Black Auto Dealers Using Uncommon Tactics to Keep Doors Open

In January, Damon Wickware took six personal cars to a local auction site in Daphne, Alabama to raise cash for his dealership, Bayview Ford Lincoln Mercury L.L.C.

Wickware, whose auto retail business ranked 100th on the B.E. Auto Dealer 100 list with $21.2 million in revenues, took a $4,000 loss on each car sold. The move was warranted when “you have no other source to get capital,” he says.

Similar frantic acts are being played out among dealers across the country as they grapple with a two-pronged quagmire — a lack of credit to finance vehicle floor plans doubled by a lack of credit to get consumers in vehicles.

African American-owned dealerships such as Wickware’s are not immune to acute U.S. economic woes blanketing the automotive industry. In many instances, minority-owned dealers are far more susceptible to lose money faster because the businesses are typically first-generation operations with smaller cash pools to ride out economic downturns.

“It’s such a capital-intensive industry that most of our dealerships have had an issue of being under capitalized,” says Damon Lester, president of the National Association of Minority Automobile Dealers (NAMAD).

Many dealers have made deep staff cuts. Some are considering opting out of dealerships, while others, like Wickware, are trying to shore up capital to keep their businesses going until the economy turns around. But with the credit market at a standstill, there’s not much capital being doled out from banks to keep these businesses propped up until better days.

“Not much of anything is selling,” Wickware says. “We’ve lost a lot of lenders. We’ve had some people come in with $2,000 or $3,000 to put down on a car but with stricter lending requirements, we haven’t been able to sell them anything.”

Wickware needs $1 million in working capital to keep his business afloat until 2010. He says it’s “always a possibility” that his business could shutter if relief doesn’t come soon.

The challenge is proving to be even

tougher for dealers selling domestic brands when two of the three American auto manufacturers are flirting with potential bankruptcies while simultaneously reviewing whether to shed certain models to improve business. About 80% of B.E. 100s dealers owned one of several American brand franchises which are taking the brunt of the industry’s steep sales drop as they continue to lose market share to foreign brands.

U.S. auto sales fell 41.4% in February versus the same month last year.

“There is a lot of anxiety among the dealer body,” says Gregory Jackson, owner of Prestige Automotive Group which topped B.E.’s Auto Dealer 100 list with $828 million in revenues. “Everyone’s concerned about how things will eventually shake out.”

Jackson thinks his business will be OK because it’s financially healthier than other minority-owned dealerships. But as a seller of Saturn vehicles — a money-losing brand General Motors Corp. is strongly considering killing — Jackson is assessing that part of his business.

“While I’m optimistic, I am considering my options, and I’m looking around and fielding potential opportunities to replace franchises in those Saturn locations,” Jackson says.

Phil Price, owner of Red Bluff Ford in Red Bluff, California, hasn’t ordered a new vehicle from the Ford Motor Co. in about eight months. Typically dealers order a fleet of new cars and trucks from the factory on a monthly basis to meet consumer demand. Manufactures count those vehicles as sales once they’re shipped to dealerships.

“At my store, in its heyday, we used to sell 200 cars a month,” says Price, whose dealership ranked No. 67 on the B.E. Auto Dealer 100 list with $40 million in revenues. “Now we’re lucky if we can get 40 a month.”

Because of the tightened credit market, Price has put plans to open a Honda motorcycle dealership in Torrance, California on hold. The 56-year-old businessman says he would be the first African American in the country to open a Honda motorcycle store.

As the U.S. auto companies

realign their businesses to meet the change in consumer preferences, it’s expected that there will be fewer dealerships. Job losses at dealerships stood at 9,000 in February, according to the Bureau of Labor Statistics.

This year alone, 1,100 dealers could close and 200 new ones may open if the economy stays in its current state, predicts National Automobile Dealers Association (NADA) economist Paul Taylor.

Last month, consulting firm Urban Science tallied 881 dealership closures in 2008 — the largest since 1991 when the firm began collecting such data. NAMAD estimates some 200 minority-owned retailers closed last year.

To keep auto dealerships running, earlier this month, NAMAD, NADA, and the American International Automobile Dealers co-wrote a letter to President Barack Obama, imploring the president to relax rules under the term-asset backed securities loan facility to include auto financing.

The organizations are also asking that the Small Business Administration loan guaranty program be expanded to provide floor planning and working capital for auto dealers.