General Motors' Vice President of Global Design, Edward T. Welburn

As General Motors‘ Vice President of Global Design, Edward T. Welburn is currently the highest-ranking African American in the auto industry. The 60-year-old graduate of Howard University has spearheaded the design of many of GM’s best-selling vehicles, including the Chevrolet Camaro, Cadillac CTS and Buick LaCrosse.

BLACK ENTERPRISE recently spoke with Welburn following the Los Angeles Auto Show where GM unveiled the CUE (Cadillac User Experience), an onboard information/entertainment system the automaker says brings the functions of tablet computers and smartphones to the driving experience. Here’s what Welburn had to say:

BlackEnterprise.com: Many of the new vehicles shown at the LA Auto Show seem to be bolder in design, less cookie cutter than in the past. Is that a result of designers like yourself having greater influence in General Motors than in past years?

Welburn: Well, I can only speak for General Motors and it’s a couple of things. First off, the recognition by the leaders of our company of how important design really is in the success of the company. And it’s a very complex auto industry with so many brands [so] a brand needs to make a significant statement to be recognized in the industry. The leadership at General Motors recognizes how important design is in really establishing a brand, a distinction with a brand in this industry.

The vehicles now are much more high tech. It’s almost like a convergence between your mobile device and your vehicle now.

Yeah, and it’s changing rapidly. I feel very good about the work of the CUE system that Cadillac has in place and really the work we’re doing with all of our brands. At the moment, I’m driving a LaCrosse and I just feel very good about what’s in the interior of that vehicle. Now with the CUE system with Cadillac it goes to yet another level. But these technologies are so much a part of everyone’s everyday life. And you should not take a technical step backwards when you get into your automobile. What is so great about the CUE system is that it really allows the driver of the car to really dial in as much or as little as he or she wants to have as their driving. And in no way does it make driving more difficult or more challenging. In fact, it should, and it does make driving easier.

Much of GM’s sales are now generated outside of the US. When looking at designing a vehicle, do you look at specific regions to see whether design might appeal to a particular area?

The cultures are different around the world, but our customers are exposed to the same information. We introduced a new vehicle at the San Paulo Brazil Auto Show and I’m getting emails within one minute from people in the United States and Europe with their reaction to what we just revealed. The world sees everything we do and they’re exposed to it all. As a result, many of our vehicles can play well around the world.

Cruze is a good example that is extremely successful wherever it goes, but wherever it goes, we do fine-tune the design to that environment. From a technical perspective it’s more in the right in handling and it may be in the power train that’s a bit different. From a design perspective, the color pallet is different, the materials and the interior may be different. But the basic vehicle is the same worldwide. So there’s an example of a vehicle that does play well globally. It’s a compact vehicle and it goes right at that very, very important compact segment around the world. In some markets, it’s more a luxury vehicle compared to everything else. Its role is a bit different. We do have designs that we’re developing that very much focus on the emerging market that are a bit different than vehicles we do for the more established market. And they’re very, very affordable vehicles. In some ways, very basic, but no matter where the market is, our customers are looking for very fresh designs.

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Welburn with a 1953 Corvette

Speaking of customers, GM has recorded several profitable quarters since emerging from bankruptcy and vehicle demand has been coming back. But do you think the high volumes we’ve seen in the past will ever return? And if so, what do you think needs to happen before you start seeing those numbers again?

I’m a car designer and I cannot tell you exactly what those numbers will be, but those numbers will come but maybe not in the same locations that they were in the past. The world is changing in many ways and as you said earlier, we sell as many if not more cars outside the United States as we do inside. The market in China is growing at a significant rate and continues to grow. There will be growth in other areas around the world, as well, as those markets develop and change in significant ways. And I believe the real intensive push on new product and different product and different vehicle types and more fuel-efficient vehicles will really appeal to an awful lot of people and sales will be very strong.

Do you think African-American representation in your field is where it should be and if not, what can be done to see more Ed Welburns out there?

Would I like to see more African Americans in design? Yeah, I’d like to see more guys who are crazy about cars in this field. The number of African-Americans in General Motors design is lower than the percentage nationally, but the African-Americans that we have at General Motors are in significant leadership positions developing absolutely dynamite cars and I could not be more proud of the work they do. Today, there are select few schools that have a major in car design. And most of our designers come from those schools where they have a real concentration on that subject. When they’re hired here, they are ready to be put on significant projects, day one. We do still hire people who are graduates from schools of fine arts and that type thing, but it’s a bit more of a challenge.

So, when I visit the schools of design, the big significant schools of design have a real area of focus on automobile design or major in automobile design, I don’t see many African Americans. I have talked to the presidents of a couple of the schools and they know that I would like to see more African-Americans in design at General Motors. The feeder system doesn’t have any and we are working together to improve that feeder system. We’re working together on that. That’s the only way it will happen, is that if I work with the universities. And so we now have programs in place to help identify young people in public schools. You can’t start your senior year in high school and it’s very difficult at that point. So we have to go down deeper than that. So it is a long-term commitment. And we don’t make big public announcements about it, press conferences about what we’re doing. We’re just doing it. We’re just quietly doing it. And it’s starting to show some benefit. They’re people in the pipeline now.

The company, which specializes in European and exotic cars, prides itself on offering unique services such as performance upgrades and aerodynamic body kits. Roadstarr has developed partnerships with some of the most exclusive brands in automotive, including Brabus, Hamann, and TechArt. “We actually build from scratch,” says Hassan, of what differentiates their shop from others.” (The Mustang pictured was designed to the specifications of the son of a premier.)

Whether it’s delivering a specially styled vehicle for a movie premiere or refitting the interior of an SUV to resemble a business lounge, Hassan says the company’s mission is to please the customer. “The business that we’re in is about luxury.”

(Photo by Jackson Hill)

Located just 30 miles from the Gulf of Mexico, Lake Charles, Louisiana, has a population of less than 72,000. And that small town setting suits New Orleans native John F. Stelly just fine, despite being in the business of selling as many cars as possible.

Stelly, CEO of Paramount Nissan (No. 26 on the BE AUTO DEALERS list with $45.2 million in sales), was doing something a bit unexpected while the auto industry was busy righting itself—expanding. Amid the industry turmoil, Stelly’s business acquired 171 Nissan and 171 Ford, a pair of dealerships in DeRidder, Louisiana, that lie roughly 50 miles north of Paramount’s home in Lake Charles. The company also acquired 15 acres of land in Silsbee, Texas, and built a state-of-the-art 14,000-square-foot Nissan dealership at a cost of $4 million.The automotive industry travails over the past few years are well documented; sales in 2009 were the lowest since 1982. While it may seem ill-advised to spend millions to expand sales capabilities during the industry’s worst slump, Stelly’s philosophy is being the biggest fish in a smaller pond. The three locations create a 197-square-mile triangle that guarantees Paramount Nissan excellent market penetration, which he predicts will more than double sales for 2011.

U-turn to Profitability
171 Nissan and 171 Ford had been a family-owned operation for 45 years. But it was being operated by the second generation, which Stelly says may have lacked the passion for the business necessary to withstand the challenging environment. “In this particular climate, especially last year and end of ’08, if you don’t love it and if you’re not prudent, you’re going to fall by the wayside,” says the 44-year-old Stelly. “This is not the type of business where it’s a leisure thing or it’s like a second job or second nature. This has got to be a love, and this has got to be your focus.”

As the dealership is only an hour’s drive from Stelly’s Lake Charles showroom, common sense might dictate that he’d be cannibalizing his current customer base with the acquisition. However, he would also be acquiring his closest competitor. “It works out great. I’m my own competition, which means I cover—from a Nissan perspective—more than 70 or 80 miles of territory by buying this dealership, north and south,” he says. “I’m the only Nissan dealer from Lake Charles to Shreveport, which covers 150 miles, roughly.”

The struggling 171dealership owners contacted Stelly after a sale to another party for $2 million fell through. He looked over the books and saw the locations, which generated roughly $10 million annually, were hemorrhaging money to the tune of $100,000 per month. Stelly offered a sizable dollar amount for the business (minus the dealership’s inventory) on June 28 and the deal closed August 12. The deal also doesn’t include the property the dealership sits on, which is rented. In the ensuing weeks, Stelly’s team executed a turnaround plan:

• Reduced the workforce from 40 to 19
• Doubled the number of new vehicles in inventory to 120 to ensure a wide selection
• Maintained roughly 50 pre-owned vehicles to capture the used car market
• Focused the inventory on Nissan’s best-selling vehicles in the area: the Altima and Sentra
• Increased advertising by 50%, focusing primarily on local television and print but also including e-mail blasts alerting past customers to new incentives

All told, by year-end 2010, Stelly’s new location had recouped nearly the full cost of the investment and was operating profitably.

Over the Border
Another opportunity for Stelly’s expansion plan came via Nissan directly. The automaker wanted a presence in a demographic market that includes Silsbee, Texas, a city near the Louisiana border, and offered Stelly the opportunity to start a new franchise there. But there were conditions: The facility had to be built to Nissan’s specifications. So despite essentially being gifted the franchising rights, Stelly would still face challenges constructing the 14,000-square-foot facility with 15 service bays.
Paramount Nissan acquired the 15 acres of land for $800,000, but that was the easy part. Nissan’s brand imaging requirements mandate that all dealerships look virtually identical. “They want you to have the right tiles, right furniture, right signage, acreage, facility size, even the number of parking spots and service bays,” recalls Stelly. “We had four or five meetings with our architects and Nissan’s brand imaging people and Nissan’s architecture firm. It took more than nine months for approval.” Those architectural fees put Paramount Nissan in the hole for some $170,000 before ground was even broken.

Once construction started, there was continual oversight. “At each phase of construction, Nissan sent a representative to inspect the cosmetics of the building and at any point they could say, ‘This has to be redone.’” Fortunately there were only minor changes to be made, but costs still mounted, explains Stelly, who admits the new venture wouldn’t have been possible had the other locations not been operating profitably. He worked with Nissan Motor Acceptance Corp. to help with the financing for construction, which totaled more than $4 million. “Banks only do 80% commercial loans, so I had to come up with roughly $1 million in cash.”

Minority Report
Stelly’s success is rare in an environment where the number of minority-owned dealerships continues to dwindle. “Over the past two or three years we’ve lost well over 30% to 35% of the minority dealing body,” says Damon Lester, president of the National Association of Minority Automobile Dealers (NAMAD). And while there is stabilization that signals the worst is likely over, it’s taken a catastrophic toll. “The African American dealer count has had a significant amount of attrition. There are less than 300 black [auto] dealers in the country.”

While the rising sales volume of vehicles shows a positive outlook that consumer confidence is coming back, auto sales will likely show only modest gains as long as high unemployment and housing issues remain. “For us to retain the number of dealers that we have, as well as increase the minority network, we need access to capital,” says Lester. “We’re still seeing challenges from the banks to lend to automobile dealers, particularly those who don’t have the equity in their stores and in the real estate that they once had.”

For the relatively few who can gain access to capital, such as Stelly, opportunities remain. “The price to acquire dealerships is at an all-time low, so there’s a lot of opportunity for growth. In order for us to grow we have to be creative in how we do business; that means we have to be creative in partnering and using private equity as an additional source to obtain access to capital,” says Lester. “This is a very good time to buy stores. Stelly is an example of dealers who have cash, or access to it, who are capitalizing on the market conditions.”

Stelly stands to benefit from having profitable operations that could fuel acquisitions to help penetrate new markets and grow his business. “[In] the current economic climate, it’s tough for dealers who either lack capital or access to capital. And Mr. Stelly’s first dealership in Lake Charles has been so successful for him it’s allowed him to acquire additional properties and additional businesses,” says Mark Alan Rainey, senior manager, Dealer Network Strategy for Nissan North America. “I would say that as far as his acquisitions this year, he’s fared better than any of our other minority dealers.”

As Hickman found, consumers have more control than they realize over what they ultimately pay for a new car. For most cars, there’s a window of approximately $3,000 between what the dealer asks and what the dealer paid for the car, says Philip Reed, senior consumer advice editor for auto-buying site Edmunds.com. Anything within that difference is fair game for negotiation. However, consumers who want the best possible deal on a car must have the ability to haggle, experts say. The good news is that with a little information and a few simple tips, anyone can negotiate and score big savings.

Before entering a car dealership, you should know these 3 things:

Your financial picture. “Your credit rating tells you what you can afford, so you know how much flexibility you have in bargaining. It also gives you an idea of what the financial industry thinks you can afford,” says Warren Brown, automotive columnist for The Washington Post. Naturally, the better your credit rating, the more bargaining power you have. If your credit isn’t so good, a willingness to put down a 20% to 30% deposit on the car can increase your leverage, says Jeff Fortson, editor of JeffCars.com. Try to get pre-approved for a car loan by your bank or credit union, adds Reed. Then, let the dealer try to beat your rate.

The car’s worth. Several sites will help you determine a good price for the car, including Edmunds.com, KBB.com, JeffCars.com, Cars.com and Autobytel.com. The manufacturer’s suggested retail price, also known as the sticker price or asking price, is the first number a dealer is likely to throw at you. A lower number is the invoice price, the approximate amount that the dealer spent for the car. Since dealers often get bonuses if they sell a high volume of cars, “they will in some cases sell a car at invoice price or less,” Reed says. Also helpful are Edmunds.com’s proprietary True Market Value figures, which are a compilation of what people across the country paid for a particular vehicle. The websites of dealers and automobile financing companies can also provide information about rebates and current incentives.

Your old car’s trade-in value. If you’re going to trade in the car you’re currently driving, do your research, says Fortson. Take your vehicle to a place that buys used cars, such as used car chain CarMax, to get it appraised in advance. When you get to the dealership, “you can negotiate from that appraisal,” Fortson says.

To get the best deal:

Build rapport. Choose a salesperson you feel comfortable with. “If a dealer is disrespectful, leave,” says Brown. Don’t let the salesperson know that your car is on its last leg or that you’re in love with a particular vehicle. Also, practice patience. “They are going to try to create a sense of urgency, telling you, for example, that the car’s not going to last the weekend,” cautions Reed. But remember, “It’s not the last car in the world like that.” Websites such as Beat The Car Salesman (www.beatthecarsalesman.com) and AOL Autos (www.autos.aol.com) offer information to consumers on effectively communicating with sales associates and getting the best deal.

Start low. Know that the salesperson is going to start with a high price. When he or she counters your offer, don’t be afraid to counter again, and be prepared to walk out if the salesperson refuses to meet your price. “I have a friend who walks out three times,” says Reed. “We call that negotiating with our feet.” In addition to car values, the Kelley Blue Book iPhone app provides tips on how to negotiate with car dealers
on the spot.

Consider the nontraditional route. Many dealerships have Internet departments where you can negotiate via e-mail, Fortson says. Another option: Collect quotes from multiple dealerships, letting each know what you’re doing. “You’re giving them notice that they’re bidding against other businesses,” Reed says. You can also take advantage of car-buying programs at membership shopping clubs, such as the Costco Auto Program or the Sam’s Club Auto Buying Program. “I call those anxiety-relief programs,” says Brown, since they offer their members access to cars at an already-negotiated price. However, “you’re paying someone to do for you what you can do for yourself,” Brown adds.

Don’t get unnecessary extras. Once you’ve agreed on a price, don’t let the salesperson talk you into last-minute extras, such as expensive, extended warranties or environmental paint protection, Brown advises. The dealer may also try to persuade you to spend more by offering a longer financing term. Stick to a 36- or 48-month term, at the longest, Brown says. The goal is to make the transaction less expensive for you in the short term and the long term. “Car salesmen consider it a game. It can be a game for you, too, but it’s a game that will save you a lot of money,” Reed says.

Favorite sports car for handling
Lamborghini Gallardo LP 560-4 “With its all-wheel drive, it’s a car that can’t get away from you.”

Most requested sports car
Lamborghini “Hands down Ferrari is the classic exotic car, but newer, younger money likes the flash of the Lamborghini.”

Favorite luxury vehicle
Rolls-Royce Phantom and Rolls-Royce Ghost “The Phantom is one you should be driven in, but the Ghost with its v12 engine is comfortable with easy handling. And it has a grille that, when you pull in anywhere, just shuts the place down.”

Most requested luxury vehicle
Mercedes-Benz S550 “Few luxury vehicles meet their standard. Many clients like it chauffeur driven. It doesn’t scream money but it shows class. It’s a sexy car.”

Best sound system
Lexicon’s Logic 7 “Their 15-speaker theater package in the Rolls- Royce Phantom is like sitting inside your own cinema or media center.” Rolls-Royce is the first automotive manufacturer to offer the fully Lexicon-branded system.

Favorite car for automotive technology
Mercedes-Benz CL63 “With adaptive driving control, the seat adjusts with you on turns. It’s a great feeling. Also, its night view assist feature alerts the driver to even the smallest animals on the road.”

Favorite automotive mobile device
AirIQ Global Positioning Device Tracking “It allows me to monitor my vehicles for distance, speed, and rpm [revolutions per minute] levels. I can disable any vehicle from my iPhone if the driver’s been abusing the car.”

Favorite online automotive tool
AutoTrader.com “When looking to buy a car, I can compare what consumers are paying to what I might be paying.”

Ford Taurus SHO (Source: Ford Motor)

While Ford Motor Co. stands alone as the only American automaker that didn’t solicit bailout money from the U.S. government and subsequently file for bankruptcy protection, it was far from unscathed. And as the No. 3 manufacturer of vehicles tries to save an eroding market share on the heels of perhaps the worst year for the industry, environmentally aware and African American consumers could play a pivotal role in its future.

With the industry still in a state of flux and consumer demand remaining questionable, Ford sees the minority space—and, of course, the environmentally conscious consumer—as areas of increasing importance as it looks to regain lost market share. “The great thing about Ford, particularly in the last year where everyone else cut multicultural marketing—our spending actually went up,” says Crystal Worthem, manager of Multicultural Marketing at Ford. “We do the print ads and TV and try to find ways to communicate with the customer to help change their mind, and we’re especially doing it in the African American community.”

Expanding minority-owned and -operated dealerships in minority communities is key to Ford increasing auto sales, says McGrath. “There is an opportunity to become a dominant presence in minority neighborhoods if [minorities] invest in it. It tends to be an underserved market,” he says.

All told, African Americans spent $11.5 billion on new car sales, using an average retail price of $20,000 per vehicle, according to Marc Bland, multicultural marketing lead for R.L. Polk, a provider of automotive information and marketing solutions.

Ford’s Worthem says the best way to speak to those consumers is through one-on-one relationships and the company has responded to that trend. “So from awareness to purchase consideration all the way down to sales, they’ll take a look at you when you’re at those one-to-one events more often than somebody from the general market. Ford realizes that the African American market is critical to us selling product and driving profits.”

These marketing strategies come on the heels of a steady rise in competition—primarily from Asian companies—and a shift by consumers away from the more profitable large pickup truck and SUV

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segments to smaller, less profitable crossover utility vehicles (CUVs). According to Standard & Poor’s, this shift has led to a steady erosion of Ford’s U.S. market share that the research firm says is likely to continue to hurt market share until the company can introduce more of its own CUVs.

Earl Lucas, designer of Ford Taurus SHO

On the green front, Ford has committed to produce half a million Ford, Lincoln and Mercury vehicles annually using EcoBoost Technology in North America over the next five years. EcoBoost uses gasoline turbocharged direct-injection technology—which takes waste energy from the exhaust gas to drive the turbine. This gives the car up to 20% better fuel economy and 15% fewer carbon dioxide emissions versus larger displacement engines. “I think we are getting a lot of credit for not only having fantastic vehicles that people want to buy that are really fuel efficient, but from an environment standpoint [we] are also doing it in a more environmentally conscious way,” says John Viera, director of sustainable business strategies at Ford.

Although Ford finished 2009 profitably, it wasn’t without its share of sacrifices over the past few years. In December 2005, Ford sold its Hertz Corp. unit for about $15 billion. In June 2008, it sold Jaguar and Land Rover to Tata Motors for $2.3 billion and reduced its stake in Mazda from 33% to 13.8%. In December 2009, Ford announced plans to close the sale of its Volvo unit to China’s Zhejiang Geely Holding Group Co. Ltd. in the 2010 second quarter.

Even still, Bland predicts that Ford will increase its market share both overall and specifically in the African American segment. For one, Ford’s Lincoln brand was ranked No. 2 for African American brand share in 2009, according to statistics from R.L. Polk.

And although the Ford brand ranked No. 13 for African American brand share, the Ford Motor Corp. ranks No. 1 for African American loyalty, based on R.L. Polk’s evaluation of return customers. Also, of the top 12 makes and models for African Americans, the Ford Fusion is the only vehicle to sell more units in the model year of 2009 than they did in 2008. “The market overall was down in 2009 and somehow they found a way to sell more units to the African American community that year than the previous year,” says Bland. “That is a strong indicator that there is a high affinity for the Fusion in the African American community.”

In terms of the general market, McGrath says that the “Toyota debacle” involving the competitor’s recall of faulty vehicles, will definitely open up more market share for domestic manufacturers, giving Ford a chance to increase market share. “There is a lot of positive momentum and consumer buzz about Ford,” says Bland, who based his forecast on the 2010 North American International Auto Show where Ford won quite a few awards. “That leads me to believe they are primed to do some really good things in 2010.”

(Photo by Ara Howrani)

“What am I going to do?” That was the first thought that ran through Bill Perkins’ mind upon learning he would lose the Pontiac franchise that comprised some 60% of revenues for the flagship dealership of his automotive empire. While he still maintained the GMC line and another pair of outlets that sold Chevrolets, the disappearance of Pontiac models could wreck Bill Perkins Automotive Group (No. 13 on the be auto dealers list with $111.2 million in revenues), the business he spent 20 years building.

In April 2009, General Motors, in response to its financial problems, partially due to a global recession and decreased demand for domestic automobiles, announced that its Pontiac brand would be dropped and all models would be phased out by the end of 2010. The automaker also said it would reduce the number of its dealerships by 2,600. Perkins worried that his might be among them.

It was a perfect storm of bad news in 2009 for auto dealers such as Perkins, as a dismal economy, a lack of access to the capital needed to purchase vehicles, and a CEO resignation at GM created an air of uncertainty among entrepreneurs who make their living selling cars. “I think this is something we as dealers really got blindsided with,” recalls Perkins, also president of the Detroit Auto Dealers Association. “I don’t think a lot of dealers expected it, just as I never expected to lose my franchise, but I did. And it’s the dominant franchise in this particular operation.”

How bad was it? All told, 84 of the 280 dealerships in the General Motors Minority Dealers Association network were selected to be closed due to GM’s restructuring efforts. “Last year, everything was so bad that everyone was just trying to survive,” says George Magliano, who heads U.S. auto analysis for Global Insight, a provider of financial research, forecasting, and market intelligence. “They didn’t know where the end would be.”
In this environment—described by many as the worst on record—Perkins may well be part of an endangered species: the African American auto dealer. Perkins is nevertheless cautiously optimistic about the future of his business, thanks to keeping operations lean, serious reinvestment into the business (particularly when times were flush), and perhaps a bit of luck

REINVESTING PAYS DIVIDENDS
The auto retail business is all about moving cars and moving them quickly. Many auto dealerships are hurting because banks aren’t granting access to the levels of capital needed to purchase vehicles from the automakers. Generally, Perkins would move a vehicle in about 30 to 45 days. Today his group sells an average of 175 new and 135 used vehicles per month for roughly $7.5 million, compared with 225 new and 130 used autos per month prior to the downturn. But now, he would not have access to his best-selling product. “The only thing I could get, which was what I had on the ground, was about 100 Pontiacs. There would be no more after that,” he recalls. “I was devastated.”

So Perkins took a step back. He re-evaluated his operation. With three locations in Michigan (Taylor Chevrolet in Taylor, Jim Bradley Pontiac Buick GMC in Ann Arbor, and Merollis Chevrolet in Eastpointe), he had to figure out how his business could survive without the Pontiac lines. Fortunately, he had foresight. Instead of taking money out of the business over the years, the savvy auto dealer had continued to reinvest the profits from his operation.
As a result, Perkins owns the properties on which the three dealerships are located. “I purchased starting out with a mortgage amortized over 20 years, renewable every five years. After the first five years, GMAC, the lender, starting giving me a problem with the renewal, and rather than renew, I purchased the property with the profits made from the dealership operations,” he recalls. Another advantage to owning the property: Had an automaker owned the land, with Perkins leasing, eviction would have been a possibility.

He also carries very little debt, a rarity among black auto dealers. “That was the biggest help to me when this crisis hit,” Perkins says. He also runs the business lean even when times are flush. Even so, management was forced to reduce headcount from 163 to 150 employees. Since he had available cash, he was able to invest $200,000 into bolstering his used car inventory—increasing the number of vehicles from 30 to 45—and focus on his remaining lines.

With the weak economy, sluggish sales, rising unemployment, and nothing but bad news coming from automakers, morale for those employed within the industry quickly decelerated. Despite the depressing environment, Perkins applied his version of booster cables to his operation, jolting morale with sales contests and performance-based bonuses. “Right now there are certain sales levels that the factory wants you to hit, and as a result of hitting those, you can earn additional money,” he says. “So I have put contests in place to reward my employees over and above what they would normally earn if we were able to hit those numbers.”

In the face of lagging sales, the business came up with a sales hook: customers would get financed on a new or used vehicle (with $1,995 down), even if their credit wasn’t the best. Perkins’ team also focused on customer service and competitive pricing. “I am not the kind of dealer to use gimmicks. I was taught to stick to the basics of doing business and not chase the quick buck,” says Perkins, whose top selling model was the Chevrolet Malibu. “This has always been my strategy, and it has worked for me.”

TEMPORARY FIX?
A welcome boost came in the second half of 2009 via the Car Allowance Rebate System, also known as “Cash for Clunkers.” The federal program, designed to provide incentives for consumers to purchase a new, more fuel-efficient model while trading in a gas guzzler, resulted in a 40% sales increase at Perkins’ Jim Bradley location and some 25% to 30% at his other franchises. The program helped, but it was a temporary measure and ran out of funding. “So if you just came through the first half of the year with business in the doldrums and all of a sudden you come to July and August and you have these two real good months, and I think what it did was it put people to sleep,” Perkins surmises. “[Auto dealers] thought the market was coming back. Then September fell off a bit, and October was not a good month.”

A DYING BREED
Even with the setbacks, Perkins dealerships are among the more fortunate. “We’re going decades backward in terms of the number of minority dealerships that are still in business today and will have access to getting dealerships,” says Marjorie Staten, executive director of the General Motors Minority Dealers Association. “The instability [at the automakers] doesn’t allow us a good, clear picture yet of where we’re headed. All we know is the picture that we see and the way that everything has changed, it just doesn’t look like a very positive picture.”
Perkins, 60, is looking to keep things going and eventually pass the business on to his son, Monte, an automotive management major at Northwood University. “I’d like to hold on long enough for him to come out of school, get his feet on the ground, get some experience, and turn it over to him,” he says of the exit strategy. “That’s my ultimate goal.”

What helped Perkins Automotive through the crisis was reinvesting, something he hails as critical to success as an entrepreneur. “As minorities, we’ve gone so long without making money that when you start making money, you don’t want to give it back,” he asserts. “But you have to put it back in the business for when you hit the downside of the cycle.”

For 2010, the automotive industry is expected to continue to trend slightly upward in the U.S., as the economy slowly recovers. “Automakers will sell less because the market will not pick up enough to support [growth],” says Magliano, who expects total units sold to reach 11.2 million, compared to an estimated 10.3 million for 2009. “Volume is going up, but not a heck of a lot to make people feel good.” Margins, he says, will be pressured as manufacturers aggressively jockey for market share, slashing prices to boost volume.

Despite all the challenges at GM, Perkins feels positive about the company’s direction, saying the reduction in dealerships means the dealers left have a better chance of surviving. “I feel good about where they are trying to go. I have been affiliated with GM for 37 years, and I can honestly say they are building a much better product than they ever have in the past,” he says. “Product is what counts in the marketplace, and now we are equal to the quality of the imports and equal to or better than the imports when it comes to styling.”

For now, Perkins Automotive is hanging in there. Sales for 2009 are expected to drop nearly 20%. But profits are expected to hold steady near 2008’s levels. About the future, Perkins says, “I would say I’m cautious. The one thing I can’t control is the market itself, and the market seems very spotty.” In the meantime, he plans to watch inventory, expenses, and personnel. “This is a different time. You really have to be on top of your business.”

This article originally appeared in the February 2010 issue of Black Enterprise magazine.

A Ford car dealer in California offers the Cash for Clunkers program to customers. (Source: Getty Images)

As the federal government’s $3 billion Cars Allowance Rebate System (CARS) program comes to an end at 8 p.m. today some auto dealers feel endangered by the cloud lingering behind the Cash For Clunkers silver lining.

“It’s been a mixed blessing,” says Gregory Jackson, owner of St. Clair Shores, Michigan-based Prestige Automotive (No. 1 on the BE auto dealers list with $646 million in sales). While dealers are benefiting from sales increases that would not have happened without CARS, they are “strapped for cash” because the government has not reimbursed them for the price reductions they gave to customers. Jackson’s Ford and Saturn stores got about a 30% sales boost from CARS, but for now, his company is $660,000 out of pocket. Several firms on the B.E. Auto dealers list are having similar experiences.

Yvonne Hovell, owner of Oklahoma-based Dodge Chrysler Jeep of Tulsa (No. 36 on the B.E. Auto Dealers list with $47.397 million in sales) says she’s “not surprised” in receiving “not a penny” from the government for the clunker discounts. She’d dealt with government programs before. Her firm had sold about 25 vehicles under CARS as of Aug. 20. “It’s no question that the national program has been an incentive to the public to come back to the automobile dealer showroom,” Hovell says. The reality for the individual dealers is, however, “You literally have to have cash to play in the game. I have been extremely fortunate,” Hovell says of her store’s strong cash position.

By Aug. 20, John F. Stelly, owner of Lake Charles, Louisiana-based Paramount Nissan (No. 28 on the BE auto dealers list with $54.55 million in sales) had sold 61 vehicles via the program, a 20% month-over-month increase. Stelly says the government’s slow reimbursement is not causing him cash-flow problems. “I knew what I was getting into, and I set up some reserves just in case the government choked,” Stelly says. He set aside roughly $70,000 “just in case I don’t get all of my money.” The dealership keeps three to four times the working capital the manufacturer requires.

How It Works

Under Cash for Clunkers, when customers trade in a qualifying old gas-guzzling vehicle, between $3,500 and $4,500 is subtracted from the price of the new fuel-efficient vehicle they purchase. The customer gets a car loan from a bank or other financial institution. That lender pays the dealership the reduced price of the new car, and the federal government pays the dealership the $3,500 to $4,500 difference. When the customer drives the new car off the dealer’s lot, the bank that made the car loan typically pays the dealership overnight. That’s mainly via an electronic funds transfers (EFT) or direct draft. The dealer then pays off the cost of the car to the financial institution that loaned him “floor plan” money to get the car as inventory from the manufacturer. For clunkers program transactions, banks that made car loans to customers have continued to pay dealers overnight. But three weeks after his first sales under the program, Gregory Jackson hasn’t received any money at all from the U.S. Treasury. He still has to immediately pay the bank that helped him put inventory on his lot. Until the Treasury pays him, he has to dig into his cash reserves — his operating capital — an average of $4,000 for each vehicle he sold under the program.

Cash Flow Issue

Because black-owned dealerships tend to have smaller reserves of cash than majority dealers, they are especially feeling the pain. Very few African American dealers John Stelly knows of participated in CARS. The reason: cash-flow problems. “Even though there is an upside to the program, if you had cash-flow problems before the program, it will definitely magnify it even more,” he says. Minority Ford dealers are experiencing anxiety, says A. V. Fleming, executive director of the Ford Motors Minority Dealers Association (FMMDA). They have bankrolled deals in which paperwork is still in the CARS pipeline and has not been officially approved. “Nobody I know has gotten their money back yet,” he says.

Deerbrook Forest Chrysler Jeep in Kingwood, Texas, has sold about 15 vehicles under the CARS program. Its business increased overall by 20% to 25%, fueled further because CARS brought in buyers who had been out of the market since the mid-1990s. In some cases, it was more advantageous to both the dealership and customer to do the trade-in and purchase outside the program. “The government had stated that we’d be paid within 10 days, but it was obvious that it was not prepared for the amount of volume that was done in such a short period of time,” says owner E. Dale Early. “We haven’t been paid a dime, and that really causes us to have to look for other ways to generate cash,” adds Early, who is waiting for more than $50,000. “I don’t know of any dealer out there that doesn’t have an issue of cash flow related to this.” For some minority dealers, temporarily giving up the CARS rebate cash is a deal breaker, says Perry Watson, III, president of the Toyota Lexus Minority Dealer Association.

To ease CARS-induced problems with working capital, the financing wings of Toyota and Honda are providing their dealers something akin to an advance or short-term loan. “They will give you money as a float for those cars to improve the cash flow,” Watson says. His Indiana-based Lexus of Mishawaka (No. 62 on the BE auto dealers list with $26.673 million in sales) has done six CARS deals. Watson thinks it will take at least another 60 to 90 days for CARS paperwork and payments to be resolved. A General Motors Minority Dealers Association newsletter announced Friday that GM was advancing dealers 30-day interest-free loans for clunkers rebates still being processed. Floor-plan lenders, says Gregory Jackson, will “absolutely not” cut dealers any slack because of the government’s slow pay outs. “They won’t even entertain that conversation,” he says.

Given that the government invested money in both the auto industry and in banks, says Jackson, “A better way for the government to have done this was to have those large institutions pay us all our money, and the government reimburse those institutions. It’s a whole lot easier for the bank down the street to fund $1 million worth of receivables that it’s waiting on from the government — particularly since they can borrow from the government overnight — than it is for me to be sitting here with $350,000 or a quarter of a million dollars per store of clunker accounts receivable that I have, trying to fund that until the government pays me, and not knowing if the government will pay me,” Jackson says. Administrative Nightmare

Though Stelly thinks the CARS program has been “awesome,” he describes its paperwork as “horrendous.” Dealers had to scan documents to submit. In his store, Dale Early says his sales managers compiled the information, then office personnel did the actual submission of the claims over the Internet. From the beginning, the CARS computer system was crashing. Submissions were not going through. The CARS Website was not able to handle the volume. Just to submit one claim took half an hour. If the claim was submitted and rejected, dealers had to make corrections and submit all over again. “So who knows at the end of the day how much time you are actually burning trying to get one claim accepted,” Early says.

Clunker paperwork has heavily burdened minority dealers, says Perry Watson, increasing the workload of stores’ administrative staff. “You’ve got to keep submitting the deals, and sometimes it’s rejected and it doesn’t give you a reason it’s rejected. There was nothing wrong with the paperwork, but the system is overloaded, so it kicks it back and you’ve got to re-submit it. For dealers’ administrative staff, it’s been a nightmare,” says Watson.

To guarantee gas guzzlers really are taken off the road, CARS requires dealers to ruin clunkers’ engines by putting a silicone compound into them. If a claims application is ultimately rejected, the dealer will lose the money he discounted from the new-car sale. Yet many applications haven’t been approved.

“At this point, you are really selling in the blind. You have the potential liability if the program overruns its $3 billion budget that you’re left holding the bag,” Watson says. “There are some dealers who are not disabling the engines because once you do that, and you don’t get paid, you’ve destroyed the customer’s trade-in. Dealers are waiting, and you’ve got all these clunkers out back waiting to be approved.”

The Aftermath

Gregory Jackson is hoping CARS‘ boost in summer sales has no negative consequences on late-year sales. He admits some fall sales may have been pulled forward because people wanted to take advantage of the clunker money, but is counting on the economy continuing to get better and auto sales improving over the next few months. Jackson does not believe the CARS program will spoil buyers to expect rebates.

Dale Early, however, wants a stimulus that can keep demand high. “When you get that many people excited about doing business, and then all of a sudden there is not a program available to them anymore, what they do is what they did before: They sit on their hands. We don’t want to get on this rollercoaster ride, similar to what we have with the manufacturers when they come out with a huge incentive program: sales spike, and then when the incentive goes off, sales go way down. There are still plenty of buyers out there in the market place that we haven’t tapped into, we just need to figure out a program that allows for them to come in and for it to be a program that has some type of sustainability,” Early says.

I arrived in Detroit yesterday for the 2009 Black Enterprise Entrepreneurs Conference curious about the psyche of the city. Battered by a crisis of faith in local government triggered by the scandal surrounding former Mayor Kwame Kilpatrick, as well as the economic devastation of the automotive industry that gave Motown its name, it is easy for us non-Detroiters to assume that the city is down for the count. Nothing could be further from the truth.

When Black Enterprise Publisher and Chairman Earl Graves Sr. and CEO Earl “Butch” Graves Jr. announced that we would be bringing the conference to Detroit, it gave many of us at B.E. pause. Then, Mr. G gave us the bottom line: Detroit has been there for Black Enterprise and black business, and we will stand with Detroit in its time of need. Judging from how Detroit received us during welcome receptions to kick-off the conference, that faith will be amply rewarded by the city, both during the conference and beyond.

I attended three events on this, the Entrepreneurs Conference’s opening day. First was a V.I.P. reception hosted by IBM, one of the sponsors of the conference.The focus was not on nostalgia for the past, or the present crisis, but on future opportunities. This was underscored by a review of IBM’s  A Smarter Planet Initiative, delivered by Folu Okunseinde, industry solutions architect for IBM’s Financial Services Solutions Group. Okunseinde, who holds MIT degrees in computer science and electrical engineering and a masters from the University of Texas in Austin (at only 28), held the attention of entrepreneurs eager for solutions as he reviewed the elements of an initiative focused on helping business to exploit the growing  interconnectivity of a dynamic business environment to improve infrastructure and efficiency via the sharing of data and information. It was a conversation about were business is going, not where it’s been, and the entrepreneurs in attendance were fully engaged.

 

Claire Babineaux-Fontenot

Next, a conference pre-reception was hosted by conference sponsors Wal-Mart Stores Inc. and the Michigan Minority Business Development Council. There, speakers ranging from former Detroit Mayor Dennis Archer, to Wal-Mart Stores Inc. Sr. VP and Chief Tax Officer Claire Babineaux-Fontenot (a member of B.E.’s 100 Most Powerful Executives in Corporate America), to MMBDC Marketing Director Kenneth Harris, shared their belief in the promise of the Motor City, and that healthy minority-owned businesses are key to realizing that potential.

Last was the official Entrepreneurs Conference welcome reception, hosted by title sponsors GM and ExxonMobil, along with the Detroit Convention & Visitors Bureau. No less than newly elected Mayor David Bing, the NFL Hall of Famer and B.E. 100s CEO of The Bing Group, declared the Entrepreneurs Conference a harbinger of greater things to come for a new Detroit.

To be sure, the pain, the need for change, is not over for Detroit, any more than they are for the rest of the nation. However, the theme echoed repeatedly at each of these events, can best be expressed in a paraphrase of motivational speaker Willie Jolley: Motown’s setbacks are just a setup for a comeback. Don’t bet against Detroit, not matter how tough things are today.

I’m thinking this may turn out to be one of the best Entrepreneurs Conferences ever. You can look for future blog posts here at BlackEnterprise.com, as well as follow me on Twitter, to see if I’m right. But even if I’m not, I’m glad that at Black Enterprise, we chose to stand with Detroit. Let’s do this.

Alfred Edmond Jr. is the editor-in-chief of BlackEnterprise.com