A Long, Cold Winter in Detroit

International competitors keep U.S. automakers on ice

FLEET(ING) SALES
In response to narrowing margins, Chrysler, Ford, and GM have been trying to cut back on overproduction, which feeds fleet sales to rental car companies such as Hertz and Avis, but the Detroit Three want fewer fleet sales. “That’s part of the reason that sales have dropped for the last two years. To the extent that many of those sales were only marginally profitable, they won’t be as greatly missed as when consumers drop out of the marketplace, as some will in 2008,” says Paul Taylor, chief economist of the National Automobile Dealers Association in McLean, Virginia.

Some, however, continued to benefit from fleet sales. Winning the Oklahoma state bid for Dodge police cars drove a 71% rise in fleet sales for Dodge Chrysler Jeep of Tulsa (No. 51 on the BE AUTO DEALER 100 list with $48.7 million in revenues). That helped push revenues up 16%. Retail sales stayed flat, and for every three new vehicles the dealership sold, it sold four used. Parts and service contributed 39% of the dealership’s gross sales, pumped by a 23% sales increase in the parts department. The dealership also expanded. “We brought more brands in-house, and fortunately we were able to acquire additional land, so that we’ve been able to expand at our same location where we’ve been since 1986,” says Yvonne Hovell, president and CEO of the dealership.

Hovell says these days it’s critical for entrepreneurs not to become trigger shy when business is challenging. “These businesses have four to five different profit centers in them. When they start to hemorrhage, you can hemorrhage rapidly. You need to keep your hand on the throttle. I don’t think there is a luxury of coasting: The kind of oversight that got you to this point of success in a business of this volume, you have to continue. Some people don’t do that.”

Gregory Jackson, president and CEO of Prestige Automotive Group (No. 1 on the BE AUTO DEALER 100 list with $828.7 million in revenues), in St. Clair Shores, Michigan, is another auto dealer who responded to the challenging environment with a new business paradigm. Jackson, whose dealerships sell mainly American autos, invested $1.5 million into building a certified pre-owned center across the street from his Mercedes-Benz dealership. Low-margin transactions made up a large percentage of Jackson’s business. He sold two locations that handled mostly fleet sales; the divestiture resulted in a 46% sales drop last year.

Focusing on pre-owned vehicles is a sound strategy. In terms of profitability, used car sales rank second only to parts and service departments, says Damon Lester, president of the National Association of Minority Automobile Dealers. “If dealerships are not doing well with their used car sales, in many instances they are going to have a difficult time staying profitable,” he says. Recognizing the extreme profitability of selling used cars, Damian Mills of Classic Ford Lincoln Mercury in Smithfield, North Carolina (No. 82 on the BE AUTO DEALER 100 list with $32.5 million in revenues) opened a separate used-car

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