The Loaded Sticker Price - African American car dealer Mel Farr Automotive Group

Black Enterprise, June, 1999 by Bevolyn Williams-Harold

When it comes to import cars, black dealers still find themselves stranded by the side of the road

In the ever-evolving auto industry, bigger is better--especially now. The effort to gain both global market share and entree into niche sectors has compelled the domestic Big Three automakers (Ford, General Motors and DaimlerChrysler) to merge or form strategic alliances with their import competitors. But while this consolidation may create opportunities for some minority operators, smaller dealerships--black and white--are being closed or streamlined to support larger car volumes. Consequently, existing small minority operators may find themselves squeezed out of the industry altogether. In such a David vs. Goliath atmosphere, will African American dealers continue to hold their own?

At least for now the top 100 black automobile dealers in the country arc benefiting from the record sales the Big Three enjoyed in 1998, with $6.3 billion in total sales, up 13.19% from $5.6 billion last year. Unfortunately, not everyone was able to enjoy the fruits of their labor--10 dealers fell off the list from last year while 13 newcomers were added.

For the first time in over a decade, a BE auto dealer tops both the INDUSTRIAL/SERVICE 100 and AUTO DEALER 100 lists as the largest black-owned business in the nation. The Mel Farr Automotive Group, with nearly $600 million in sales, reigns over an automotive empire that spans four states and includes a financing company that Farr plans to take public later this year. Unlike Farr, however, the majority of the Top 100 dealers carry domestic brands and by and large have been unable to tap into the elusive, yet lucrative import franchises. In fact, only 28 of the BE AUTO DEALER 100 currently carry import lines.

According to J.D. Power and Associates, an Agoura Hills, California-based research firm, last year import car makers such as Mercedes-Benz, BMW, Jaguar, Saab, Audi, Volvo, Toyota, Volkswagen and Honda commanded a 36% share of the $1.1 trillion U.S. auto market. Of that, nearly half (46%) represented purchases by African American buyers, who bought luxury models in particular.

The National Association of Minority Automobile Dealers (NAMAD), an industry member organization in Lanham, Maryland, found that in 1995 alone, minorities spent over $40 billion on new and used cars. In spite of the effect African American consumers are having on automakers' bottom lines, their loyalty has not been reciprocated with any real opportunities for African American car dealers.

"The manufacturers need to recognize that it's no longer just enough to let us come into their dealerships and buy their cars," says Sheila Vaden-Williams, NAMAD's executive director. "We want to have our fair share of opportunity in every aspect of the auto industry."

Although Farr now boasts a complex of six import and two domestic franchises, the import manufacturers didn't initially welcome him with open arms. When he approached Toyota in 1983 for a dealership opportunity, it took intense lobbying, including trade missions to Japan, before he could land his franchise in Bloomfield Hills, Michigan, in 1989. All this in spite of his track record in the industry and capital resources to invest in the dealership.

"I had a hard time because the [imports] were not interested in putting any African American dealers in business, and they're still not interested," says Farr. "None of the foreign auto companies have any kind of [Minority Dealer Development] program that even comes close to the domestics."

THE WAY THEY WERE

During the late 1960s, in the wake of the civil rights legislation that swept the country, the Big Three formally began their Minority Dealer Development (MDD) programs to "assist qualified minority candidates" in receiving dealerships. (Most of the dealers on our BE AUTO DEALER 100 list are graduates of these two-year programs, which combine both classroom instruction and on-the-job training.) Once a dealership became available, manufacturers provided financing for applicants who needed it.

Though far from perfect, these programs raised the number of domestic African American dealers from around 30 at the end of the 1970s to 480 at the end of 1998 (see "Running on Empty," Newspoints, November 1998).

In the meantime, import car makers were slowly setting up sales divisions and factories in the U.S. Until 1973, however, American consumers were still devoted to the Big Three. Then the country was hit by an oil embargo, and the shortage created a demand for smaller, more fuel-efficient Japanese cars. The U.S. was hit by another oil shortage in 1979. By 1982, the Japanese captured about 20% of the U.S. automotive industry.

By the 1980s, with oil supplies replenished, a bustling economy and a burgeoning Buppie and Yuppie middle class, came an increased demand for luxury car brands. Nameplates like Mercedes-Benz and BMW became the status symbols of choice. But it was easier for an African American to buy a luxury car than to own a luxury car dealership.