Local Automotive Dealers Tussle With ?New? Economy

Auto dealers had plenty of reason to be cranky in 2009.

Bankruptcies, decreased production and sluggish sales left many in bad moods. That much was evident during largely futile attempts to collect information for this year’s largest automotive dealers list.

Fewer had more reason for cantankerousness than Steve Smith of Springdale. Stripped of his Jeep and Pontiac franchises and saddled with inventory issues, Smith had to fend off rumors of his dealership’s demise for much of the summer and fall.

These days, though, Smith can muster a smile. Bottom-line profits in March were his highest in about 18 months, and he’s hopeful of a continued uptick.

“It’s not normal, but it’s a heck of a lot better than what it was,” Smith said of his store’s business. “We’re here to stay. We’re going to make it.”

That’s the same message he issued last summer, though appearances made it hard for some to believe. One of 789 Jeep dealers shut down nationwide, Smith’s problems were compounded because his inventory was financed through Chrysler’s financial arm.

The result was a 30-day loss of inventory as Smith scrambled to switch his financing to GMAC. Shortly after that was completed, however, General Motors declared bankruptcy and phased out its Pontiac brand, which resulted in another 30-day drought in inventory.

These losses were exacerbated by the fact Smith, like most dealers, already had shrunk inventory due to the economic downturn that gripped the U.S. So, by the time GM emerged from its bankruptcy and the U.S. Department of Transportation kicked off its Cash for Clunkers program in late July, Steve Smith Country – now operating as a GMC and Buick dealership – had gone 60 days without any new inventory.

“Now I’ve got a great opportunity to sell lots of cars,” Smith recalled, “but I don’t have anything in stock to sell.

“The whole thing just collapsed on me.”

As a result, the perception was that Smith, who started his dealership in 1984, was finished. This, despite Smith’s public declarations that he was committed to maintaining his business.

“It’s not what I say,” Smith said. “It’s what they see.”

 

Widespread Woe

Some dealers were less fortunate than Smith. Two dealerships – Bob Maloney Ford-Mercury and Bill White Kia – closed, while Kent Rylee Chevrolet and Springdale Dodge-Chrysler morphed into Kent Rylee Automotive Solutions and Springdale Auto-plex, respectively.

The closing of the Maloney dealership was particularly disheartening. Open for 29 years, Maloney’s lot was one of 80 Ford said it would close in 2009. That came on the heels of the Ford’s shutting down more than 600 dealerships between 2006 and 2008.

The Maloney closing, Smith said, caused alarm locally because it signaled a new way of automakers conducting business.

“If you’re good, you stay in business,” Smith said. “If you’re not, you close your doors and go out of business.

“What happened last year was, ‘Well, we don’t think we need you here, so we’re going to close you up.'”

Bob Maloney Ford was shut down despite reporting $34.7 million in 2008 revenue. Those types of moves, coupled with his own set of problems, caused Smith to re-evaluate his dealership from top to bottom.

“You examine everything,” Smith said, “from how much you’re paying for uniforms to how much your computer costs to ‘Am I advertising in a magazine that’s not bringing me a return?'”

At the same time, Smith said American automakers were doing similar things. After producing about 16 or 17 million new vehicles in the U.S. in 2007, the automakers made less than 10 million in 2009.

That decrease changed the dynamic of both the new and used car markets.

“If I had bought a hundred used cars back in November and just took them back to auction in February,” Smith said with a smile, “I would’ve made about $2,000 a car.

“The good news is that pushes their price up there and makes the new car not look as expensive. The spread shrinks, so the new car sales have picked up.”

Enticing financing terms have helped sales, too. The result, Smith and his peers hope, will be a gradual rise in new car sales. Smith said if 10 million new cars were sold in the U.S. last year, for example, 12 million would be a welcome number in 2010.

“That’s a 20-percent improvement,” Smith said, “and 20-percent improvement in my business makes a big difference.”

Whether it would be enough to improve the collective mood of the area’s auto dealers remains to be seen.