A Long, Cold Winter in Detroit

International competitors keep U.S. automakers on ice

facility.

‘CARMAGEDDON’
No one knows the need to change and adapt during business cycles better than Sanford L. Woods, CEO of S. Woods Enterprises Inc. (No. 7 on the BE AUTO DEALER 100 list with $256.9 million in revenues) in Tampa, Florida. Over the last 18 months, Woods sold three Chrysler stores as well as one store each carrying Hyundai, Volkswagen, and Honda. Now he owns Toyota, Infiniti, and Lexus outlets. His company is building a second Lexus dealership that’s scheduled to open in September on Florida’s Treasure Coast.

Woods notes that the vehicle market and the U.S. economy are slowing at the same time; he also recognizes that most black dealers sell domestic brands and own businesses highly leveraged with debt. “It’s going to be a tough, tough, tough deal,” says Woods. So what will be the short-term effect on African American auto dealers? Asserts Woods: “I think it will be brutal.”

Whether Woods’ prediction is accurate or not remains to be seen, but few can argue about the severity of the situation. Consumers are postponing purchases, waiting to see what direction the economy will take. “The fact that their house may have lost a significant amount of value in the last year or two does not put them in the best shopping mood to go buy new cars,” says Jesse Toprak, senior industry analyst for Edmunds.com.

E. Dale Early, CEO of Deerbrook Forest Chrysler Jeep in Kingwood, Texas (No. 74 on the BE AUTO DEALER 100 list with $36.3 million in revenues) grew his business by focusing on existing customers, contacting them through pre-recorded telephone messages, e-mails, and direct mail. “We figured
that if we wer
en’t talking to our customers, somebody else was,” he says. For their efforts, sales increased 29%. Revenues rose 26% in new vehicles, 37% in used vehicles, and 12% in the service department.

On May 14, 2007, DaimlerChrysler AG announced the sale
of 80.1% of Chrysler Group to American private equity firm
Cerberus Capital Management L.P. Daimler retains the remaining 19.9% stake. The automaker and its dealers continue to lose revenue and market share, however. “Do we get out and try to salvage what we’ve got left, or do we try to hang in there, hoping that it will turn around and risk potentially losing everything we’ve amassed over the years?” asks Reginald T. Hubbard, president of the Chrysler Minority Dealer Association. “That is the question that many minority dealership owners are faced with today. Most of us are first-generation business people and consequently do not have the cash reserves to handle sustained heavy losses.”

OVERSEAS POWERS
According to S&P, Toyota is the second largest automaker in the world by volume and the most profitable. For the Japanese automaker’s Toyota and Lexus dealerships, 2007 was an excellent year, according to Perry Watson III, president of the Toyota Lexus Minority Dealer Association. “The prospects for African American dealers in our group are good.” At the end of 2007 there were 33 black-owned stores out of 96 dealerships owned by ethnic minorities in TLMDA.

Toyota is committed

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