The new frontier: auto dealers are rethinking the way they do business and finding new solutions to old challenges

Black Enterprise, June, 2004 by Cliff Hocker

Vision and intellect were two strengths that African American auto dealers exploited to stay on the road of profitability in 2003. They drew strength not only from flexing the marketing muscle of a large body of store locations, but also from rethinking operational efficiency.

Auto dealers had to think differently and incorporate new ideas to gain the maximum benefit front expenditures, customer relationships, and staff. In some cases, they shifted dollars from expensive advertising to in-house departments dedicated to keeping in touch with existing customers and welcoming new prospects to their businesses.

"On the surface, sales were good. The U.S. auto industry prolonged the best sales years in its history to five consecutive years," notes Paul Taylor, chief economist at the National Automobile Dealers Association. And while 2003 surpassed any year prior to 1999, it yielded the slowest movement of products since that time. The 16.6 million vehicles sold in 2003 lagged behind the slightly speedier 2002 pace of 16.8 million, which itself had not matched the 17.1 million units sold in 2001 or the record-breaking 17.4 million units sold in 2000. An increase in sales was the result of a 43-year low in short-term interest rates and stronger customer enticements like cash incentives and low or zero percent-rate financing deals. Taylor says that the average customer incentive for lightweight vehicles in 2003 was $2,664.

While every other class of vehicle sold fewer products in 2003, two categories sold more. Crossover utility vehicle purchases jumped 34.7%. Unlike the traditional sports utility vehicles (SUVs) that are built like trucks, crossover utility vehicles are based on a car chassis. Gaining in popularity, crossovers such as the Chrysler Pacifies, Cadillac SRX, Volvo XC90, and 2004 Lexus RX330 (successor to the Lexus RX 300) have the SUV look variable passenger compartments, and optional all wheel drive. They also represent six out of 10 concept vehicles that Taylor says he has seen at auto shows. Pickup truck sales rose by 2.2%, boosted mainly in the second half of the year.

"Growth in pickup truck sales was important because it indicates that the business buyer is coming back to the market [and that] consumers [are] purchasing pickup trucks. Capital budgets are starting to be freed up by corporations to purchase pickup trucks. That was very good news because capital spending has been moderated considerably by weak economic conditions in the most recent years," says Taylor.

"The overall economy's gradual recovery was offset by dealers' increased cost of doing business," observes Judson B. Powell Jr., interim executive director of Ford Motors Minority Dealers Association. "The rebound brought inconsistent seesaw effects on sales," says Marjorie Staten, executive director of General Motors Minority Desires Association, an organization that is not affiliated with GM. General Motors remained No. 1 in U.S. auto sales.

"Consumer insecurity about the overall economy resulted in hesitancy to buy. while the amount of money that manufacturers put into stimulating new-car sales devastated the used-car market and cramped dealers' ability to make trades," notes Jesse Greathouse, president of the DaimlerChrysler Minority Dealer Association and CEO of Cross Road Chrysler-Jeep in Oklahoma City, Oklahoma (No. 78 on the BE AUTO DEALER 100 list with $38 million in sales). "The presence of rebates undermined the trade-in value of used cars so that a consumer might have negative equity in a used vehicle, owing more on it than the trade-in would give."

"Dealers located in more affluent areas were able to better leverage the economic turnaround, while dealers serving neighborhoods where consumers have lower median income and lower average credit scores did not have a good year," says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealers. "There was a huge disparity in the ability of dealers in each segment to benefit from the economy's uptick. Furthermore, consumers needed nearly perfect credit to qualify for 0% financing," Vaden-Williams adds. Although sales hovered near historical highs, rising operating costs leaked dealer profits.

Powell thinks rebates favored larger dealers and that smaller dealers had difficulty sustaining enough growth to be profitable. African American auto dealers often put a 20% or less investment into their stores; to get the rest of their working capital, they typically become part of an auto manufacturer's development program. However, participation doesn't come for free. "Compared with dealers that have sufficient access to private capital, those in buy-in programs sometimes bear up to a 10% added cost of doing business," says Powell.

WHAT GETS MEASURED, GETS DONE

Reginald T. Hubbard says that a management system that enables hands-on control over multiple dealerships is key to long-term survival. At No. 13 on the BE AUTO DEALER 100 list with $152.5 million in sales, Hubbard Automotive L.L.C. operates a Diamond-Chevrolet dealership in Kings Mountain as well as Metrolina Dodge and Isuzu dealerships in Charlotte, North Carolina.