July 10, 2011 in Business

Auto dealers see minor growth despite multiple obstacles

By The Spokesman-Review
 
Christopher Anderson photoBuy this photo

Jason Moran, sales manager for Gus Johnson Ford, says the dealership has seen a recent uptick in business.
(Full-size photo)

Used-car demand

Buyers looking for used cars find their prices have soared. Dealers say that’s helped boost new car sales.

Spokane area vehicle dealerships have embraced a new survival plan. It’s called Hold On – It Should Get Better.

Area dealers say their 2011 business plan is to make a bit more money on vehicle service and repairs, keep hunting for good used cars to spur visits to their lots, and wait for the rebound.

Since the mid-2000s, new car and new truck dealers in the region have had to survive factory bankruptcies, a painful, job-sucking recession and, for import sellers, a sudden disruption this spring in getting new cars from Japan.

Now, most dealers say the business climate looking ahead is much the same as it has been for the past half-year – OK but nothing to rave about.

“We’re not sure what ‘normal’ business is anymore,” said Shayne Goff, general manager at Wendle Motors in north Spokane.

“The one good thing about the market is we’ve seen the highs and lows taken out of the picture. It’s now a more steady business plan. … We’re seeing small growth, and not every month. But it’s nothing like it used to be, in boom times.”

In the past few years, dealers here say they were buoyed by used car sales, as buyers went shopping for more affordable, fuel-efficient vehicles.

That already has changed as the demand for those cars has inflated the prices on them, giving customers the choice between maintaining current vehicles or spending a bit more on a new car or truck, Goff said.

Gus Johnson, owner of Gus Johnson Ford in Spokane Valley, said sales of new vehicles in the first half of the year have been up, especially for the popular F-series of pickups. The surge in new vehicle sales this year is due to customer appetite for Ford Mustangs and pickups.

From June 2010 to this past June, Gus Johnson enjoyed a 30 percent hike in new sales. “That big rate increase in June was because June last year we sucked,” he added.

Despite the upswing, the only hiring he’s done is for the dealership service center.

“We’ve added 10 employees in the past few years, and they’re all in parts and service,” he said.

Johnson doubts the delayed delivery of Japanese vehicles caused by the March earthquake inspired many consumers to go hunting for domestic vehicles instead. Those delays, which are slowly being overcome, affected Nissan, Honda and Toyota models primarily made in Japan.

“It didn’t lead to more sales for us,” Johnson said. “Import car buyers will just wait until production picks up.”

Gas prices continue to have an impact on the types of vehicles leaving area lots. Even though the release of federal oil reserves has pushed down prices at the pump, many drivers are choosing more fuel-efficient cars.

Spokane business owner Tina Craig said she’s considering buying a new Kia or Suzuki, a major departure from her favorite brand, the Jeep Grand Cherokee. She’s owned three Cherokees since 2000 and drives between 18,000 and 20,000 miles per year. Her business, Total Care Services, requires her to drive to Wenatchee and the Tri-Cities several times a year, she said.

Craig’s current vehicle, a 2006 Cherokee, cost about $32,000. A 2011 version costs closer to $40,000.

The harsher reality is her Cherokee gets just 15 miles per gallon, Craig said. “I love the Jeep, but it may be time to make a switch,” she said.

While Ford dealers like Gus Johnson and Wendle are having an upswing, other dealers have less happy news.

Mark Jaremko, new car sales manager at Jaremko Nissan Saab in Spokane Valley, said 2011 has been the dealership’s worst year since 2008.

“We had pretty good years in ’09 and in 2010. But this year is off for us,” he said.

The reason, he said, is consumer uncertainty. Customers are staying away, and the majority of those who come to Jaremko are looking at used cars or fuel-efficient models, like the crossover SUV Nissan Rogue, he said.

Dale Cornwall, vice president of Becker Buick GMC in north Spokane, also sees 2011 as a mediocre year in terms of new vehicle sales. He said Becker Buick is like many midsize dealerships nationwide that probably are surviving only because of manufacturer bonuses and a stronger focus on service and repairs.

“We probably are losing money selling new vehicles,” Cornwall said. Figuring the costs of advertising and operating costs tied to new vehicles, Becker isn’t coming out ahead, he said.

Most consumers don’t know that manufacturers’ pricing policies have shrunk the markup on new vehicles, cutting the margins dealers can make, he said.

“That makes (new sales) a loser, but it’s a necessary evil. You have to have those new vehicles,” Becker said.

GMC offers dealers new vehicle bonuses if they exceed the sales of most models compared to a period from a year earlier. Becker sold 39 GMC trucks in the second quarter of 2010 and 46 in the second quarter of this year.

But the dealership also had a Buick goal of 24 new sales this past quarter. “We missed it by three,” Cornwall said.

The bonuses handed out by GMC vary, depending on the target and the number a dealer exceeds that figure. Becker has been earning between $10,000 and $16,000 a quarter – and those payments are critical in helping the dealership stay profitable, Cornwall said.

Marti Hollenback, owner of Spokane Valley’s Dishman Dodge Chrysler, has no doubts the next few years will continue much as they’ve been. “It will be a time of gradual growth, with peaks and valleys,” she said.

Hollenback sits on the national board of the National Automotive Dealers Association, and that provides her an overview of the industry. It isn’t a happy picture, if you’re a dealer, she said.

“Some people predict it will be two or three years before the business comes back,” she said. “I’m inclined to think it may be longer.”


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