Driving Into New Territory

With dropping sales, bankruptcies of car makers and banks holding back on financing, car dealers are having a tough time across the country. The Business Journal contacted a cross-section of dealers from its coverage area to discuss these issues and more. The dealers were Tim Smith, owner of Bob Smith BMW/MINI in Calabasas; Galpin Motors Vice President Brad Boeckmann; Jim Hawse, president of Sierra Toyota and Scion in Lancaster; Johnny Harrison, vice president and general manager of Lexus of Glendale and head of the Brand Boulevard of Cars Association; and Don Fleming of Acura of Valencia and president of the Santa Clarita Auto Association. What can dealers do to prepare for the changes coming to the auto industry? Smith: Basically you have to lower your overhead and you want to keep your best people. And you want to keep your best people doing well. That’s basically our strategy. We have fewer salespeople, for example, now and our job is to keep them upbeat, productive and make it so they can make a good living and stay with us. Boeckmann: If they haven’t done it by now they are probably out of business. What they had to do is, number one, get their expenses in line with the level of business that has been reduced significantly from the previous decade for the most part. It required them to look at the number of people working for them relative to the number of cars they were selling and servicing. It was accepting a new reality about the level of business you were getting through the door. That reality is significantly less. If I look at our numbers when I take the total of all of our brands we’re down about 43 percent this May from a year ago May. Fleming: I think we have all become better business people as a result of this. We’ve cut our overhead; we’ve tried to downsize to fit the marketplace. And we’re just hanging on waiting for it to turn. Hawse: Unfortunately there is not a lot a dealer can do to prepare for the changes. This is mostly due to the fact that we aren’t sure what all of the changes will be in our industry. I never in my wildest dreams thought the government would control Chrysler or General Motors. We today, don’t know what changes are coming to our industry. I do know that product will change due to mileage restrictions being imposed on our industry. There will also be fewer auto dealers left when this economy returns. There will also be fewer nameplates or manufacturers. Most all of the auto dealers I know are just trying to get through this recession in hopes of seeing a flood of pent-up demand. Harrison: That’s a broad question. Like a lot of businesses you have to adjust to the new economy. If your business format says you were selling 500 a month and now you are only selling 200 you have to adjust accordingly to get to that stage. What we see in the news with GM and Chrysler and what is happening to them they are adjusting to their business formats. It is probably a long-time coming. Car-wise it’s tough because it’s in the news and it’s tough because there are a lot of folks involved in it. In this economy you just have to adjust accordingly. Have you had to adjust your sales techniques or overall sales philosophy? Smith: Not really. The one thing the advantage people have right now is there are some very good deals on cars. In other words, you can buy cars at some good discounts. Boeckmann: I would hope that we would never change our sales philosophy because it boils down to take care of people like they are your friends and you want your friends to come back and you want them to have a long term relationship with you. What we have seen is a real difference when it comes to financing, what levels of credit are required and FICO scores and if people had some credit issues. Previously we really didn’t have too much of a problem getting them financed whereas today it’s become rather a difficult issue. If you said to me how much of your business is down this year because you are not able to get people financed I would say probably half the reason we had the drop of 40 percent in May had to do with being able to get people financed. Today you have to have the right structure with the deal, the right down payment and the people have to be relatively up on their credit. Fleming: Yes. We don’t lean on the customer when they come in now. If they have an interest in our cars we make an appointment for them to come back. We give them a way back in the door. There is absolutely no pressure on them at all. People are confused and uncomfortable and don’t know what direction to go in most cases. There are a lot of questions to be asked, a lot of thought to be given. Do they want to lease, do they want to purchase. These are questions people used to make on the spot and now they are taking time to weigh their options. We respect that. Harrison: A change to the philosophy of selling cars, no. We’re doing a better job than what we are accustomed to doing all these years. In years past some of things that we took for granted we didn’t have to do because business was fantastic because people were coming in the doors. Now we’re having to do follow up a little bit more. We’re having to send out a few more cards, make a few more phone calls, do a little bit more reminding. Hawse: We have had to adjust our sales techniques. We are much more accommodating and much more responsive today than we have ever been. Not that we weren’t before, but we are trying more than ever to be as responsive as we can to customers needs. Unfortunately, with the lack of consumer credit in the marketplace, we can’t finance as many customers today as we did in the past. A lot of customers don’t understand why we aren’t selling them a car today. Was the closing of car dealerships necessary? Harrison: I don’t know. The reason I say that is I wish I could see the inside scenarios of why they think that’s important. As a business model if you were selling 500 and only 250, you might need as many stores. As a manufacturer they need their stores to be profitable. If you are running twice as many stores as you actually need and none are making any money your net result to selling your product might not be there for you. So you have to adjust. Hawse: I don’t think the government should have forced the closing of dealerships. We are all franchises of the manufacturers, and are independently financed and capitalized. We don’t cost the manufacturers anything to service. Forever in the past, when a dealership closed in a market, the manufacturers came right back and filled the vacant point with a new dealer. It was not their money that was used to open a new store. It was all private capital. Boeckmann: Oh, yeah. Certainly with the levels of business I think it is going be necessary as we go forward for sometime to come. It all depends on the economy. I still think there are too many car dealers out here. Smith: It depends on who they terminated. If a dealer is willing to be in business they are still serving their customers. I don’t know what was achieved in that. Certainly if some dealers were closed that leaves the business out there in the hands of fewer dealers. The surviving dealers would benefit from that. If they closed dealerships in rural communities, the manufacturer that closes that dealership will lose that business in all likelihood forever. Dealers provide convenience and relationships with their communities that if they close them that will no longer exist. And I say the manufacturer is going to lose that business. Fleming: Well it’s very confusing. The only customer the manufacturer has is the dealer. They don’t sell direct to the consumer. I can’t imagine why a manufacturer would want to chop out his dealer group. My goodness, some of those dealers have been in families for generations. It’s a sad day in the American automobile business. What did Ford do differently to put themselves in a different position from GM and Chrysler? Boeckmann: First of all I could not be happier to be a Ford dealer. We are poised to do really well as the economy begins to turn because Ford back a number of years ago, when Alan Mulally took over at that time they did a real assessment of their strengths and weaknesses. They realized they had too many brands and realized they were spread amongst the world and they were using different products in different markets. It was kind of foolish some of the same product in Europe could do well here. So what he did was he realized financially they needed to be a bit more sound. He went out and borrowed the money way ahead of the game and thank goodness he did otherwise they’d be borrowing money from the government now too. Secondly, their products; they really are focused on doing some really high, high quality, but also we’re very innovative in technology and safety. When you look at the products Ford has coming out over the next year and a half they’re off the chart excellent products and awesome to look at. We’ve had a lot of positive quality news out of Ford where they are now beyond the level of Toyota and Honda. For many years that’s been the big downfall of the domestics, they haven’t been able to build as good a quality car. Even Consumers Reports is saying Ford is ahead. Being a Ford dealer right now is good place to be looking forward.