A long, cold winter in Detroit: international competitors keep U.S. automakers on ice

Black Enterprise, June, 2008 by Cliff Hocker, Alan Hughes

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A FRIGID RESIDENTIAL HOUSING MARKET combined with cooling consumer confidence and already bleak new vehicle sales from domestic automakers have created a harsh business climate that's left many black auto dealers out in the cold. Sales for the U.S. automakers were downright chilly: General Motors' volume fell 7.22%, Ford's tumbled 11.15%, and Chrysler Group's slipped 5.96%. On the other hand, import carmakers continued to outperform their domestic counterparts: Toyota's sales, though down, slipped by less than 1%; Nissan's climbed 2.29%; and BMW's jumped 5.52%.

The current environment has wrecked several black auto franchises. In 2007, Chrysler lost four black auto dealers, bringing its number down to 52. The Ford Motor Minority Dealers Association reports that it lost 17 black members in 2007, bringing the total number of black Ford dealers to 149. "By the end of 2008, we could lose 17 to 20 dealers again, depending on some policy changes going on with Ford," says A. V. Fleming, FMMDA's executive director. Ford's falling truck sales battered the franchise's profitability. Though a dealer may have sold the same number of new vehicles as in 2006, Fleming says, the sales of cars versus trucks shifted dramatically, crashing gross margins of most dealerships.

Marjorie Staten, executive director of the General Motors Minority Dealers Association, says the organization lost about a dozen black dealers in 2007 and adds that the ranks of black GM auto dealers have shrunk to 43, down from a record high of 112 two decades ago. Staten also points out that some entrepreneurs opt to sell. "It's tough. In times like these they have to make hard decisions," she admits. "So they have to make decisions now, when the dealerships still have some value and it's still an attractive dealership."

BE 100s CEOs no longer driving auto dealerships include veteran Nathan G. Cowers, who sold his Novi, Michigan, Jaguar franchise; Leroy Kemp, who no longer owns Forest Lake Ford in Forest Lake, Minnesota; Terry L. Holmes, who divested his Warner Robins, Georgia, Ford Lincoln Mercury dealership; and Walter E. Douglas St., who shuttered Jaguar Land Rover Toledo in Ohio. Other entrepreneurs who hit the road: Theresa Jones, who took over Northwestern Dodge in Detroit after Chrysler Minority Dealer Association co-founder Jesse Jones passed away, sold the franchise back to Chrysler; William E. Shack Jr., sold his share of Shack Findlay Honda in Henderson, Nevada, to his white partner; and Helen B. McIntosh, whose husband died in November 2002, sold Seattle-based Kirkland Chrysler Jeep.

This grim picture is expected to continue in 2008. Standard & Poor's analysts remain bearish on the industry's prospects, citing an unfavorable economy, heightened competition from import automakers, a weak dollar, and high gasoline prices. The research firm says it expects the Big Three automakers to continue to lose market share to international carmakers, though at a slower pace for GM and Ford, which shifted their low-margin fleet sales business to auto rental companies. In these turbulent times, leadership and vision are critical to the survival of black-owned businesses. Here's what they're doing.

FLEET(ING) SALES

In response to narrowing margins, Chrysler, Ford, and GM have been trying to cut back on overproduction, which feeds fleet sales to rental car companies such as Hertz and Avis, but the Detroit Three want fewer fleet sales. "That's part of the reason that sales have dropped for the last two years. To the extent that many of those sales were only marginally profitable, they won't be as greatly missed as when consumers drop out of the marketplace, as some will in 2008," says Paul Taylor, chief economist of the National Automobile Dealers Association in McLean, Virginia.

Some, however, continued to benefit from fleet sales. Winning the Oklahoma state bid for Dodge police cars drove a 71% rise in fleet sales for Dodge Chrysler Jeep of Tulsa (No. 51 on the BE AUTO DEALER 100 list with $48.7 million in revenues). That helped push revenues up 16%. Retail sales stayed flat, and for every three new vehicles the dealership sold, it sold four used. Parts and service contributed 39% of the dealership's gross sales, pumped by a 23% sales increase in the parts department. The dealership also expanded. "We brought more brands in-house, and fortunately we were able to acquire additional land, so that we've been able to expand at our same location where we've been since 1986," says Yvonne Hovell, president and CEO of the dealership.

Hovell says these days it's critical for entrepreneurs not to become trigger shy when business is challenging. "These businesses have four to five different profit centers in them. When they start to hemorrhage, you can hemorrhage rapidly. You need to keep your hand on the throttle. I don't think there is a luxury of coasting: The kind of oversight that got you to this point of success in a business of this volume, you have to continue. Some people don't do that."