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

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

Gregory Jackson, president and CEO of Prestige Automotive Group (No. 1 on the BE AUTO DEALER 100 list with $828.7 million in revenues), in St. Clair Shores, Michigan, is another auto dealer who responded to the challenging environment with a new business paradigm. Jackson, whose dealerships sell mainly American autos, invested $1.5 million into building a certified pre-owned center across the street from his Mercedes-Benz dealership. Low-margin transactions made up a large percentage of Jackson's business. He sold two locations that handled mostly fleet sales; the divestiture resulted in a 46% sales drop last year.

Focusing on pre-owned vehicles is a sound strategy. In terms of profitability, used car sales rank second only to parts and service departments, says Damon Lester, president of the National Association of Minority Automobile Dealers. "If dealerships are not doing well with their used car sales, in many instances they are going to have a difficult time staying profitable," he says. Recognizing the extreme profitability of selling used cars, Damian Mills of Classic Ford Lincoln Mercury in Smithfield, North Carolina (No. 82 on the BE AUTO DEALER 100 list with $32.5 million in revenues) opened a separate used-car facility.

'CARMAGEDDON'

No one knows the need to change and adapt during business cycles better than Sanford L. Woods, CEO of S. Woods Enterprises Inc. (No. 7 on the BE AUTO DEALER 100 list with $256.9 million in revenues) in Tampa, Florida. Over the last 18 months, Woods sold three Chrysler stores as well as one store each carrying Hyundai, Volkswagen, and Honda. Now he owns Toyota, Infiniti, and Lexus outlets. His company is building a second Lexus dealership that's scheduled to open in September on Florida's Treasure Coast.

Woods notes that the vehicle market and the U.S. economy are slowing at the same time; he also recognizes that most black dealers sell domestic brands and own businesses highly leveraged with debt. "It's going to be a tough, tough, tough deal," says Woods. So what will be the short-term effect on African American auto dealers? Asserts Woods: "I think it will be brutal."

Whether Woods' prediction is accurate or not remains to be seen, but few can argue about the severity of the situation. Consumers are postponing purchases, waiting to see what direction the economy will take. "The fact that their house may have lost a significant amount of value in the last year or two does not put them in the best shopping mood to go buy new cars," says Jesse Toprak, senior industry analyst for Edmunds.com.

E. Dale Early, CEO of Deerbrook Forest Chrysler Jeep in Kingwood, Texas (No. 74 on the BE AUTO DEALER 100 list with $36.3 million in revenues) grew his business by focusing on existing customers, contacting them through pre-recorded telephone messages, e-mails, and direct mail. "We figured that if we weren't talking to our customers, somebody else was," he says. For their efforts, sales increased 29%. Revenues rose 26% in new vehicles, 37% in used vehicles, and 12% in the service department.