|
It's been a year since Memorial Day marked the beginning of a summer most dealers prefer to forget.
Car sales came to a sudden stop in June 2008 as a combination of financial woes started wearing on consumers.
"It was a convergence of all these different elements," said Art Spinella, president of CNW Marketing Research.
"It was just a mess."
The market is finally showing signs of improvement. But for many dealers, it’s too little, too late.
BAD NEWS GROWS
Dealers and manufacturers last May were experiencing slower sales than the giddy highs of the past few years. But since that was a record-setting period, most in the industry said they were pleased with projected sales of about 15 million units for the year.
Then floor traffic just disappeared.
The nation was entering the seventh month of a recession, but it would be another six months before the National Bureau of Economic Research acknowledged the fact.
To paraphrase Bob Dylan, consumers didn’t need a weatherman to tell them which way the wind was blowing.
Fuel and food prices were rising, banks started failing and the election swung into high gear, generating a steady stream of negativity in the media.
Most important, the credit crunch grew more pronounced.
Dan Leonard of Triad Financial became president of the National Automotive Finance Association last June. He found himself in the uncomfortable situation of explaining why his company was ceasing originations rather than giving an acceptance speech.
“People just flat ran out of credit,” Spinella said.
LOSING THEIR FLOOR PLANS
Traditional dealers scrambled for credit sources and lost dozens of sales when they were unable to do so. Buy-here, pay-here dealers, meanwhile, saw a tremendous opportunity in this credit crisis to grow their businesses.
Those who had access to capital did just that. But a lack of funds stymied most dealers’ ambitions.
Major floor planners all said they reduced their dealer count last year when speaking at May's National Alliance of Buy-Here, Pay-Here Dealers conference.
This was partly because of dealers closing shop and partly because the companies downsized many dealers' lines, often to zero.
MAFS, Manheim’s floor plan arm, saw its dealer body reduced by a third. Automotive Finance Corp, ADESA’s floor planner, lost 3,000 dealers.
Losing his floor plan line caused dealer Eric Best to close his retail operation at the end of last year.
"They just were not lending to used-car dealers at that time," said the owner of Best Auto Sales in Carrolton, Ohio.
Best used MAFS for 17 years. His line was due for renewal in September, but the company kept extending it without a contract.
On Dec. 16, Best received a call from MAFS representatives. His floor plan line was being discontinued and they were coming that day to collect all his cars.
"They don't take history into consideration," Best said. "It's all numbers."
He was forced to lay off 11 employees a week before Christmas.
"That was the worst thing I had to do," Best said.
He continues getting by today with a variety of ventures, including transportation. But closing his retail store ruined other businesses, such as his car rental operation.
"I needed the used cars to keep everything else going," Best said.
Best is hurt more by the generally weak economy. Ohio has been one of the hardest states in terms of unemployment.
MAKING THE MOST OF A BAD SITUATION
But markets only limit dealers so much.
Las Vegas is another troubled market. Todd Carroll, owner of Las Vegas Motor Cars, hasn’t let that slow him down.
“I do whatever the economy’s doing,” Carroll said.
Carroll’s a different breed of dealer. He does all his sales online.
The weaker economy helped his operations. He recently moved his inventory into a warehouse that’s bigger than what he could have afforded a couple of years ago.
Other dealers are struggling, but optimistic.
James Welch, owner of Greystone Automotive in Waynesville, NC, has been in business for 10 years and reached a personal sales low at the end of last year.
“That’s the worst three months I’ve ever seen,” Welch said.
Sales started picking up in February. Welch is now starting to see some former new-car buyers coming on his lot.
These consumers are learning about the new credit game.
“They’re not used to putting down over 30 percent,” Welch said.
The biggest issue confronting him now is unemployment, which is near 10 percent in North Carolina.
Joe Falk, owner of Little Joe's Autos, is in an area with several military bases, so unemployment has been less of an issue. Still, business is off by about 20 percent at his Chesapeake, Va., store.
About 85 percent of Falk's sales are buy-here, pay-here. He's starting to see some customers who bought their last car with subprime financing and now can't get credit.
"The next 18 months are going to be pretty good as long as you've got capital," Falk said. |
