Domestic branded car dealerships continue to throw in the towel at breakneck speed. Today’s Wall Street Journal reports on the rolling blackouts. As new vehicle sales have fallen to a “25-year low, car dealerships from New Jersey to California are going out of business at an accelerating pace, threatening greater economic pain for communities around the country.” Love ’em or hate ’em, car dealerships are a significant source of jobs and sales tax collections. “The country’s 20,700 dealerships accounted for $693 billion in sales last year, or 18% of all retail sales, according to NADA. Dealership wages and salaries make up 13% of the nation’s retail payroll.” Said NADA forecasts 5,000 fewer US new car dealerships by the end of 2008 than there were in 1990. The death knell blows are coming from bankers slamming the door in long time customer’s faces. Stories like this abound: “Joseph Pfeffer, owner of Bigelow Motors, a Chrysler and Jeep dealer in Belleville, N.J., closed shop Oct. 4 after his bank decided to exit automotive financing and cut him off from $5 million in inventory financing. He had been in business since 1942, getting his start selling DeSotos and Plymouths. ‘I always survived,’ said Mr. Pfeffer, 92 years old, ‘but nobody ever cut off my line of credit before.'” Bigelow sold forty units in August, but only seven in September. No buyers, no bankers, no business. Its ugly out there.
With too many dealers fighting for a shrinking customer base, this was inevitable. On the plus side, vehicles still need to be serviced, so service personnel will eventually find other jobs. Sales tax revenue will simply shift to other, stronger dealers. It is the sales staff that will really suffer, and for many of these people – good riddance. Hopefully, we end up with fewer, stronger dealers who can actually make money selling cars. Sales staff will have higher throughput, so they might actually be able to make a living off their commissions. A stronger, profitable dealer will be less likely to engage in Bill-Heard style sales tactics and lift the reputation of the industry to something slightly more palatable than that of a child molester or tax collector.
To some degree I see higher quality cars (in general) is providing fewer sales. A car with 100k on it is not a big deal anymore. Beyond all the financial and economic turmoil.
I agree that we need fewer, stronger dealers — I am SO skeptical that this will result in a better sales experience.
I’m thinking of my visits to large Honda and Toyota dealers here in north/central NJ in the past year. The most miserable show rooms I have ever experienced. A combination of arrogance and ignorance from sales people. And total disrespect for the customer.
My best service and sales experiences have been with smaller dealers — where they know your name when you come in, take your personal check. Where the service manager and even owner might actually roll up their sleeves (literally and metaphorically) to help you.
Those are the dealers who, unfortunately, are probably most likely to close their doors.
/p
I agree. There’s a remarkable contrast between good dealers and bad ones.
There’s a BMW dealer in metro-Atlanta that actually had a mechanic bring a part to me and have it fixed on a 13 year old BMW (which they hadn’t sold me) at no charge for the repair. That was before they found out I actually managed their account at a nearby sale.
Constrast that to the POS Toyota dealer that tried to charge me $800 for the ‘cost of diagnosing a repair’ back in 2000. This is the same dealer who won several service awards from the Southeast Toyota distributor and has literally screwed everyone I know they dealt with. Their customer waiting area had until recently ripped vinyl seats, and crummy old TV’s that were seemingly older than many of their employees.
In the car business, the ‘brand’ of the dealership means absolutely nothing. It’s the name and the employees behind that name who determine your happiness.
Time to shop for that SL500!
The best service I’ve ever had from dealers was a small Mazda dealer that was later bought out by a large Ford dealer. They shut down their service bays and used the lot for selling used cars only. And I never went back… The former Mazda service manager started his own repair shop.
Burn baby, burn.
The extinction of the car dealer as we know it can not happen fast enough. They are an anachronism. Destined for the rubbish heap of history. I will dance merrily upon their graves.
Your next car will be bought online. It will have a stated price. No need for negotiations.
Factory service & delivery centers. That will work. Car Dealers? Forgotten.
–chuck
I’ve got to ask – why would dealers finance their inventory year after year, decade after decade? Over 20-30 years they’d be paying millions in interest wouldn’t they?
Why not operate on cash? They might NEED the credit when they first open – but a dealer 92 years old still using credit?
Clue me in.
I’ve got to ask – why would dealers finance their inventory year after year, decade after decade? Over 20-30 years they’d be paying millions in interest wouldn’t they?
Why not operate on cash? They might NEED the credit when they first open – but a dealer 92 years old still using credit?
Clue me in.
I wonder about that too. It appears that the dealers have been as dumb as their customers.
Soon we will be right back to the old days where dealers stock very few vehicles, and to get what you want to have to special order and wait a month or two.
The old dealer business model was for any dealer to finance new vehicles (floor plan) this greatly facilitated paying the manufacturer for the vehicles, and usually the company floor planning the new vehicle inventory was also the company that was doing the retail financing for the dealer.
In most instances the dealer made money with retail financing (the spread between what he was paying for and selling the loan to a customer)the monthly finance income would often pay for the monthly floor planning charges.
In those days the dealer that made good money, was supporting his trades with his own money.
These days trade ins and used vehicles are often floor planned similar to new vehicles. Consequently most dealers do not own their new inventory, or their used inventory.
They pay interest on a monthly basis, along with curtailement payments.
In most retail businesses the retailer doesn’t pay the manufacturer until anywhere from 30-180 days after when they receive the goods. It is negotiable. Consequently, suppliers end up effectively financing much of the inventory. For years Dell bragged about how it’s business model of build to order after the customer paid allowed it to actually received cash before it had to pay the suppliers where it got the stuff to sell. Retailer/integrator heaven that was. I haven’t followed Dell’s business in some years, so I don’t know if that is still true.
Car dealers ‘buy’ the car from the mfg. the day they get it, and have to come up with financing to do so. New car sales margins are tight, overhead is high and the dollar value of inventory required to do the drive-it-off-the-lot style of selling common in the US is huge. A small family dealership which has been in business for decades is still unlikely to have banked millions of dollars in cash with which to buy inventory. Plus, floor planning has been how-it-works for over fifty years. The mfgs. did this so that they could collect money COD and make money off the interest if the captive finance arm provided the floor plan.
It might sound crazy to an outsider, but it isn’t as crazy as you might think.
chuckgoolsbee :
Burn baby, burn.
The extinction of the car dealer as we know it can not happen fast enough. They are an anachronism.
+1. Although I’m fond of a couple of decent car dealerships and their service, the model is broken.
so here’s a question then… how are cars sold in other countries… like the UK, France, Germany?
I figured the schmoovy-doovy car salesman was a constant in the universe.
The retail automotive business (franchised dealers) requires vast sums of money just to stay in business and pay the ongoing monthly bills.
When a dealer has all his eggs in one basket and business slows down, and credit tightens up, the dealer becomes very vulnerable. Dealer groups have more flexibility since a strong franchise, can support a weaker franchise. Dealer groups are constantly shifting money around to support the various franchises.
“I figured the schmoovy-doovy car salesman was a constant in the universe.”
LOL That´s the main reason I only buy used cars sold by their owners.
There is some differences that I can see in the way new cars are sold in the US and Germany.
Nearly all cars are made to order, a system that has improved over the years due to the technological improvements, like being able to check the order status over the internet, being able to make changes to the vehicle even a few days before it is produced etc.
Most German customers would be very reluctant to buy a car out of the showroom, which might be due to the fact that there are more choices for most models (body styles, several petrol/diesel engines, manual/auto gearbox etc.). This is a big negative for the imports as well – most of them have to sell inventory as long as their factories are not in the EU.
Also, most spec like aircon or alloy wheels has to be paid for extra if you want to have it on your car, this is what the dealer and producer earn the money on over here (not on the financing as many cars are still paid for in cash), so no point in offering a “product ready to take away from the showroom”.
More than 65% of all new cars sold are actually sold to businesses not to private individuals, this is due to taxation rules that allow businesses to provide their employees with company cars instead of higher salaries and thereby saving taxes. (A different way to support your nations auto industry.) However, this means that many buying decisions are made by accountants, not private customers and less inventory for the impulse buying is needed.
Another thing is that we never had a housing bubble and the HELOC has never been invented over here so many people get along buying used cars all through their lives.
One trend that is the same over here is the demise of the small dealer with only one forecourt. Most dealers / dealer groups now have several businesses within a region of 50 – 100 km.