Business dead, car dealers say they deserve help, too

McClatchy NewspapersDecember 8, 2008 

WASHINGTON — Would-be car buyers can't get credit, vehicle sales are plunging and auto sales jobs are in jeopardy — but as Washington considers aid to the auto industry, it's offering no direct help for car dealers.

Yet across the nation, many dealerships face serious problems, and their fate could affect not just those who work for them, but their entire communities.

Chris Leith, who owns three dealerships in Wake Forest, N.C., has seen business fall nearly 50 percent from a year ago. He had to lay off workers in the past month, and he cut advertising.

Across the country, Scott Lasher, whose family-owned company runs dealerships in Sacramento and California's Central Valley, sees similar problems.

"The reality is, there are too many dealers, the domestic side more so than the imports," he said. "You've got a bunch of dealers not selling enough cars, so as these economic times happen, guys are going to button it up."

Congress is expected to consider a $15 billion aid package, possibly as soon as Tuesday, to help General Motors, Ford and Chrysler. However, if the plan runs into trouble among lawmakers — a real possibility — one key reason why will be that members of Congress see Washington's plan as too inattentive to their Main streets.

The nation's 20,700 independent new-car dealerships are often major players — and community pillars — throughout America.

A report last month from Casesa Shapiro Group, an auto industry consulting firm, estimated that the average dealer has approximately $2.5 million invested in local land, buildings, equipment and furniture.

The average dealer has $11.3 million invested in his business, the study found. In San Jose, Calif., for instance, the estimated 220 dealers have invested $2.48 billion and employ nearly 12,000, while in Greensboro, N.C., the 90 dealerships have invested $1 billion and employ nearly 5,000.

With so much at stake, Congress members of both parties, from urban areas and small towns, want more attention paid to the dealers.

"Many of these small independently owned dealerships are anchors in many communities that provide support for non-profits. They create jobs and stability and development," said Rep. Maxine Waters, D-Calif., who represents a district in Los Angeles that includes some low-income areas.

"I have not seen the kind of discussion about assistance for these dealerships that would make me want to be very anxious about supporting a rescue plan," Waters said.

Added Rep. Donald Manzullo, R-Ill., "There is no plan here to get people back in the showrooms to buy cars."

Dealers aren't interested in a piece of the bailout, but are urging Washington instead to take serious steps that would "bring back consumer confidence," said James Fleming, the president of the Connecticut Automotive Retailers Association, who testified before the Senate Banking Committee last week.

To help dealers temporarily, the national auto dealers' group is seeking access to a Small Business Administration low-interest loan program, which dealers used in the 1980s for greater access to working capital. They're unlikely to receive such access this month, but it's been discussed as a potential piece of a Democratic economic stimulus package early next year.

Many dealers are also eager for the tightness in the credit markets to ease, noting that their biggest problem is a clampdown on loans to potential buyers in recent months.

"Washington doesn't need to give dealers anything," said Mike Charapp, a Virginia attorney who represents car dealers in the Southeast. "They need to do some things to open the credit taps."

Some have suggested allowing a temporary deduction for interest on new auto loans and sales tax on new car purchases. Sens. Barbara A. Mikulski, D-Md., and Christopher Bond, R-Mo., are pushing such legislation.

What the dealers don't want is a major auto company bankruptcy.

"Would someone consider buying a car from a manufacturer in bankruptcy?" asked Mark Smith, the president of Dick Smith Ford in Raytown, Mo.

They also understand that their network is likely to shrink.

At GM, chief executive Rick Wagoner said that his firm will make "significant changes to our market and retail operations, including a reduction in brands, models and retail outlets," cutting about 1,750 dealerships, leaving GM with 4,700 by 2012. Most of the cuts would come in large metropolitan areas.

Ford's Alan Mulally estimated that by the end of this month, his company's dealer network will be down 606 to 3,790 dealers. Chrysler Chief Executive Robert Nardelli told Congress last week that his firm had more than 240 dealers that have gone bankrupt because of credit woes. Chrysler has about 3,300 dealers.

None of this was shocking to the dealers, who realize that they're going to have to undergo the same kinds of dramatic changes the car companies are confronting.

"I think a flushing out is necessary," said Steve Snyder, who owns a Chevrolet and Subaru dealership in Auburn, Calif. — though he added: "It would make me uncomfortable if I'm the one who's going to go out."

The secret to longevity, the dealers said, is embracing change, which is why every morning in Wake Forest, Leith gathers his staff for morale talks and reminds them that they have to change with the times.

He urges them to focus more on Internet sales and servicing current car owners, and notes that business is up 35 percent from a month ago.

"It's challenging," Leith said, "but as a business owner, most entrepreneurs like challenges. You could stick your head in the sand and go broke, or you could change."

(David Goldstein of The Kansas City Star, Barbara Barrett of the Raleigh News & Observer and Dale Kasler of The Sacramento Bee contributed to this article.)

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McClatchy Newspapers 2008

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