6/30/09
5:50 PM
Page 1
July 6, 2009
www.usedcarnews.com
(800) 554-1026
www.BlackBookUSA.com
NEW TO USED
Staying in Car Business Without Franchise Harder Than It Looks By Ted Craig
A used car never appeared for sale on the lot at Somerset Pontiac in Troy, Mich. The store wholesaled all its trades as a matter of strict policy. Today, the Pontiac franchise is gone and Somerset GMC now uses the space for used vehicles. That scenario is extreme, but similar stories are playing out across the nation. June saw the first increase in independent dealer ranks in years as the manufacturers pulled thousands of franchises from stores across the country. Many of these dealers talk about making the transition to used-car sales. “The opportunity’s there,” said Richard Parrish, a used-car twenty group moderator for the National Automobile Dealers Association. “They just need to step up and take advantage of that opportunity.” That’s easier said than done. About 25 percent of franchise dealers had unprofitable usedcar operations. “What’s going to make you more brilliant all of a sudden?” said Joe Lescota, chairman of
Rush - Dated Material
UCN_01
the automotive marketing department at Northwood University. Franchise dealers can get away with a weak used-car department because they have other areas of their business to fall back on, such as service.
WELCOME to the
USED CAR BUSINESS A continuing series on franchise dealers moving into used car sales
That cushion disappears along with the franchise. “It’s naive to think a significant number of the terminated dealers will succeed as used-car dealers,” said George Hoffer, an economics professor at Virginia Commonwealth University. Tim Swift, the former president of the National Independent Automobile Dealers Association, believes these dealers have a good chance to make it. If they’re willing to learn the business, that is. “It’ll bring a good quality dealer to the business,” he said. Swift owns Corry Auto Auction and a Ford store, so he sees the business from all angles. Consultant Greg Gobel remains more skeptical. Many finance companies, both retail and wholesale, are wary of these now-independent dealers, he said. Perhaps for good reason. The 25 percent of the dealer body Chrysler eliminated accounted for only 14 percent of the company’s overall sales. The reality is that many of these dealers may be no better at selling used cars than they were at selling new cars. Most dealers think their fixed operations will sustain them until business turns around, Gobel said.
Photo by Kristin Craig PRE-OWNED ONLY: Used cars now fill the lot at the former Somerset Pontiac store in Troy, Mich. The dealership maintained a strict policy of wholesaling all trades.
That will be difficult without the steady stream of warranty work. Dealers have a number of reasons for wanting to stay in the car business. One is the horrendous commercial real estate market provides little opportunity to convert their properties into cash, Hoffer said. They may as well try selling used cars since the stores are worth little. Many talk of used cars as a stop-gap until they get another franchise. Hoffer foresees an influx of foreign brands, as last happened in the mid-80s. Among the brands entering
the U.S. market at that time were Hyundai, Sterling and Yugo. Only Hyundai survived and that company struggled in its early years. Dealers have another, more personal, reason for staying in car sales, said Art Spinella, president of CNW Marketing Research. Being a car dealer carries more prestige than many other small businesses. “It’s hard to shake that auto mentality,” he said. But many of these dealers and their staffs have taken a snobbish view of used cars. They’ll find some of these opinions justified. New cars
bring fewer post-sale headaches and are easier to finance, Spinella said. “I believe that many of the challenges will come from the quality of the sales force and management who have been more biased towards selling ‘new,’” said Dave Anderson, president of Learn to Lead. Parrish said any attempt to shift a store over to used-car sales from new requires a commitment from everybody, from the dealer down to each staff member. (In the next installment, dealers and industry experts discuss the new approaches needed to compete as an independent usedcar dealer.)
IN THIS ISSUE • The NIADA honors individuals who improved the industry. – Page 3 • The president signs Cash for Clunkers into law, but its effect on auto sales remains uncertain. – Page 4
• Summer’s a good time to catch up on some reading to improve operations. – Page 8
• Vendors share their latest finance and warranty products. – Page 24
HOW CAN WE WORK FOR YOU? To learn more, turn to the back page.