Local auto dealer offers insight, optimism

by The City Wire staff ([email protected]) 90 views 

Let’s hope Larry Rath is right about the auto dealership segment of the Fort Smith regional economy.

Rath is president of Putnam Automotive Group, Putnam Lincoln Mercury, Putnam RV Center and Putnam Homes in Fort Smith, and Putnam Toyota in Altus, Okla.

He thinks it is a good possibility the region will not see dealership failures resulting from the problems among the big three U.S. automakers — General Motors, Ford Motor Co., and Chrysler.

“Regionally, I think we’ve been blessed. We’ve had a lot easier go of it than some of my (dealer) friends on the coasts,” he said Friday (Dec. 5). “I think this (Fort Smith area) is a haven. We’re not overdealered like other areas.”

There are about 13,550 GM, Ford and Chrysler dealerships in the U.S., according to published reports.

The automakers have requested federal help to stay afloat. The automakers are selling fewer cars as a result of the recession, they have sizable debt loads and their legacy costs — union contracts, pension benefits, operations in older facilities — make them less competitive financially against Toyota, Honda and other foreign car manufacturers who make cars in the U.S.

This report from Kiplinger suggests about 600,000 U.S. jobs will be lost as a result of troubles with the automakers. The report also notes that overall sales for the big three fell 40.2 percent in November compared to November 2007.

Recent reports (as of Dec. 6) suggest Congress and Pres. George Bush might approve $17 billion in short-term bailout loans. (See The City Wire story on how the problems in Detroit could hit the Fort Smith area.)

Rath suspects most area dealers were doing well until about October. Prior to that, his Putnam Lincoln-Mercury dealership in Fort Smith was having “maybe a record year” with help from an April hail storm and summer gas prices that reached $4 a gallon.

“That always really stimulates the car business,” Rath said of hail storms. “Then we had the gas crisis and we saw people” trading for smaller vehicles.

And then the bottom fell out of the credit markets.

“The last couple of months have been terrible,” Rath said about car sales at his dealerships. “The credit crisis makes the gas crisis look like a party.”

People are “holding on to their cash” because they aren’t confident about the economy. But Rath said “good customers can get loans, no problem. We’re getting people financed that deserve to be financed.”

Dealership survival depends on operating with as few people as possible, reduce spending on community sponsors, keep low inventory and “be smarter” with pricing.

“The biggest thing is the pullback on advertising. That’s the biggest thing we will do,” he said.

While admitting to being an optimist, Rath suggested economic conditions will improve by this time next year — the credit crisis will improve and gas prices will remain low.

“The drop in gas prices is a huge piece of good news that is getting overlooked right now in the media. That’s a big stimulus. That’s a lot of money back in the pockets of the American people,” Rath said.

Indeed it is. Some analysts suggest each $1 drop in the price of gas at the pump saves Americans $125 billion a year.

But there “absolutely will be some (Arkansas dealerships) fold up their tents” before times get better, according to Rath.

As for Ford Motor Co., of which he is the most connected, Rath said they are in better financial shape than GM.

And that’s not just Rath’s obvious bias talking. Ford is requesting less help as part of the federal bailout package, and experts commenting during Congressional hearings noted that Ford’s finance arm is better able to help its dealers withstand pressures in the credit markets than GM or Chrysler.