The road to recovery: B.E. auto dealers cope with a sluggish economy by using incentives and other measures to drive traffic in their direction – B.E. Auto Industry Overview

The road to recovery: B.E. auto dealers cope with a sluggish economy by using incentives and other measures to drive traffic in their direction – B.E. Auto Industry Overview – Industry Overview

Lloyd Gite

To say that 2001 was a rough year for African American auto dealers would be putting it mildly. Like the technology industry, the auto industry was hit hard by a combination of factors, including the events of Sept. 11 and the ensuing war on terrorism, climbing gas prices, massive corporate layoffs, and instability in the stock market. After three consecutive years of profits, the industry went into a spinout as sales slowed and profits plummeted. Sales of new vehicles in 2000 were at 17.4 million units. In 2001, the numbers dropped slightly to 17.1 million and will continue to fall to around 16.1 million units, according to economists at the National Automobile Dealers Association (NADA) in McLean, Virginia.

And the first quarter of 2002 hasn’t been much better. One of those hit hardest was Mel Farr. Once the owner of the largest African American auto dealership in the U.S., Farr was forced to sell all of his Ford dealerships back to the manufacturer because of legal problems and financial issues (see “Driving In a New Direction?” News-points, April 2002). What’s more, since last year, 15 dealerships have exited the BE AUTO DEALER 100 list.

The year, at best, was a mixed bag, says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealers (NAMAD) in Lanham, Maryland. “A number of our dealers did well last year, but others have been hit hard due to the economy and the new war on terrorism. We are working with the manufacturers to come up with plans to try and save those minority dealerships that are having difficulties.”

One such plan to help dealerships navigate the troubled economic waters was 0% financing. GM implemented it and Ford and DaimlerChrysler followed suit. “The 0% financing helped a lot of dealerships,” says Michael Flynn, director of the University of Michigan’s Office for the Study of Automotive Transportation. “Thanks to that, sales picked up significantly in the last quarter of 2001, but overall, it was still a bad year in terms of car dealership profits. There was a real profit squeeze at the Big Three.”

Although 0% financing did help some firms, Vaden-Williams says it was far from a cure-all for minority dealers. “A lot of [their] clients were not eligible for those incentives because you almost have to have a perfect credit record to qualify,” she says, “Many of our clients were simply not able to participate [in the program].”

Despite the challenges facing African American auto dealers, the top 100 managed to eke out increases in their total number of employees (from 12,257 in 2000 to 12,305 in 2001, up less than 1%) and expanded their total sales (from $8.7 billion in 2000 to $8.8 billion last year, or roughly 1%).

OVERCOMING THE ODDS

One auto dealership that has managed to buck the downward economic trend is The Harrell Co. Sales from Steve H. Harrell’s Atlanta-based company were $417.4 million in 2001, earning it the No. 1 spot on the BE AUTO DEALER 100 list. That’s a jump of 55% over his 2000 sales of $268.5 million. The company was No. 5 on the list last year. Harrell, who has eight dealerships, says the large increase was due to the acquisition of Honda and Lexus dealerships in 2001.

Cornelius Martin of Martin Automotive Group in Bowling Green, Kentucky, also had a banner year, earning him the No. 3 spot on the BE AUTO DEALER 100 list with $353.1 million in sales. Martin has 14 dealerships and recently purchased two more, one of which was Mel Farr’s Ford dealership in Fairfield, Connecticut. “We added two dealerships last year and that accounted for a jump in our sales,” explains Martin, 53. “We also increased our advertising budget by 50%. We are doing about $700,000 a month in advertising now and it has paid off with increased sales. Despite problems in the economy last year, we had a very good year in terms of sales and profits.”

Martin says he also focused more of his attention on technology and the Internet. He hired an Internet specialist and says that that has increased his business by another 10%.

Another success story is that of Ellenae Fairhurst, owner and general manager of Huntsville Autoplex in Huntsville, Alabama. Fairhurst started out as a secretary with Ford Motor Co. in 1968; seventeen years later, she had worked her way into management. Fairhurst then entered the Chrysler Corp. training program and in 1988 was awarded a dealership. In 2000, Fairhurst’s dealership pulled in $29 million. Last year that figure jumped to $56 million, an increase of more than 93%. Fairhurst has gone from No. 95 on the 2001 BE AUTO DEALER 100 list to No. 56 on the 2002 list.

In May 2001, Fairhurst unveiled a new $7.3 million multiplex on which all three of her dealerships are located. “Despite the problems with the economy and 9-11, we had a very good year,” explains the 59-year-old Fairhurst. “We tightened our expenses, cut back on purchases, and with attrition, we did not fill certain positions.”

The location of Fairhurst’s dealerships was also a big factor in helping her sell more cars, particularly Lexuses. “Huntsville, Alabama, is a quiet secret. It’s the Silicon Valley of the East,” Fairhurst enthuses.” She adds, “The high-end imports have been doing much better than domestic cars in these depressed times. It’s purely economics. People who buy high-end luxury cars have more disposable income overall,” says Fairhurst, who became the first African American woman to open a Lexus dealership.

Last year also brought good news to Pam Rodgers, CEO of DMR Automotive Group L.L.C. in Woodhaven, Michigan, No. 27 on the BE AUTO DEALER 100 list with $93.9 million in sales. After only eight years with General Motors, she paid off her dealership and now owns it outright. Rodgers, who has one of the nation’s most profitable dealerships, had sales of $74 million last year. She adds that it takes most dealers 15 years or longer to pay for their dealerships.

EXPAND TO SURVIVE

A growing number of African American auto dealers think the key to survival is through dealership expansion. Last year a number of dealers increased the number of dealerships they own. More dealerships can mean across the board reductions in supplies, savings in advertising budgets, less duplication, and a bigger profit margin.

Both Cornelius Martin of Martin Automotive Group (No. 3 on the BE AUTO DEALER 100 with $353.1 million in sales) and Harrell bought dealerships last year and say the purchases made their companies stronger. NAMAD also wants to see more dealerships awarded to African Americans.

“We want 15% of the dealer body to be entirely minority,” says Harrell, chairman of The Harrell Co. “Right now it’s less than 5%. We are having ongoing discussions with the manufacturers, trying to come up with ways to increase those numbers.”

To bolster their strength, NAMAD officials are also spending more time trying to build coalitions with other ethnic minorities. “We need to form more effective coalitions,” explains Vaden-Williams. “We should not be fighting over the crumbs. We should be fighting for a bigger share of the pie.” To facilitate coalition building, NAMAD has increased the number of seats on its board of directors to include other minorities.

THE FIGHT FOR IMPORTS CONTINUES

The most difficult challenge for minority dealers, says NAMAD, is tearing down the barriers to buying import dealerships. Those dealerships that sell imports fare much better in times of economic distress, the group says. But some African Americans say those dealerships are still out of reach. “We would like to own some import stores,” says Martin. “But in the past they have always eluded us. It’s a whole different ball game. The import manufacturers are not as aggressive as the Big Three with trying to recruit qualified minorities, especially African Americans.”

Martin says he has tried several times to purchase import stores but has been unsuccessful. “It’s still the good old boys network. They want to pair you with a white partner who is already in the system but I want to stand alone based on my record.”

IMPORT SUCCESS

While it is difficult to get import dealerships, a number of African Americans are making some strides in that area. In January 2002 David Stephens opened a new $4 million Honda dealership in Baytown, Texas, a suburb of Houston. Stephens, who also owns Millennium Motor Cars in Plano, Texas, was last year’s RE auto dealer of the Year.

Stephens, president and owner of Stephens Automotive Group in Piano, Texas (No. 46 on the BE AUTO DEALER 100 list with $63.8 million in sales) began talks with Honda in November 1998 and admits it took a while to clinch the deal. He received his letter of intent in October 1999 and construction of his 35,000 square foot state-of-the-art facility began last June. “Our first full month of business was pretty good,” he says. “We expect to sell more than 1,000 units this year.”

Winston R. Pittman Sr. is another dealer who has built his success on import brands. Pittman, who owns Winston Pittman Enterprises based in Louisville, Kentucky, has Mercedes-Benz, BMW, Lexus, and Toyota dealerships. Last year he had sales of $154.3 million, making his company No. 14 on the BE AUTO DEALER 100 list. “Our import lines had a record year,” says Pittman, who also owns a Dodge dealership. “They have new products and are very competitive. Our Lexus and BMW dealerships had a stellar year.” Pittman says it was not difficult getting into the import business. With more than 27 years in the car business, he says it was all about networking. He plans to get more import dealerships and is training family members, including his son, daughter, and son-in-law, to help grow the six dealership business (see BE Auto Dealer of the Year, this issue).

LOOKING TO THE FUTURE

“There are signs that the economy has bottomed out,” says NADA’s chief economist, Paul Taylor. “And 0% financing prompted a surge in the final quarter of last year. But there are some concerns. There were a lot of trade-ins of one and two-year-old cars, and dealerships have had an ample amount of those. That will provide stiff competition for new-vehicle sales,” explains Taylor.

But if the economy stays strong, massive employee layoffs lessen, interest rates stabilize, and a new war doesn’t break out this year, economists say new-vehicle sales will still remain close to record levels.

2002 Top 10 Growth Leaders

COMPANY LOCATION 2000 SALES *

BRANDON DODGE INC. Tampa, FL 99.308

HUNTSVILLE AUTOPLEX Huntsville, AL 29.000

MIKE JOHNSON AUTO GROUP Chesterfield, MI 28.500

WINSTON PITTMAN ENTERPRISES Louisville, KY 90.034

THE HARRELL COMPANIES Atlanta, GA 268.547

JIM MITCHELL AUTO GROUP Lynchburg, VA 110.000

PALANKER CHEVROLET West Babylon, NY 121.595

SIM FRYSON MOTOR COMPANY Ashland, KY 36.520

MARTIN AUTOMOTIVE GROUP Bowling Green, KY 258.360

FREEHOLD CHEVROLET Freehold, NJ 213.400

COMPANY 2001 SALES * % INCREASE

BRANDON DODGE INC. 242.062 143.7%

HUNTSVILLE AUTOPLEX 56.000 93.1%

MIKE JOHNSON AUTO GROUP 54.000 89.5%

WINSTON PITTMAN ENTERPRISES 154.263 71.3%

THE HARRELL COMPANIES 417.351 55.4%

JIM MITCHELL AUTO GROUP 170.000 54.5%

PALANKER CHEVROLET 184.319 51.6%

SIM FRYSON MOTOR COMPANY 50.453 38.2%

MARTIN AUTOMOTIVE GROUP 353.097 36.7%

FREEHOLD CHEVROLET 291.200 36.5%

* IN MILLIONS OF DOLLARS, TO THE NEAREST THOUSAND. AS OF DEC. 31, 2001.

PREPARED BY B.E. RESEARCH

COPYRIGHT 2002 Earl G. Graves Publishing Co., Inc.

COPYRIGHT 2002 Gale Group