Auto Dealers Fight Uphill Battle

Add auto sales as another sector where Arkansas is outpacing the national economy.

Arkansas has one of the lowest unemployment rates in the country, its two largest metro areas in Little Rock and Fayetteville have earned recent high rankings for the health of their housing markets and for now the state coffers are $310 million in the black.

The Natural State isn’t unaffected by a national recession now in its second year; Arkansas sales of new cars declined by 28 percent during January 2009 versus January 2008, from 9,718 to 6,906. But that compares favorably to the national January totals that were off anywhere from 34 percent for Toyota to 55 percent for Chrysler and were at their lowest annualized pace since 1982.

According to the Arkansas Motor Vehicles Department, overall sales of new and used passenger vehicles declined by 16.2 percent year-over-year in January.

At Frank Fletcher Chevrolet in Springdale, sales for February and March are on pace to beat 2008. General manager David Roberts said January was on the right pace until the ice storm that essentially shut down Northwest Arkansas for more than a week late in the month.

General managers at Landers McLarty Ford-Jeep in Bentonville and Mercedes Benz of Northwest Arkansas also reported first quarter sales beating last year. While there are bright spots in the market, plenty of dealers are struggling and one, the Fayetteville Saturn dealership, closed on March 20.

The Business Journal list of the largest auto dealerships in Northwest Arkansas shows most businesses have cut both employees and inventory.

Excluding newcomers to the annual list (Toyota of Northwest Arkansas and NWA Volkswagen), payrolls dropped by around 129 employees and inventories were slashed by more than 1,000 vehicles.

Buddy Schwartz Jr. of Springdale Dodge-Chrysler said sales have been affected for going on six months because of slumping consumer confidence, both overall and in the Chrysler brand. Bob Furr of Bill White Kia in Rogers said the first quarter compared to the fourth quarter of 2008 and sales are down about 30 percent.

Adventure Subaru, which reported a 9 percent increase in 2008 sales from $11 million to $12 million, has seen “moderate” sales numbers versus last year.

“The new car business with the media and General Motors has been tough,” Roberts said. “But it’s still growing and going. We’re still selling a lot of new Chevrolets.”

Image and Incentives
“Tough” is an understatement for the current climate around American auto manufacturers as more than $17 billion in bridge loans to GM and Chrysler have only appeared to delay bankruptcy filings that could come as soon as the end of April for Chrysler and May for GM.

Manufacturers and dealers have been hammered by a combination of high gas prices, collapsing financial and housing markets and uncertainty from Washington D.C. where politicians are tempering federal assistance with populist statements blaming the Big Three for making cars “Americans don’t want to buy.”

On March 30, the Obama Administration requested and received the resignation of GM CEO Rick Waggoner, replacing him with longtime chief operating officer Fritz Henderson. The same day, President Obama assured Americans the U.S. Government would stand behind their warranties, read by many observers as an indication bankruptcy reorganization is inevitable.

A day later, GM announced an incentive program that offers to make up to nine months of payments up to $500 for customers who lose their jobs. The program didn’t go as far as Ford, which hasn’t taken a dime of federal money and made its offer cover up to a year’s payments of up to $700 per month.

Buddy Wright, general manager of Bob Maloney Ford-Mercury in Rogers, said Ford is gaining market share thanks to going without federal aid.

“People have realized that Ford is not asking for bailout money,” Wright said. “I had someone in this morning talking about that. It’s became a positive for Ford, without a doubt.”

The “job assurance” programs are on top of a tax incentive written into the $787 billion stimulus bill that allows customers to deduct their state and local sales taxes on new vehicles purchased between Feb. 16 and Dec. 31, 2009.

The deduction is limited to the state and local sales and excise taxes paid on up to $49,500 of the purchase price of a qualified new car, light truck, motor home or motorcycle.

The amount of the deduction is phased out for taxpayers whose modified adjusted gross income is between $125,000 and $135,000 for individual filers and between $250,000 and $260,000 for joint filers.

With used car wholesale prices up, the price point gap between new and preowned has narrowed greatly. If they didn’t risk running afoul of Realtors, a good motto would be “Now is a great time to buy.”

Schwartz Jr. said Chrysler is offering employee pricing, rebates and 0 percent financing to buyers with good credit.

“It’s a triple tack to get people confident to buy,” Schwartz said. “If you finance through Chrysler, they’re knocking off another $1,000. We have plenty of 2009 models that are $10,000 off the sticker price with all the incentives.”

Roberts said financing rates of 0 percent for 36 months to 1.9 percent for 72 months are available and Fletcher’s strong position sets them up for greater incentives.

“Those of us who have watched our inventory and can still take allocation in bigger numbers have a price advantage,” he said. “The programs we’re putting out there are based on what we’re buying.”

The Fletcher Auto Group has nine dealerships in Arkansas including the state’s largest stand-alone Honda business in Bentonville. It was ranked for the first time among the top 125 auto groups in the country for 2008 by Automotive News. Fletcher ranked No. 112 with 9,526 units sold, nearly 5,000 of them new.

Fletcher executive vice president Brent Lobanoff said financing is still available for buyers with both good and shaky credit scores, but lenders are looking closer.

Lobanoff said Northwest Arkansas has taken a harder shot than some of Fletcher’s other dealerships.

“It was hit harder than some of our other markets,” he said. “We were on such a high for so long, when the bottom fell out, we felt it worse. Northwest Arkansas has been tough.”

Roberts was surprised by Waggoner’s ouster, citing improvements in lines like the Malibu, which is one of Fletcher’s top selling models.

“Chevrolet spent a lot on [research and development] in the last few years and the product line is better than it’s ever been,” he said. “It’s easier to say to the public now there is a reason to buy American.”

Roberts expressed confidence that Chevrolet “isn’t going anywhere.”

The same can’t be said for GM’s Pontiac and Saturn brands, which are on the chopping block as part of its viability plan.

Steve Smith, of Steve Smith Country in Springdale, has cut his inventory by half in the last year and said uncertainty of what happens next is the biggest concern. He carries Pontiac and GMC lines.

Buddy Schwartz Sr. said dealers are getting their information from the media like everyone else, not from Chrysler.

“We’ll have to wait and see what happens,” he said, “but we’ll do what it takes to survive.”

Maintenance Matters
One area every dealer is seeing an uptick is in the service department as people choose maintenance over purchasing a new vehicle. Schwartz Sr. said business in the service department was up 10 percent to 15 percent year-over-year in January and February.

“We’re seeing more of that across every demographic,” said Jonathan McMichael, general manager of Mercedes Benz of Northwest Arkansas. “Lower income folks are going to AutoZone, some of our clients are going to put off buying for a year or so and make sure what they have is operating efficiently.”

McMichael said those who are buying are doing so with a longterm view.

“They are making a decision to buy vehicles they will keep for a while,” he said.

Wright said Bob Maloney added a “Quick Lane” for service and tires are a big seller right now.

“People are doing a better job maintaining their present car,” he said. “Our service work is holding its own.”