Hurrah for Houston

Houston, the largest city in Texas, is the city with the most dealerships on the Ward's Dealer 500, our annual listing of the top auto retailers in the U.S.

The city of Houston has 20 dealerships on the Ward's Dealer 500, the same number as last year. That doesn't include the stores in Houston's sprawling suburbs.

Total revenue for the Houston dealers on the Ward's 500 this year decreased from $2.9 billion in 2002 to $2.4 billion in 2003. Those same dealerships sold 11,600 (54,300) fewer new vehicles in 2003 than in 2002.

Those numbers reflect what's happening to other dealers. For a second consecutive year, dealers on the Ward's Dealer 500 saw their total revenues decrease. But they are still tallying up serious money.

Total revenues earned in 2003 are $59.2 billion (an average of $118 million per store) compared with $61.8 billion the previous year.

Dealers in Texas, specifically Ford dealers are feeling the effects. One prominent Texas dealer, when submitting his entry form, advised Ward's to pay close attention to how far Ford dealers in Texas have dropped.

But six Houston dealers, although acknowledging times are tougher, were upbeat and confident as they discussed the future while dining at a lunch hosted by Ward's.

Lunch was at the St. Regis Hotel's Remington Grill where the décor is French, not Texan. Another anti-stereotype: no one had steaks which many people think is the staple of Texas food. Instead it was mainly soup, salads and seafood.

The Houston dealers seem sharp, honest and cordial, but show some good old fashioned Texan feistiness.

Ramsay H. Gillman, owner of the Gillman Cos., says the Houston market isn't floundering, it's just not as robust as in previous years.

“It's still growing — just not at the rate it had been,” says the former National Automobile Dealers Assn. chairman. “Dealerships are coming off some of the best years they've ever had. Our business is not that bad.”

Jim Janke, president of Tommie Vaughn Motors, a Houston Ford dealership (ranked 247th on this year's list) says times have changed since those strong years not long ago.

“We were riding the wave for such a long time,” he says. “For four or five years, it was unreal how many cars and trucks we were selling and servicing. But things have slowed considerably.”

He believes some dealers could get hurt during this downturn. “That wave is getting ready to bust out on those dealers who weren't prepared,” says Janke. “Fortunately, we put some aside for a rainy day.”

The Houston market, like any other, has its challenges. John Beck, a partner with James Masten at Beck & Masten Pontiac-GMC, says an increase in Houston-area homes being repossessed concerns him.

“At any given time, there are 700 homes in Houston being repossessed,” says the Pontiac-GMC dealer. “Now that figure is 1,700.”

And with the recent Houston-based Enron scandal, consumer confidence has taken a hit in the city, says Gillman. “People are concerned about their jobs.”

Terry Shields, who partners with Mac Haik at six Texas dealerships says Houston is highly competitive. With almost 150 dealerships in the sprawling Houston metro area, the competition can be fierce.

With those numbers, Bill Smith, owner of Russell & Smith Ford (he also has a Honda dealership not on the Ward's 500) thinks Houston may have too many dealers. “That might be part of the problem,” he says, indicating the number should be trimmed. “Of course, as long as it's not my dealership.”

According to Shields, the average new car buyer trades every 2.71 months in Houston. “That's the good news,” he says. “The bad news is that used cars typically have higher mileage in Houston because everyone drives more in Texas. It's tougher to find fresh used vehicles.”

Used car sales were down 6,000 units to 29,000 for the Houston dealers in 2003.

April and May have started to turn upward, says James Masten. “We had the Super Bowl in January and a big rodeo not long after that. People were a little preoccupied.”

Business might be getting better for the GM dealers in Houston, but not so for the Ford retailers.

Janke, who is the chairman of the local Ford advertising group, says just getting people into Ford dealership doors right now is a challenge. “We're doing everything we can do to stimulate business,” he says. “I don't know what the problem is. Maybe it's because there are so many new cars on the road right now.”

Ford dealers across the country are making do selling the popular F150 pickup truck but that can carry them only so far. Fresh new vehicles in the product pipeline haven't made it to the lots yet and won't for several more months.

Smith, for that very reason, doesn't think will turn around until August. “Ford is coming to market with some very unique cars in August such as that new Mustang,” he says. “That will help.”

Russell Smith Ford, along with Tommie Vaughn Motors, depend on their truck sales, and with gasoline prices being so high, it is another barrier keeping people from the showroom.

A spirited discussion broke out at lunch about the possible threat of import trucks, especially with Toyota building a new Tundra pickup truck plant in San Antonio and looking to add dealerships in some of the smaller Texas towns.

Gillman, whose wife drives a Nissan Armada and son drives a Titan, tells the dealers at the table, “Stand back, 15 years from now, I believe these Japanese nameplates are going to a major force in the light truck market.”

Quips Beck: “We tell our people, ‘real men don't drive those trucks.’”

Smith adds: “Chevy and Ford truck buyers are our most loyal buyers.”

Masten agrees. He thinks the domestics have something more than just loyalty in their corner.

“We have one thing going for us today we didn't before,” he says. “Our quality is so much better today than what it was when the Asians entered the market. Now we have great quality and I think we can compete with the Asians.”

Says Shields, “It's always been true — what wins in America is the best looking vehicle with good quality and the best price.”

Unfazed by F&I Controversies

Think the current buzz about tougher finance and insurance regulations have dealers overly concerned? Not so for many Houston dealers on the Ward's 500.

“I've been in this business a long time. Every time the government comes up with a new dreaded regulation, it turns out better for us,” says Ramsay H. Gillman, owner of 18 dealerships in Texas. His Honda store is ranked 166th on this year's Ward's 500.

Terry Shields, co-owner of the Mac Haik dealerships in Texas, likes what Florida has done with extended warranty plans. “Florida sets the warranty contracts at a set price,” says Shields. “If I'm selling to my brother-in-law, I have to sell it at the same price to someone I don't know.”

Shields, who has dealer friends in Florida, says they were nervous before the new regulation took effect, but now they say it's the greatest thing that's happened.

“Those dealers are making more money per warranty then they had before — their warranty sales are so much more than ours,” says Shields.

In addition to setting one price, the price is posted everywhere in the dealership, so the consumer has no questions.

John Beck of Beck and Masten Pontiac GMC agrees it would be a good thing. “I think with it being posted, it knocks down the opportunities for those warranty prices being tricked,” he says.

It levels the playing the field and that's the way it should be, says Gillman. “If you're trying to run your business in a honest, correct manner, you're basically in line with the regulation already,” he says. “You can look at the regulation and say this is overkill, but the truth of the matter, is that it makes it better for the better dealers.”

Shields supports a flat fee to dealers for arranging auto financing for customers versus the dealer reserve system of adding percentage points to the loan rate. The latter has come under fire from some consumer groups and government agencies.

“We do a lot of F&I in our stores, and a flat fee would be fine,” he says. “I think it would strengthen a lot of dealers who aren't playing much in the F&I business.”

Gillman believes the jury is still out on the flat fee proposal. “From a dealership perspective, it might be good, but from a consumer standpoint, I'm not sure the flat fee would serve them as well.”

Shields thinks a flat-fee system would have to include tiered financing, with those customers who are greater credit risks paying more.

For Masten, it's a question of what's fair. “When it comes to finance overages, we're a lender just like the bank, and many times we get a better rate for the consumer than they could get themselves,” he says. “For us to be denied a profit is totally against everything this country was built on.”

Gillman says while regulations don't concern him so much, potential lawsuits do. “What bothers me is that, as you do a lot of volume, you start worrying more and more about lawsuits that you may just have to settle.” So far, he hasn't encountered that.