The road to recovery: B.E. auto dealers cope with a sluggish economy by using incentives and other measures to drive traffic in their direction - B.E. Auto Industry Overview - Industry Overview

Black Enterprise, June, 2002 by Lloyd Gite

To say that 2001 was a rough year for African American auto dealers would be putting it mildly. Like the technology industry, the auto industry was hit hard by a combination of factors, including the events of Sept. 11 and the ensuing war on terrorism, climbing gas prices, massive corporate layoffs, and instability in the stock market. After three consecutive years of profits, the industry went into a spinout as sales slowed and profits plummeted. Sales of new vehicles in 2000 were at 17.4 million units. In 2001, the numbers dropped slightly to 17.1 million and will continue to fall to around 16.1 million units, according to economists at the National Automobile Dealers Association (NADA) in McLean, Virginia.

And the first quarter of 2002 hasn't been much better. One of those hit hardest was Mel Farr. Once the owner of the largest African American auto dealership in the U.S., Farr was forced to sell all of his Ford dealerships back to the manufacturer because of legal problems and financial issues (see "Driving In a New Direction?" News-points, April 2002). What's more, since last year, 15 dealerships have exited the BE AUTO DEALER 100 list.

The year, at best, was a mixed bag, says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealers (NAMAD) in Lanham, Maryland. "A number of our dealers did well last year, but others have been hit hard due to the economy and the new war on terrorism. We are working with the manufacturers to come up with plans to try and save those minority dealerships that are having difficulties."

One such plan to help dealerships navigate the troubled economic waters was 0% financing. GM implemented it and Ford and DaimlerChrysler followed suit. "The 0% financing helped a lot of dealerships," says Michael Flynn, director of the University of Michigan's Office for the Study of Automotive Transportation. "Thanks to that, sales picked up significantly in the last quarter of 2001, but overall, it was still a bad year in terms of car dealership profits. There was a real profit squeeze at the Big Three."

Although 0% financing did help some firms, Vaden-Williams says it was far from a cure-all for minority dealers. "A lot of [their] clients were not eligible for those incentives because you almost have to have a perfect credit record to qualify," she says, "Many of our clients were simply not able to participate [in the program]."

Despite the challenges facing African American auto dealers, the top 100 managed to eke out increases in their total number of employees (from 12,257 in 2000 to 12,305 in 2001, up less than 1%) and expanded their total sales (from $8.7 billion in 2000 to $8.8 billion last year, or roughly 1%).

OVERCOMING THE ODDS

One auto dealership that has managed to buck the downward economic trend is The Harrell Co. Sales from Steve H. Harrell's Atlanta-based company were $417.4 million in 2001, earning it the No. 1 spot on the BE AUTO DEALER 100 list. That's a jump of 55% over his 2000 sales of $268.5 million. The company was No. 5 on the list last year. Harrell, who has eight dealerships, says the large increase was due to the acquisition of Honda and Lexus dealerships in 2001.

Cornelius Martin of Martin Automotive Group in Bowling Green, Kentucky, also had a banner year, earning him the No. 3 spot on the BE AUTO DEALER 100 list with $353.1 million in sales. Martin has 14 dealerships and recently purchased two more, one of which was Mel Farr's Ford dealership in Fairfield, Connecticut. "We added two dealerships last year and that accounted for a jump in our sales," explains Martin, 53. "We also increased our advertising budget by 50%. We are doing about $700,000 a month in advertising now and it has paid off with increased sales. Despite problems in the economy last year, we had a very good year in terms of sales and profits."

Martin says he also focused more of his attention on technology and the Internet. He hired an Internet specialist and says that that has increased his business by another 10%.

Another success story is that of Ellenae Fairhurst, owner and general manager of Huntsville Autoplex in Huntsville, Alabama. Fairhurst started out as a secretary with Ford Motor Co. in 1968; seventeen years later, she had worked her way into management. Fairhurst then entered the Chrysler Corp. training program and in 1988 was awarded a dealership. In 2000, Fairhurst's dealership pulled in $29 million. Last year that figure jumped to $56 million, an increase of more than 93%. Fairhurst has gone from No. 95 on the 2001 BE AUTO DEALER 100 list to No. 56 on the 2002 list.

In May 2001, Fairhurst unveiled a new $7.3 million multiplex on which all three of her dealerships are located. "Despite the problems with the economy and 9-11, we had a very good year," explains the 59-year-old Fairhurst. "We tightened our expenses, cut back on purchases, and with attrition, we did not fill certain positions."

The location of Fairhurst's dealerships was also a big factor in helping her sell more cars, particularly Lexuses. "Huntsville, Alabama, is a quiet secret. It's the Silicon Valley of the East," Fairhurst enthuses." She adds, "The high-end imports have been doing much better than domestic cars in these depressed times. It's purely economics. People who buy high-end luxury cars have more disposable income overall," says Fairhurst, who became the first African American woman to open a Lexus dealership.