Vision and intellect were two strengths that African American auto dealers exploited to stay on the road of profitability in 2003. They drew strength not only from flexing the marketing muscle of a large body of store locations, but also from rethinking operational efficiency. Auto dealers had to think differently and incorporate new ideas to gain the maximum benefit from expenditures, customer relationships, and staff. In some cases, they shifted dollars from expensive advertising to in-house departments dedicated to keeping in touch with existing customers and welcoming new prospects to their businesses.
“On the surface, sales were good. The U.S. auto industry prolonged the best sales years in its history to five consecutive years,” notes Paul Taylor, chief economist at the National Automobile Dealers Association. And while 2003 surpassed any year prior to 1999, it yielded the slowest movement of products since that time. The 16.6 million vehicles sold in 2003 lagged behind the slightly speedier 2002 pace of 16.8 million, which itself had not matched the 17.1 million units sold in 2001 or the record-breaking 17.4 million units sold in 2000. An increase in sales was the result of a 43-year low in short-term interest rates and stronger customer enticements like cash incentives and low- or zero-percent-rate financing deals. Taylor says that the average customer incentive for lightweight vehicles in 2003 was $2,664.
While every other class of vehicle sold fewer products in 2003, two categories sold more. Crossover utility vehicle purchases jumped 34.7%. Unlike the traditional sports utility vehicles (SUVs) that are built like trucks, crossover utility vehicles are based on a car chassis. Gaining in popularity, crossovers such as the Chrysler Pacifica, Cadillac SRX, Volvo XC90, and 2004 Lexus RX330 (successor to the Lexus RX 300) have the SUV look, variable passenger compartments, and optional all-wheel drive. They also represent six out of 10 concept vehicles that Taylor says he has seen at auto shows. Pickup truck sales rose by 2.2%, boosted mainly in the second half of the year.
“Growth in pickup truck sales was important because it indicates that the business buyer is coming back to the market [and that] consumers [are] purchasing pickup trucks. Capital budgets are starting to be freed up by corporations to purchase pickup trucks. That was very good news because capital spending has been moderated considerably by weak economic conditions in the most recent years,” says Taylor.
“The overall economy’s gradual recovery was offset by dealers’ increased cost of doing business,” observes Judson B. Powell Jr., interim executive director of Ford Motors Minority Dealers Association. “The rebound brought inconsistent seesaw effects on sales,” says Marjorie Staten, executive director of General Motors Minority Dealers Association, an organization that is not affiliated with GM. General Motors remained No. 1 in U.S. auto sales.
“Consumer insecurity about the overall economy resulted in hesitancy to buy, while the amount of money that manufacturers put into stimulating new-car sales devastated the used-car market and cramped dealers’ ability to make trades,” notes Jesse Greathouse, president of the DaimlerChrysler Minority Dealer Association and CEO of Cross Road Chrysler-Jeep in Oklahoma City, Oklahoma (No. 78 on the BE AUTO DEALER 100 list with $38 million in sales). “The presence of rebates undermined the trade-in value of used cars so that a consumer might have negative equity in a used vehicle, owing more on it than the trade-in would give.”
“Dealers located in more affluent areas were able to better leverage the economic turnaround, while dealers serving neighborhoods where consumers have lower median income and lower average credit scores did not have a good year,” says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealers. “There was a huge disparity in the ability of dealers in each segment to benefit from the economy’s uptick. Furthermore, consumers needed nearly perfect credit to qualify for 0% financing,” Vaden-Williams adds. Although sales hovered near historical highs, rising operating costs leaked dealer profits.
Powell thinks rebates favored larger dealers and that smaller dealers had difficulty sustaining enough growth to be profitable. African American auto dealers often put a 20% or less investment into their stores; to get the rest of their working capital, they typically become part of an auto manufacturer’s development program. However, participation doesn’t come for free. “Compared with dealers that have sufficient access to private capital, those in buy-in programs sometimes bear up to a 10% added cost of doing business,” says Powell.
WHAT GETS MEASURED, GETS DONE
Reginald T. Hubbard says that a management system that enables hands-on control over multiple dealerships is key to long-term survival. At No. 13 on the BE AUTO DEALER 100 list with $152.5 million in sales, Hubbard Automotive L.L.C. operates a Diamond-Chevrolet dealership in Kings Mountain as well as Metrolina Dodge and Isuzu dealerships in Charlotte, North Carolina.
In each location, Hubbard meets weekly with all middle managers and staff members. He also meets with the store’s general manager, controller, and variable- and fixed-operations directors so that he can track revenues and expense indicators. Hubbard uses a computerized accounting system that is integrated across all stores to generate reports. Then he meets with key managers to analyze the reports. “We discuss an action plan and how we are going to improve those numbers,” says Hubbard. “If you continue to evaluate and measure where you are and bump that against what the standard is and what you ought to be doing, then you improve those numbers. My overall philosophical approach is that what gets measured gets done.”
For Hubbard, 2003 was neither a boom nor a bust. Because of this, he says he can’t be complacent. “It was a year that required a forward-thinking vision, looking at ways to cut expenses, and accomplishing things much more efficiently; that’s how [we] were able to maintain a profit. It was a year that if you continued to do things completely the way you always did in the past, you were going to find yourself on the short end of the stick,” says Hubbard. Of the 50 to 130 vehicles that are sold at each dealership every month, 20 to 25 of the sales come through Hubbard’s Internet departments. These departments get leads from several search engines, including www.cars.com. Inquiries made on the General Motors or DaimlerChrysler national Websites by customers within certain Charlotte-area ZIP codes are automatically forwarded to the Internet departments of Hubbard’s Chevrolet stores or to the five-star Dodge dealership. Hubbard employs three Internet salespeople.
Hubbard sees business development centers as the new frontier, and he’s already a few years into implementing this alternative to expensive advertising. A business development center is a department within a dealership that is dedicated to the sole purpose of finding potential customers who are willing to visit the dealership and consider buying its products.
Informing Hubbard’s actions is a widely held industry belief that potential customers who have already experienced some type of interaction with a dealership are the best prospects for pitching future sales. Systematically and regularly updating prior contacts about products
and incentives, business development centers target specific customers with a rifle’s precision instead of advertising’s generalized shotgun scatter. Prospecting among a dealership’s current customer base can involve an automated system alerting the center of approaching birthdays, ends of leases, and due dates for service. Vaden-Williams says that new prospects might be found, for instance, by searching birth announcements in newspapers and inviting growing families to consider larger vehicles.
Although automotive manufacturers are encouraging all dealers to open business development centers, not every black dealer has done so, Vaden-Williams says. She notes that besides Hubbard, March/Hodge Holding Co. L.L.C. in Hartford, Connecticut (No. 2 on the BE AUTO DEALER 100 list with $555.5 million in sales), The Harrell Cos. in Atlanta (No. 5 on the BE AUTO DEALER 100 list with $286.5 million in sales) and Nathan Conyers operate sophisticated business development centers.
CHANGING WITH THE TIMES
In 2003, sales were flat, but profits rose for the two Ford dealerships of Wayne Martin and his wife, Millie. In Cocoa, Florida, Paradise Ford (No. 50 on the BE AUTO DEALER 100 list with $59.3 million in sales) improved profits by $400,000 despite a $17 million revenue drop after losing its Budget Rent A Car national account’s low-margin parts sales. The couple’s Vision Lincoln-Mercury store in Alamogordo, New Mexico, performed well. It sold about the same, but they kept an eye on expenses.
“I’m not so sure [the economic environment] wasn’t favorable last year,” says Wayne Martin. “I know other dealers said it wasn’t, but I had the best year I’ve ever had in either one of my places last year.”
The Martins reduced the number of personnel, which cut payroll and employment expenses. They changed insurance carriers and reduced inventories in both new and used vehicles to reduce inventory floor plan costs. They also limited training and spent less on advertising and promotion. In 2003, Vision Ford-Lincoln-Mercury saved a total of $221,000 in comparison with 2002. The Martins sold their share to a former partner in a poorly performing Washington state store. In May 2003 the Martins’ son, Michael, and his wife, Julia, became sole owner-operators of a separate store, Lake Powell Ford, in Page, Arizona.
Martin says several fac
tors contributed to his success. Since Ford did a lot of advertising that he didn’t need to duplicate, Martin was able to cut back on ads. Low interest rates lightened floor plan costs, and whereas Martin had always previously done fixed-interest-rate pricing, he was helped by variable-interest rate. “It wasn’t just sales, it was the expense control and profit control on the actual sales we did, making sure that the gross profits were maximized,” he says.Toyota’s advance in the car market created a new-car-sales challenge, however. Martin shifted some advertising from new trucks to new cars, spotlighting updated Thunderbird and Focus models.
Deepening used-car market penetration and sparking interest in his stores, Martin expanded his selection of late-model as well as older used cars, widening the cheap-to-expensive spread. Paradise Ford sold 927 used vehicles and 1,450 new vehicles. About 500 of the new sales were fleet. The retail business of both his Florida and New Mexico stores was split evenly between new and pre-owned vehicles.
BUILDING FOR THE FUTURE
A couple years after expanding from one to three franchises, Huntsville Autoplex in Huntsville, Alabama (No. 47 on the BE AUTO DEALER 100 list with $62.9 million in sales), spent 2003 getting back to the basics. Dealer education has been the well from which owner Ellenae Fairhurst has drawn strength along with many other black dealers. “African American dealers typically have come through a dealer-development program that provides us with very, very strong theoretical and practical background for how to run the business. Many times non-minority dealerships have been in the family for years, and dealers sometimes haven’t had as much formal training as we have in the operational aspects. The DaimlerChrysler black dealer body year after year outperforms the non-minority body for our manufacturer,” says Fairhurst.
She believes that when the economic environment fully rebounds, the black dealer landscape will look much like it does today.
AUTO DEALER ELIGIBILITY
An auto dealership must be at least 51% black-owned and have been fully operational for the previous calendar year.
TOP 10 GROWTH LEADERS
| Company | Location | 2003 Sales* |
2002 Sales* |
% Increase |
| Prestige Automotive | Detroit, MI | 766.507 | 317.076 | 241.7 |
| Fitzpatrick Dealership Group | Modesto, CA | 112.000 | 63.500 | 176.4 |
| Family Automotive Group | Whittier, CA | 227.318 | 134.553 | 168.9 |
| Jaguar of Novi | Novi, MI | 66.000 | 40.869 | 161.5 |
| Westminster Buick-Pontiac-GMC | Westminster, CA | 55.679 | 35.873 | 155.2 |
| Hank Aaron Automotive Group | Union City, GA | 76.684 | 49.612 | 154.6 |
| Southwest Pontiac-GMC- Southwest Hummer | Houston, TX | 58.802 | 38.622 | 152.3 |
* In millions of dollars As of Dec. 31, 2003. Prepared by b.e. Research. Reviewed by the certified public accounting firm Edwards & Co.
Top 100 Auto Dealers Summary 2004
| 2003 | 2002 | % Change | |
| Total Staff | 12,295 | 12,037 | 2.14 |
| Total Sales* | 9,027.646 | 8,204.220 | 10.04 |
* In millions of dollars. As of December 31, 2003. Prepared by B.E. Research. Reviewed by the Certified Public Accounting firm Edwards & Co.