Auto dealers hunker down in survival mode

CHICAGO (Reuters) - While struggling auto companies hope for sales to start rebounding later this year, the car dealers who are on the front lines say they can’t survive on hope alone.

Few dealers at the Chicago Auto Show, which opens on Friday, see any signs of a rebound from the current 27-year low sales pace amid worsening recession and plummeting consumer confidence.

John Guido, a Ford dealer in the Chicago suburbs, said that what keeps his dealership going these days is used cars, vehicle service and parts operations, and booming business in his body shop.

Since 2004, his vehicle sales are down about 50 percent and the mix of used versus new vehicle sales has grown to 60 percent from 40 percent. Guido installed a quick oil change lane in his service department last year to attract new customers.

“It’s not that people don’t need new cars. They do, but they’re just spending more money on fixing their old cars,” Guido said, adding that most buyers have bought cars from him before. “That’s what’s keeping us going, the repeat customer.”

Guido said he remains optimistic that new models Ford Motor Co F.N has promised are coming will help turn things around.

“If we can make it through the next six months, with the products they have in the pipeline we’ll be OK. I feel good about the future,” he said.

In the current economy, most dealers may have only two options -- ride out the storm or close, said Don Brown, a dealership broker in St. Charles, Missouri.

There are not many buyers looking to acquire more auto dealerships, especially for domestic brands, he said.

“Unless you’ve got a great location, a great facility and sell great products, it’s going to be hard to sell,” Brown said. “You need an ideal situation or nobody’s going to want it. It really takes a strong dealer to buy another store.”


The National Automobile Dealers Association estimates that 900 dealers closed or consolidated with others last year in the United States and predicts 1,200 more will do so in 2009.

Consultant Grant Thornton LLP expects this year’s numbers could be closer to 2,500 because the current sales pace is too slow to support the national dealer count of 20,000.

Most dealerships that shut last year represented domestic brands. Chicago-area Chevrolet dealer Bill Stasek said three Chevy stores near him went out of business the last two years.

Stasek said he works longer hours now than he did 25 years ago and tries to cut expenses wherever possible.

“I sign every single petty cash slip, so I know where the money is going, and I try to eliminate things that don’t contribute to better customer satisfaction,” he said. “But I also try not to get frozen in that crisis mode and not be blind to where the opportunities are.”

Stasek has trimmed his sales staff by six people. But he recently purchased a used frame-straightening machine for his body shop, where business has been brisk, and hired two new technicians, one for service and the other for body repair. He also hired part-time telephone solicitors to remind customers that it’s time to bring their vehicle in for service.

“There’s so much bad news out there every day, and if people aren’t looking at new cars there’s not much I can do to change that,” Stasek said. “You’ve got to take advantage of every other opportunity you have.”

When customers ask if he is going to survive, Stasek said he tells them: “Don’t worry about us. We’re going to be here because of loyal customers like you.”

While hundreds of domestic dealers closed last year, none of Toyota Motor Corp's 7203.T 1,280 U.S. dealers went out of business, despite a 15 percent sales decline. Toyota still outsold Chevrolet, which has some 3,600 franchises, and Ford, which has 3,400.

The average Toyota dealer sold 1,860 cars last year, more than twice the national average for all dealers.

Bob Carter, the manager for Toyota’s flagship brand in the United States, said having too few dealers makes it harder for customers to obtain service appointments, so they go elsewhere. But in the current downturn having fewer means more will remain profitable.

“Comparatively speaking, our dealers are doing pretty well,” Carter said.

Editing by Kevin Krolicki, Peter Bohan and Matthew Lewis