Over the past 30 years, Jim Seavitt has expanded Village Ford in Dearborn from one building on two acres to eight structures across 12 acres. Annual sales in 1982 — his first year of operation — totaled 1,200 vehicles. In 2011, he sold 2,800 cars and trucks, as well as 800 used vehicles. So what’s his secret?
“We’ve remodeled our showroom three times, we never stop training, and we do whatever we can to deliver a great customer experience,” says Seavitt, president of Village Ford and this year’s chairman of the North American International Auto Show at Detroit’s Cobo Center. “That’s what keeps our customers coming back. If we deliver a great experience, they’ll tell all of their friends, relatives, and colleagues.”
Dealers today are at a crossroads. Several hundred dealerships, including more than a dozen in Michigan, have closed due to financial losses among the Big Three automakers and the 2009 bankruptcies of Chrysler and General Motors. In addition, Chrysler jettisoned Plymouth, Ford closed down Mercury, and GM phased out Pontiac, Oldsmobile, Hummer, and Saturn in recent years.
Given that vehicle purchases represent a big-ticket item, dealerships say a strong economy is integral to their overall success. The recent global financial crisis is telling: U.S. light vehicle sales totaled 13.2 million units in 2008, but a year later sales dropped to 10.4 million units. Since that time, the market has recovered gradually, with 13.5 million cars and trucks sold in 2011. Sales figures are not complete for 2012, but analysts say the industry was on pace to sell around 14 million units and could go higher this year.
“Fundamental demand is still strong, and credit availability is coming back along with consumer confidence, but if the fiscal cliff isn’t dealt with properly by Congress, consumers could begin to pull back,” says Robert A. Dye, senior vice president and chief economist at Comerica Bank. “Consumers are a bit over their skis right now, and if they start looking at new tax bills, those big-ticket items will be impacted.”
Dye says automakers are positioned to sell some 15 million vehicles in 2013. The super storm that hit the East Coast in October destroyed 250,000 cars and trucks, and Dye says that has created pent-up sales that are expected to carry through the first half of the year.
However, influences that could pull sales down include a continued slowdown in Asia and a worsening recession in Europe. Though Dye says the U.S. consumer is largely “de-coupled” from various global risk factors, he says the payroll tax break instituted by President Obama in 2011-12 has not been renewed, meaning the average consumer will pay $200 more in taxes. “If the storm clouds coalesce in Europe and we see higher taxes, spending will be impacted,” Dye adds.
At the same time, sales trends are changing. Dealerships have increased their online presence and tapped social media channels to reach out to younger buyers. “Historically, if you look at dealerships, they are very good at dealing with customers, but they weren’t doing a good job online,” says David Ponn, CEO of Search Optics in Ferndale. “It was a learning curve at first.”
He says when the digital advertising company started approaching dealerships about their online presence, the feedback was illuminating. “The first dealer we went to didn’t know what a ‘click’ was, while another dealer had four different dealerships and was using 12 different Web vendors,” Ponn says. “The dealer agreed with us that it would be better if we handled everything. He even said, ‘Great, now I have one throat to choke if things go bad, and I will choke you if you don’t perform.’ ”
Dealers also are finding it’s critical to keep a close eye on new competitors. Tesla, the upstart producer of the Model S, an electric luxury sedan, has drawn the ire of some of its long-established competitors by opening some 20 factory-owned stores. For decades, automotive companies and the states have set up laws that promote independently owned franchises.
Tesla’s stores, rival dealers allege in several lawsuits, violate state laws that keep automakers from opening dealerships that compete with solely owned franchises. Elon Musk, Tesla’s CEO, says the lawsuits are without merit, given the company’s retail stores don’t sell vehicles — although the Model S is on display. Instead, interested buyers are referred to the company’s website, where they can make a reservation.
Dealers also must contend with the ebbs and flows of product introductions. Seavitt was selling 100 Ford Fusions a month, but when the sedan was redesigned for the 2013 model year, sales dipped to around 20 units in October. “People were waiting to get the new model, so you have to prepare everything correctly,” he says. “We’ll get all of those sales back, but it will take a little time to get the inventory from the factory.”
Improved engineering, better quality, and weather patterns can affect sales, as well. During the last decade, parts and service departments saw a gradual decline in work due to increased vehicle quality. At the same time, cars are becoming more complex, making it more challenging for the average buyer to make their own repairs.
Today, microprocessors run everything from engine transmissions to sunroofs, while buyers are demanding more creature comforts like navigation systems, entertainment offerings, hands-free phone services, and a variety of safety options. As a result, servicing new cars and trucks requires specialized tools, skilled technicians, and software upgrades.
In the luxury market, opening a new dealership can be cost-prohibitive. “The manufacturer will require more expensive furnishings such as marble, a concierge desk that offers unlimited beverages and snacks, and a luxurious waiting room with a fireplace, WiFi, and a large-screen TV,” says Ken Meade, president of Meade Lexus of Lakeside in Utica and Meade Lexus of Southfield in Southfield.
Meade was among the first 50 Lexus dealers in the country when the brand was launched in 1989. Since then, sales have climbed steadily, but traffic fell off following the 2008 global financial crisis. As sales began to recover, Japanese automakers saw their supply chains crimped severely due to the March 2011 earthquake in Japan and the resulting tsunami. A few months later, a series of floods in Thailand caused numerous industrial and manufacturing operations to close, including facilities owned or aligned with Honda, Toyota, and Mitsubishi.
“The supply of cars is on the upswing now, and we obviously had to adjust by offering more pre-owned certified cars along with taking reservations (for new vehicles),” Meade says. “As our sales picked up, the accessory side of the business came back. By staying engaged with our customers through this whole process, we were able to hold on to quite a bit of business.”
For more than a century, dealers around the country have hosted auto shows to drive sales, raise awareness, and ignite what can be slow sales periods. The Detroit Auto Dealers Association, based in Troy, took it a step further in 1992 when global automakers were invited to debut models at the renamed North American International Auto Show.
“The auto show is so important to our industry, given it comes after the holidays,” says Bill Perkins, president of Bill Perkins Automotive Group, which owns Merollis Chevrolet in Eastpointe and Taylor Chevrolet in Taylor. “Many of the dealers provide incentives during the show, and it’s the only place in the region consumers can come and see, touch, and feel all of the new cars and trucks. Consumers also can pick up brochures, speak with a product specialist, and see the accessories.”
Among other global auto shows, the Detroit exhibition ranks in the top tier, and some say it leads the pack in terms of vehicle debuts, attendance by more than 6,000 journalists from across the U.S. and around the world, the involvement of major automotive leaders, and what can best be described as elaborate exhibits.
“We’ve been fortunate to see other auto shows in New York, Chicago, Los Angeles, Paris, Geneva, Germany, and Shanghai,” Perkins says. “The Detroit auto show tops them all, in my opinion. The exhibits themselves are just phenomenal, and unlike anything you see anywhere else. The top executives are here, and the automakers bring their ‘A game.’ We’re very fortunate that we have this show in Detroit.”
In terms of regional awareness and attendance, the Detroit auto show ranks among the top exhibitions in the country — which is to be expected, given the region is the automotive capital of the world. Another leading trend is that as much 60 percent of show attendees plan to purchase or lease a vehicle within 12 months.
“One of the big draws at the auto shows is vehicle telematics, which are increasingly complex,” says Ronald L. Hein, executive vice president of Foresight Research, a consumer research firm in Rochester that conducts consumer interviews at multiple shows around the country. “People want to see how the systems operate, which ties into another trend as it relates to ride and drives. With a product specialist along for the ride, consumers get the best of both worlds.”
While 2012 got off to a strong start, sales leveled off for some dealers during the spring and summer. Part of the reason was the uncertainty surrounding the presidential campaign. But the industry is poised for better days.
“Metro Detroit is a very strong leasing market, and when the financial industry pulled back and the credit markets tightened (in 2008), our leasing activity fell off,” says Bill Golling, president and owner of Golling Chrysler Dodge Jeep Ram in Bloomfield Hills, Golling Fiat in Birmingham, and Golling Buick GMC in Lake Orion.
“So we obviously sold more cars at three- and four-year terms. When leasing came back in 2010, we did more two- and three-year leases. Well, when you look at the market across that time line, a lot of those sales and leases will begin expiring (in 2013). That bodes well for our industry here, plus the scrappage rate is higher.”
Higher scrappage rates nationally — along with greater used-car values, aging vehicles, and a decline in drivers per vehicle (not as many young people are buying cars) — has created pent-up demand that suggests light vehicle sales in the U.S. could climb to 15 million units in 2013.
“Just as the automakers are rapidly introducing new and refreshed cars and trucks, dealers must continue to enhance and grow their businesses,” says David Fischer Jr., general manager of The Suburban Collection in Troy, which has 25 dealership locations that encompass 30 different franchises, with more on the horizon. Most recently, the company renovated its Suburban Cadillac Buick store in Troy.
Next year’s additions include a Fiat dealership in Ann Arbor, a Chrysler store in Novi, and a relocated Toyota franchise in Troy. Once the move is complete, Fischer will add a Kia store in the former Toyota space. Overall, The Suburban Collection spends some $10 million a year expanding and enhancing its dealership portfolio.
In the aftermarket sector, The Suburban Collection partnered with General Motors to offer accessories under a venture called Accessories Distributor Installer, or ADI. Under the program, customers have access to dozens of offerings, including pickup bed liners, remote engine start systems, interior trim kits, and vehicle covers.
“The accessory side of the business has been strong,” Fischer says. “Consumer confidence has been rising, and with the lending side of the business opening up, we see 2013 as a stronger year.” db