Area auto dealers poised – and hoping – to meet pent-up demand

Capital Region automobile dealers say they are rolling with the ups and downs of the industry and ar

Capital Region automobile dealers say they are rolling with the ups and downs of the industry and are ready for whatever comes this year.

But the crystal ball is cloudy: Dealership managers must juggle their own desire to increase customer amenities in their showrooms; consumers whose pent-up demand may be growing faster than their ability to secure financing; and the knowledge that more restructuring is likely by auto manufacturers.

As a dealer for 34 years, Johnstown Dodge owner George Kline said 2009 marked a terrible time for dealers for a number of reasons.

“We had to go through the Chrysler bankruptcy, the recession hit American car manufacturers right between the eyes. The import automobile manufacturers are riding a bubble of perception,” Kline said.

But he looks forward to a year of American consumers returning to showrooms, and leaning toward domestic brands.

“We’re already seeing the values of very good used cars rise because there are so few of them. Good used car values have gone through the roof,” Kline said. “People are not trading as much and there are fewer cars out there that are exceptionally nice.”

Battered but still optimistic, Kline said he’s never seen a better product for people with good credit who can take advantage of low interest rates.

“There are much more profitable ways of making money, but there’s something about being in the automobile business that keeps us going strong,” Kline said.

Kline is one of many dealers who say there is pent-up demand in the market.

“I see that prices are beginning to surge earlier that I thought. And I think that that’s a good sign. It shows that people are starting to come back into the market,” Kline said.

Dave Dariano, general manager of Metro Ford in Niskayuna, said the months of October, November and December ended 2009 on a high note.

“We feel like that was a springboard into 2010,” Dariano said.

Driving demand

New vehicle sales for the U.S. auto industry barely touched the 10 million mark in 2009. But the scrap rate, the amount of vehicles that get junked, soared to 15 million, he said.

“With less drivers than before there’s a certain demand for vehicle purchases,” Dariano said.

Used car dealers in Schenectady and Saratoga counties say the recession has caused a boom in the $5,000-to-$10,000 car market as budget-conscious consumers shy away from $30,000-and-up vehicles.

“When credit was more available and banks were lending, people would just go and get what they want. Now that it’s not there, people are watching the budget more closely,” said Jamie Shores, sales manager for The Lot of Saratoga in Gansevoort.

In early spring, when people begin receiving money from tax returns, he expects the used market to open up further.

“This past year we focused more on newer cars and being very aggressive with our pricing,” said Patrick Hacker, general manager of Tower Auto Sales in Schenectady. “Lending sources are lightening up some, so getting people financed is getting a little easier.”

Hacker has been selling cars for more than 20 years. He said dealers have to be aggressive with their lenders so that deals can be written.

“Ninety-percent of the folks who come in need financing,” Hacker said.

Financing frustrating

Financing for buyers remains the most challenging aspect of being a dealer, Shores said.

Working with Southfield, Mich.-based lender Credit Acceptance Corp., The Lot of Saratoga added a program to its financing repertoire in late December which will allow most of the people who come in to get approved for vehicle credit.

“You don’t have to tell a customer ‘no’; that’s the good part,” Shores said. “It helps them re-establish their credit.”

The 15-year-old dealership has also diversified with a wholesale business, which allows it to buy and sell for other dealers.

Kline of Johnstown Dodge predicts there will be fewer car dealers in the future due to market forces in the ever-changing and competitive environment.

“This isn’t a business you can start up on $1,000 and a dream,” Kline said. “You’ve got to come in with a million dollars to get parts and tools and inventory.”

Kline was among many dealers who have pared back inventories during the sales slump.

“I’m not stocking 175 cars, I’m stocking 100 cars,” he said as an example. “And I’m turning the inventory. If the product doesn’t sell in a couple of months, I send it to auction and get something people are more apt to buy.

“A lot of dealers have resorted to selling aftermarket items or accessories at greatly inflated prices to make up for what they gave away on the price of the car along with insurance and things like that,” Kline said. “I have always believed that I may sell a car that has more on it for more money, but my idea is I would like to sell them a car once, have them serviced at my facility, and have them come back and buy another car.”

Kline said automobile dealers are in a profit arena very similar to grocery stores, albeit with a much more expensive product. “It’s a very low margin on that item,” Kline said.

Cautious consumers

And the American consumer is as fickle as ever, sensitive to gas prices and other forces.

“They wanted fuel-efficient trucks one minute and once gas went to $2.50 a gallon, they couldn’t care about them,” Kline said. “Now they’re solid gold.”

Hacker of Tower Auto Sales agreed.

“Consumers usually have a clear picture in their mind what kind of car they’re looking for, as far as what mileage they want to get or what they want to pay monthly,” Hacker said. “In the past people would come in and wander around; now they’re more focused.”

The car itself actually does the selling and sales are quicker.

Overall, consumers are more cautious than they’ve ever been before, according to Bob McKenna, co-owner and general manager of New Country Toyota in Wilton, which plans to expand its service and sales departments this year.

“Toyota has recognized that with some of the incentives that we have on the new cars, from 0 percent to the leasing. They’ve really tried to take a look at [the economic environment] to assist our customers and help us improve our deals,” McKenna said.

“We’ve also seen some growth in our used cars. We were challenged for a while with some new inventory, but now with the expansion we’ll get extra product,” said McKenna, who is celebratating 27 years with the company this month, working his way up from a salesman to co-owner over that time.

Customer amenities

Dealerships are becoming auto centers featuring valet parking, service shuttles to popular shopping destinations and parts boutiques, McKenna said.

Along with longer operating hours for service departments, customer waiting lounges will feature more amenities that cater to lifestyle needs.

Coffee stations and snacks are in vogue, but McKenna said he doesn’t see dealerships going as far for customer comfort as airports, for example.

It’s a balance between making the customer’s experience more comfortable and ensuring speedy service, he said.

Even with nicer amenities, one of the most important things that customers want is to get in and out, Metro-Ford’s Dariano pointed out.

Kline said he’s added child entertainment areas and big screen TVs to the waiting areas at his Johnstown dealership. Last year he added wireless Internet for people with laptops.

Now he’s even considering adding an art show to fill unused showroom space.

“We thought not only would it give them some free space, but it would give the dealership a different light in customer’s eyes.”

As a small town dealer with not a lot of daily traffic, the focus becomes keeping the customer occupied while they’re there, he said.

Dealers see customers in the best of times and they see people when they clearly have a problem with their car, Kline added.

“They’re not always thrilled to come in and have maintenance done,” he said.

Categories: Business

Leave a Reply