealers across the country, is having trouble maintaining a qualified workforce. His main personnel concern is the bottom third to half of the sales force and with service writers.

Her growing Chevrolet dealership in Woodhaven, MI, is enjoying the fruits of a strong economy. But the economic future is one of Pam Rodgers' top concerns for this year.

"Even though all indications are that this year will be close to as good as last year, the economy is my first concern," says Ms. Rodgers. "It drives everything, and you just don't know."

Like many other dealers, Ms. Rodgers is keeping close tabs on the Internet. "The evolution of the Internet and how it will effect car sales is a concern." She says she's convinced on-line shoppers won't put an end to the franchised dealer. Still, she's monitoring "how the manufacturers handle it" and wonders about "the different role in the vehicle purchase it will play."

Ms. Rodgers says she's happy with the current product lineup offered by Chevrolet and is excited by the new vehicle in the pipeline, however, "we need good product, pricing and merchandising," she says. "People always want something new."

My biggest concern right now is managing the impact of e-commerce on how car dealers do business," says Jon Lancaster, Jon Lancaster Inc, (Chevrolet, Toyota, Nissan), Madison, WI. "Our biggest challenge will be to come with consumer-centric business models that allow us to retain profitablity. The Internet allows third-party intermediaries; namely, the Internet-based car-buying services, to separate information from product, and the value, we're beginning to understand, goes with the information.

"The Internet companies are consumer-centric, and car dealers and manufacturers have to create and identify business models that are equally customer-centric. Otherwise, the Internet services will commoditize our product and compress dealer margins.

"The manufacturers' margins are also vulnerable, since the alternate on-line financing sources can and often do cut the captive finance companies out of the loop.

"This doesn't preclude a role for the Internet-based car-buying services; they have the capability to drive business into the dealerships. Years ago I saw that the Internet was going to level the playing field by providing information to everyone, information that used to be available only to the dealer and to that small handful of customers who would bother to look for it in magazines like Consumer Reports.

"But presently, the availability of so much information to the consumer sets the stage for a major collision on the showroom floor when the consumer knows more about a particular vehicle than the salesperson.

"Dealers and car manufacturers are going to have to get together to address this problem. Those manufacturers who get closest to their dealers in an effort to find mutually beneficial, consumer-centric solutions will be the winners in the long run."

I've been in this business all my life, from driving a parts truck to now managing for a publicly traded company," says Don Mealey, executive general manager AutoNation, Orlando, FL. "Right now we're seeing an unprecedented consolidation of ownership of retail dealerships, so it's an unusual time to be in the auto retailing business, particularly if you're uncomfortable with change because change is now a way of life.

"I think initially the auto manufacturers saw consolidation as a threat, but now my sense is that the manufacturers may see it as a very good thing in that good retail branding and practices can enhance their product.

"There is also an important role for the publicly owned companies that are in a position to infuse new cash into the business. If you're a dealer who's been around a long time and is trying to survive in a saturated market without adequate resources, the public companies may be able to help a dealer address some of these resource problems."

A lot of dealers are worried about how the Internet will impact their business, but I think the Internet will shake out to be more of a fact-finding tool for customers than a sales tool for dealerships," says David Ceiner,Ceiner-Woods Ford, Kernersville, NC.

"Vehicle information has been out there for many years for people interested in looking it up; it's just easier to find on-line now. Studies suggest Internet buyers are paying more per vehicle than customers who actually come into the showroom. The Internet customer is easier to deal with because they tend to know exactly what they want.

"I'm not as concerned about the Internet as I am about the lack of emphasis on car production at Ford. They've been putting most of the research and product development money into trucks for a number of years. Yes, it's a SUV market right now, but when the first signs of a new gas crisis appear, it will be a car market again. I don't believe we can compete very effectively in the car market right now.

"I'm very pleased with the Focus, it has a lot of potential, but it's geared to a smaller market than the best-selling cars - Toyota Camry and Honda Accord. Taurus is in the league of Camry and Accord, but apparently the public doesn't think so.

"American manufacturers have come a long way in terms of fit, finish and quality, but they're still not where the top-selling imports are. We can build very good cars in this country if we want to. The new Lincoln LS has come a long way in terms of fit, finish, and quality, which, I think, rank right up there with Lexus. I hope Ford Motor will realize that we need to shift our emphasis back to cars because it's not always going to be a truck market."

Band width and modem speed will be major issues for dealers in terms of the amount of information that can be down-loaded from the Internet says," Wes Lutz, Extreme Dodge, Jackson, MI. "At this point only Saab has implemented an Internet-based DCS system for its dealers, but all the manufacturers seem to be moving in that direction - migrating toward delivering information to their dealers through the Internet - and dealers are not ready for that.

"They have analog phone systems, not digital T-1 systems. Most dealers don't even know yet that they'll need to have a different type of communications link, and for a typical dealer to get a T-1 link installed, it's probably a six-month process in today's market."

Passenger cars were all Richmond Motor Co. sold when it started as a Ford dealership in 1916 in the venerable Virginia capital.

Trucks have taken over the lion's share of the business now, says owner Robert C. King, Sr., but the 73-year-old son of dealership founder Rock King forecasts a recovery for the passenger-car side of the franchise.

"Actually, if you classified vans as cars, it would be pretty close between trucks and cars. But I think Ford has given us a great seller in Focus and will upgrade Thunderbird and Crown Victoria so that they'll be coming back, too."

Mr. King says he'll miss Ross H. Roberts, who retired Dec. 31 as a Ford vice president and previously served as Ford Division general manager. A photo on the wall of Mr. King's office shows Mr. Roberts presenting a 75th anniversary plaque to Mr. King.

A holdout against Ford Motor Co. plans to form a dealer collection in Richmond (in which Ford would invest in dealerships), Mr. King says he was not surprised by the auto company slowing the project down last fall or by its consolidation problems in Oklahoma, Rochester, NY, and Utah.

Mr. Roberts' final job with Ford was overseeing those projects.

"Factory stores never did work. Ross knew it but he still was a good dealer guy at a time when we need more like him. I'm concerned we won't see his type again."