April 9, 2009

Cover Story

Topping it Off

In 1974, then-Washington state resident Dan Ferrell traveled through Utah on ...Read More

Featured Articles

30 Women to Watch

Skills of the Trade


Moving Metal

The Epic Life of Larry H. Miller

Health Power Tools

Legal Briefs
Avoiding the Domino Effect

Money Talk
Refinancing Myths

Living Well
Backyard Waterworks

Executive Getaways
What a Rush

Executive Health
Keep It Ticking


Business Trends
A Crop of Opportunity

Cadillac Banking

Industry Outlook
Travel and Tourism


Moving Metal

Utah’s Car Dealers Face Industry Stall

Larry Warren

April 9, 2009

Tom LaPoint always kept a close count on the number of potential customers walking into his Ford dealership on auto row in Murray. Since he opened in April of 2002, there was more than enough to turn a profit. “We had a profitable business until mid-2008,” the 35-year veteran of the car business says. But in the third quarter, with swirling media reports about Detroit’s Big Three manufacturers, and with credit markets freezing, the customer count plummeted. “We watched numbers dwindle from 30 to 20 to 10 a day.” LaPoint, who moved from Denver to become Larry H. Miller’s first employee in 1979, had already trimmed costs as much as he could. The only remaining option was to dig into his personal savings to get through the hard times, but with predictions of at least two more tough quarters in 2009, LaPoint closed and sold his assets to the Ken Garff Automotive Group, where he used to be chief operating officer. “Fortunately we had a willing buyer,” LaPoint says. Compact-Sized Business New car dealerships are closing all along the automotive industry landscape. Nine hundred closed in 2008 and the National Automobile Dealers Association (NADA) predicts another 1,100 will close this year. At the NADA convention in New Orleans in January, General Motors held closed-door dealer meetings to discuss their collective futures. GM told Congress it plans to eliminate 1,750 dealers by 2012 and as many as 500 this year alone. GM also told Congress it will reduce its U.S. lineup to four brands from eight, leaving Hummer, Saab and Saturn dealers in limbo for now, while turning Pontiac into a smaller niche brand. “When you take a third of the market out, a third of the dealers don’t really have a business to go forward with,” Chrysler President Jim Press said at January’s North American International Auto Show. The car dealership business is in the early stages of a consolidation, which Utah will probably feel more lightly than most, but will feel nonetheless. As sales shrink in the recession, and if domestic manufacturers continue to lose ground to imports, Press’ analysis is easy to understand. The nations, and segments of the Utah market, are “over-dealered.” “Consolidation is inevitable and it’s happening now as we speak,” LaPoint observes. “There are nine Ford dealerships on the Wasatch Front. There are six Toyota stores and they outsell Ford. And, Ford’s market share has shrunk and Toyota’s has grown. ‘Over-dealership’ is real.” Reduced Speeds Ahead Overall, Utah dealers are better positioned than their counterparts in many other states. Utah’s economy, buoyed by its higher birth rate and still relatively strong technology sector, is slowing but not collapsing like it is in more distressed states. Utah’s 2008 new vehicle sales dropped nearly 16 percent from 2007. The fourth quarter of 2008 was “a disaster” according to Utah Auto Dealers Association (UADA) President John Garff. “Dealers could not right size fast enough, cut expenses fast enough. A lot of used car dealers are gone because they didn’t have the cash to survive it.” Utah dealers who survived recessions in 1981-82, 1990-91 and 2000-01 say that cash reserves are key to making it through the recession. “This cycle is nothing different than what has happened in the past,” Craig Bickmore, director of UADA says. “It’s familiar to those who’ve been in the business a long time.” Dealers in the second half of 2008 were slashing costs to keep the lights on. Smaller dealerships had a particularly difficult time. “It’s tougher for stand-alone guys,” Joey Wright of family-owned Wright Ford in Heber City says. “We’re hanging on by a thread, praying and hoping [the economy] turns around soon.” Wright had already cut overhead as much as possible before the fourth quarter downturn. “The service business is helping us survive now—service and parts. We haven’t made a dime on the front end (new car and truck sales) where we’ve had loss-months for quite awhile.” At Ken Garff Automotive Group, which has 48 dealerships in six states from Indiana to California, every employee is feeling the pain. Garff cut wages in the corporate office 16 to 18 percent, changed pay plans and cut benefits. “The 401(k) match, the Christmas bonuses—we took out some of the ‘nice–to-have’ benefits,” John Garff reports. “Job preservation was a very important thing for our company. We didn’t want to be part of the panic. You do everything possible to preserve as many jobs as possible. The ‘nice-to-have’ benefits are cut back temporarily.” In the Uinta Basin, L and L Motors of Roosevelt is actually expanding, building a new dealership. It’s an example of how fast the dynamics of the car business changed in the second half of 2008 in what had been a booming oil extraction economy. “We’re insane building a building now, but we couldn’t [stop it],” L and L partner Bill Labrum says of the project which launched just as business slowed. “We started seeing a downturn in the fall, we all had a sense it was coming, but we had no idea how hard it would be.” Labrum and his brother are keeping their inventory down and turning over used cars faster. “We’re all wanting to move our metal,” Labrum says, even to the point of taking a hit now and then to get a vehicle off the lot. Labrum, who sells Ford and Chrysler, is also feeling pressure from the manufacturers. As manufacturers press Congress for bailout money, they also press dealers to take more inventory. “Chrysler put a lot of pressure on and there’s still a little bit of that, calling unmercifully to take stuff, but we’re overstocked already.” Other dealers report everything from cordial to strained relationships with their factory reps, some of whom keep an office in the dealership itself. Some manufacturers have, in better times, treated their dealer relationship as less than a partnership. Asking Congress for survival money has humbled them. Garff deals with as many as three dozen different car manufacturers around the world. “Some have always been great and it’s been a real partnership to deal with and others are extremely arrogant to deal with. That’s why 50 states have laws protecting them from rogue manufacturers.” Ford experimented with changing the manufacturer-dealer dynamic in the 1990s, buying nine Utah Ford dealers and operating them collectively as the Utah Auto Collection.“They thought they could retail cars better than dealers and it flopped,” Wright says. “They sold them all back to dealers at a loss.” Ford tried the same model in a few other markets but ended up abandoning the sales model and restoring the traditional manufacturer-dealer relationship. “In this industry you have to be an entrepreneur, you have to be responsive to your consuming public on the ground in your local area,” UADA’s Bickmore says. “That down-home feel of merchandising and servicing vehicles—you can’t beat those folks. They’re the best at what they do.” Hot Deals for Wheels It may be a terrifying storm for dealers, especially smaller ones who haven’t diversified beyond one store, but for consumers who are credit worthy and in the market for wheels, this is the perfect storm. The slow moving last half of 2008 left manufacturers with 2008 models even as they tried to move the ‘09 model’s the beginning of the year. “Car companies are tripping over themselves to make the kind of offers that will entice cautious consumers to make the big ticket purchase,” the Website Credit.com reports. “The levels of incentives are unprecedented. It’s almost mind boggling,” Kelley Blue Book analyst Jack Nerad told Money magazine. Employee price, 0 percent finance rates, large cash rebates are all in vogue now, sometimes in combination. Looking out on his lot, Labrum spots a heavy-duty pickup with all the extras. “It’s $12,000—a quarter off of a $50,000 truck. It’s a buyer’s market right now with good rebates, 0 percent, Ford employee pricing.” Bickmore has even turned into a TV pitchman himself, appearing on Salt Lake City TV commercials touting the deals available at all Utah new car dealers. John Garff believes buyers are out there thinking, “I still have my job, I think we can get through this, and with incentives being what they are, now is the time to buy a car.” His other dealerships think they’re starting to see an uptick in activity. “This hyper buyer’s market is driving sales to start heading in the right direction.” And speaking like a true car salesman, Bickmore says it’s time to get into some new wheels now. “This perfect storm [for buyers] will continue for awhile, but there will be a time when that demand closes. That window is open, but don’t wait too long.” But the deals aren’t for everyone. As with the creative home mortgages which turned toxic, the generous car deals of the recent past are gone and lenders are applying strict standards to car loan applicants. Until mid-2008, some lenders were offering 125 percent of the purchase price, and taking less credit worthy borrowers. Today, dealers say, buyers will need a credit score of 670 or better to find financing, and that financing will require a down payment of perhaps 20 percent. Dealers say credit unions are becoming the most reasonable sources of credit for buyers today, as manufacturer’s financing arms remain mired in the credit crisis. Moving Down the Road There’s plenty of blame to go around as dealerships and manufacturers look for a way out. But dealers get defensive about the products they’re selling today. LaPoint was proud of the Fords he sold up to the day he closed. “The new F-150 is unbelievable. The new Fusion is the best small car out there. People need to get serious about buying American built cars or we won’t have a domestic car industry.” A UADA fact sheet backs up LaPoint’s view, and aims to clear up myths about domestic manufacturers. Contrary to perceptions that General Motors has too many employees, UADA claims that GM sells more cars worldwide than any other carmaker and does so with just the fifth largest workforce in the industry. And, as for notions that Detroit continues to turn out gas guzzlers, the UADA claims that all of the Big Three’s mid-size sedans average 29 to 33 miles a gallon, with the most efficient Chevrolet Malibu beating the Honda Accord by 2 mpg. The UADA fact sheet was produced, UADA says, because of “our grave and genuine concern for the manner in which the national news media is exploiting stereotypes, myths and inconsequential issues.” Still, John Garff says real and fundamental problems need to be fixed. “Why does a union shop get $75 an hour and a non-union $50?” he asks. They’ve got to get those union contracts at market. It’s real discouraging to put our own money up at risk, work 14-hour days and put it all on the line to live the American dream only to have it taken away by stupid union contracts.” When will discouragement turn back to relief? In the first quarter, fueled by aggressive rebates and other incentives, Utah dealers reported better foot traffic and sales. And, there’s some comfort in comparing figures from the grimy junkyards to the shiny dealerships. “The scrappage rate is 12.5 million cars. Sales are annualized at 11 million. We’re taking more cars out of service,” Bickmore observes. “There is a pent up demand that will surge back pretty strong when things click again.” Utah’s Auto Industry Facts & Figures Total annual sales of all new vehicle dealerships: $6 billion Average sales per dealership: $39.3 million Total new dealership employees among 153 dealers: 9,340 Dealership sales as a percentage of total Utah retail sales: 16.4 percent Average number of employees per dealership: 61 Average annual earnings of new dealership employees: $44,424 Annual payroll of new dealerships: $413 million Source: UADA Number of new-car dealerships along the Wasatch Front: 153
Utah Business Social
UB Events View All
Best Companies to Work For 2015Utah Business Event
Dec 10, 2015
Utah Business magazine is thrilled to announce the 2015 Best Companies to Work for Event! This y...
Community Events View All
Empowering Self and Others: Become and Awakener
Dec 1, 2015
Uncover the secrets of empowerment. Whether you are a parent, a teacher or a Coach, you’ll find ...
Secrets to Financing your Business
Dec 1, 2015
Register: https://www.eventbrite.com/e/december-1st-secrets-to-financing-your-business-tickets-19...

info@utahbusiness.com  |  90 South 400 West, Ste 650 Salt Lake City, Utah 84101   |  (801) 568-0114

Advertise with Utah Business

Submit an Event

* indicates required information
* Event Name:
Price (general):
Website (if applicable):
Coordinator's Name:
Coordinator's Email:
Coordinator's Phone:
Venue Name:
Venue Address:
Venue City:
Venue Zip:
Event Capacity:
* Event Description: