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. Conyers, 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 Sr., 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.”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 wer
en’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.
On May 14, 2007, DaimlerChrysler AG announced the sale
of 80.1% of Chrysler Group to American private equity firm
Cerberus Capital Management L.P. Daimler retains the remaining 19.9% stake. The automaker and its dealers continue to lose revenue and market share, however. “Do we get out and try to salvage what we’ve got left, or do we try to hang in there, hoping that it will turn around and risk potentially losing everything we’ve amassed over the years?” asks Reginald T. Hubbard, president of the Chrysler Minority Dealer Association. “That is the question that many minority dealership owners are faced with today. Most of us are first-generation business people and consequently do not have the cash reserves to handle sustained heavy losses.”
OVERSEAS POWERS
According to S&P, Toyota is the second largest automaker in the world by volume and the most profitable. For the Japanese automaker’s Toyota and Lexus dealerships, 2007 was an excellent year, according to Perry Watson III, president of the Toyota Lexus Minority Dealer Association. “The prospects for African American dealers in our group are good.” At the end of 2007 there were 33 black-owned stores out of 96 dealerships owned by ethnic minorities in TLMDA.
Toyota is committed to placing dealerships in the hands of
four to six ethnic minorities every year, split among all the groups, says Watson. “But what we can’t forecast is who might sell. The prices of these dealerships are so high, you can’t get mad at entrepreneurs who cash in. Toyota is bringing in seven times earnings,” he says, pointing out that Anthony L. Merritt sold his Superstition Springs Toyota store in Mesa, Arizona, but kept his Lexus franchise.The high-water mark for minority dealers was back in 1998 or 1999, says Watson, and he doesn’t think we’ll “ever see it again.” He proposes that the new paradigm for minority dealers is to partner with each other — or with majority dealers, and adds that Winston R. Pittman Sr. and H. Steve Harrell, both on the BE AUTO DEALER 100 list, have now joined forces. March Hodge is another dealer partnership on the list. Because the most desirable brands cost so much, says Watson, “The single-point dealer will be extinct if he or she doesn’t partner to diversify.”
Will Congress Help? Dealer associations ask for assistance
Help from Congress is being sought by the National Association of Minority Automobile Dealers and the minority dealer associations affiliated with the auto manufacturers. These organizations are seeking working capital, job training, and job recruitment assistance for dealerships owned by ethnic minorities. “We’re looking at ways we can have something put into the next budget, perhaps added to the economic stimulus package,” says A. V. Fleming, executive director of the Ford Motor Minority Dealers Association. The associations are also exploring how to work directly with various departments within the Bush administration.
Working with a Democratic-controlled Congress, President Jimmy Carter acted to rescue American auto manufacturers in 1979 and set a precedent providing federal government assistance to dealers in 1980. After 700 dealerships went out of business during the first half of the year, the Carter administration funneled $400 million in Small Business Administration loan guarantees to automobile dealers. — C.H.
Auto Dealer Eligibility
An auto dealership must be at least 51% black-owned and have been fully operational for the previous calendar year.
Top 10 Revenue Growth Leaders
| Auto Dealer Eligibility An auto dealership must be at least 51% black-owned and have been fully operational for the previous calendar year. |
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| Top 10 Revenue Growth Leaders | ||||
| 2007 | 2006 | % | ||
| Company | Location | Revenues* | Revenues* | Increase |
| Advantage Auto Group | Hodgkins, IL | $151.281 | $80.760 | 87.32 |
| Deerbrook Forest Chrysler Jeep | Kingwood, TX | $36.306 | $27.956 | 29.87 |
| Massey Automotive Group | Orlando, FL | $102.404 | $81.063 | 26.33 |
| Island Ford Inc. | Staten Island, NY | $44.881 | $36.577 | 22.70 |
| Noble Ford Mercury | Indianola, IA | $42.800 | $35.171 | 21.69 |
| Vicksburg Chrysler Dodge Jeep Inc. | Vicksburg, MI | $35.825 | $29.857 | 19.99 |
| BMW of the Hudson Valley | Poughkeepsie, NY | $48.274 | $41.096 | valign=”top”>17.47 |
| Dodge Chrysler Jeep of Tulsa | Tulsa, OK | $48.716 | $41.682 | 16.88 |
| Briarwood Ford Inc. | Saline, MI | $169.655 | $145.377 | 16.70 |
| Corley Automotive Group Inc. | Grants, NM | $107.009 | $92.157 | 16.12 |
Auto Summary
| 2007 | 2006 | % Change | |
| Employees | 11,471 | 11,766 | -2.51 |
| Revenues* | $8,931.575 | $9,508.623 | -6.07 |
*IN MILLIONS OF DOLLARS. AS OF DEC. 31. PREPARED BY B.E. RESEARCH.
REVIEWED BY THE CERTIFIED PUBLIC ACCOUNTING FIRM EDWARDS & CO.