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Dealers top priority for automakers
From the Detroit Insider:
Monday, February 11, 2008
Dealers top priority for automakers
Big Three, affiliated sellers consider ways to turn profit in brutal market.
Sharon Terlep / The Detroit News
SAN FRANSISCO -- Automakers know that shabby, understaffed dealerships
can turn off buyers and that money-losing dealers order fewer cars and trucks to sell.
That reality has Detroit's Big Three carmakers searching for ways to help their legions of dealers make money in a brutal U.S. market. And it's become a top priority for the companies as they head into what's expected to be another painfully sluggish year for the auto industry.
"A lot of us are concerned. Are we going to be here next year? Are we going to survive?" said Dale Daniels, a Ford, Lincoln and Mercury dealer in Oklahoma who was attending the National Automobile Dealer's Association convention. "A lot of us are just hanging on."
Bolstering dealer profits was the central issue at the annual NADA gathering, as thousands of dealers from across the country met with the auto industry's top executives.
Ford Motor Co. on Sunday told its Ford, Lincoln and Mercury dealers it would increase profit margins around 1 percent on some models so dealers could get more cash when they sell the vehicles. That money could be used to upgrade dealerships.
At General Motors Corp., the latest dealer efforts involve combining the automaker's luxury brands -- Cadillac, Hummer and Saab -- into one sales network.
And Chrysler is launching a massive plan to reduce its dealer ranks and eliminate overlapping models in its vehicle lineup.
"If our dealers are successful their business will grow and they'll be able to increase the business they do with us," Chrysler President Jim Press said this weekend. "We focus on their success and our business will pick up."
The dealer business remains profitable for many dealers, but the margins are thinner and less driven by new car sales. The average U.S. dealership lost money selling new cars and trucks, according to NADA, but recouped costs on used vehicles and service. Dealer profitability was down 8 percent from 2005 to 2006.
Domestic auto dealers sell fewer cars and trucks on average than those who sell foreign-brands such as Toyota or Honda. As a result, they have less cash to invest in spacious floor plans, attractive amenities and seasoned sales staff.
The Big Three, having spent the last several years cutting costs, upgrading their products and refining their sales strategies, are focused on making sure those efforts aren't lost in struggling dealer networks.
Each company is working to scale back the number of franchises, but the efforts go deeper than dealer reductions.
"Manufacturers need to take our partnership seriously," said Dale Willey, chairman of the dealer association. "We're the first point of contact when someone is thinking about buying a car. We know better than anyone what people want."
Daniels said he felt reassured the automaker is making the right moves product wise, but he said dealers still worry that the sinking economy will offset improvements Ford has made to the look and quality of its products.
As the Ford meeting was under way, a top industry analyst predicted that sales will slump even further this year than in 2007. NADA Chief Economist Paul Taylor said the U.S. economy will continue to sputter through the first half of the year, when half of Americans will continue to feel the effects of national real estate woes.
Chrysler officials said on Saturday that many of its dealers should ideally be making two to three times what they earn today. To do that, Press said, the company must have fewer dealers placed more strategically across the country.
To speed up the process of getting its Jeep, Chrysler and Dodge dealers under one roof, the automaker plans to ax vehicles from the lineup so that dealers without all three brands will face product holes, which will all but force them to merge.
"The product plan is the catalyst to getting the dealer distribution plan done," said Steven Landry, Chrysler's executive vice president of North American sales and marketing. "It will create a lot of willing buyers and sellers. It will stimulate a lot more discussion among dealers and we will simply become the facilitators."