Car Dealers Struggle to Survive Sales Slump
HARD times have come to the United States auto industry - and nowhere can the slump be felt more immediately than in the industry's front-line trenches, the nation's 24,000 new car dealerships. As many as 1,200 new car dealers were forced to close their showroom doors last year, but industry experts say that figure could double in 1991 unless the war ends, the economy rebounds - and customers begin to buy cars again.
``Everyone's having trouble,'' complains Marcy Maguire, who along with her husband, Bob, owns Saturn and Chevrolet dealerships in southern New Jersey. While the Maguires expect to come through the current downturn, Mrs. Maguire admits it is taking a lot of effort. ``For the first time in our history, we've had to cut employment. We have to look at every department to make them more productive.''
The Maguires are by no means alone in worrying about the current new car sales slump. It was essentially the only topic of interest for the nearly 10,000 dealers who attended the annual National Automobile Dealers Association (NADA) convention held in Atlanta last month.
In previous recessions, some car brands fared better than others. In the early 1980s, Japanese nameplates were increasing market share while the Big Three watched their sales dry up. This time, however, imports and domestics are experiencing almost equal downturns. Dealers hope the end of the Gulf war will boost sales.
``All any of us can do is wait and see,'' said David Fischer, a Detroit dealer.
The big question is whether dealers can wait long enough.
Despite the ticket price of the average new car - about $14,000 - very little of that is actually going into a dealer's pocket. The typical pre-tax profit margin on new car sales was approximately 1 percent last year, according to NADA chief economist Thomas Webb. Vying for a tight pool of customers, dealers are cutting prices - and giving aggressive buyers whatever it takes to make a sale.
``The average dealer earned only about $15,000 on new vehicles sales of $7.9 million,'' Mr. Webb said.
Even when you add in profits from used car sales, from the service department, and from the sale of insurance and other sidelines, many dealers are in deep trouble, according to Webb. ``Twenty percent were in the red. And even for those who made a profit, it was very thin.''
So it's not surprising that more dealers went under last year than at any time since the automotive depression of 1981-82.
Industry leaders keep trying to find an upside to the current downturn. They suggest that after having delayed major purchases during the Gulf war, consumers will rush to their showrooms in such numbers that there could be a shortage of cars.
``This recession is relatively mild so far,'' said Frank Anderson, the Raleigh, N.C., dealer who assumed control for a year of NADA at its Atlanta convention. ``If it's as short-lived as projected to be, the outlook is bright.''
But that's not an image that jibes with the forecast of Ray Green, a dealer who preceded Mr. Anderson as NADA President. He recently predicted this could be the worst year ever for dealers.
David Power, the automotive marketing expert and head of J.D. Power & Associates, is equally pessimistic.
``In the retail [automobile] business, we're going through a fundamental restructuring,'' Mr. Power says. ``We figure another 2,000 dealer points will go out this year.''
If the recession ends by mid-year, the toll on dealers is likely to be less severe. But even under the best of circumstances, close to a thousand are likely to fold in 1991, making this perhaps the worst year for dealers since the depths of the recession a decade ago.