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Veteran Detroit 3 dealer: 'The future is quite bleak'

From Automotive News:

Veteran Detroit 3 dealer: 'The future is quite bleak'
David Kushma
Automotive News
April 14, 2008 - 12:01 am ET

Plunging new-vehicle sales. Scant profits, or even losses. Upside-down customers with sketchy credit.

Ask auto dealers how 2008 has treated them so far. Among dealers who sell Detroit 3 domestic brands, nearly one-third say their dealerships are in the red. The only argument you'll get from a lot of them is whether this is the worst business climate dealers have faced in 20 years, in 35 years or ever.

"The future is quite bleak," says a veteran Ford dealer who answered the Automotive News survey. "Many dealers are looking for the exit."

But matters are far less dismal for Toyota, Honda and Nissan dealers. Nearly all say their dealerships remain profitable.

"Life in Toyota-land is good," says Dan Luneau, who owns Handy Toyota in St. Albans, Vt.

Overall, roughly three-fifths of dealers domestic and import-brand alike say their net earnings in the first three months of 2008 were down from the same period a year earlier.

And 2007 wasn't a barn-burner. The National Automobile Dealers Association says the average dealership netted a pretax profit of 1.5 percent of sales last year. That rate tied with 2006 for the worst profit performance in a decade.

Three out of five surveyed dealers and three-fourths of Detroit 3 dealers say they sold fewer new cars and trucks in the first quarter of 2008 than they did a year ago. To compensate, more than two-fifths of dealers say they are buying more used vehicles than they did last year.

Sean Garvey, a Hyundai, Volkswagen and Kia dealer in upstate New York, says his dealerships no longer send trade-ins to auction. Instead, he says, he sells the used cars and trucks himself. The dealerships also sell their own service contracts for used vehicles, he adds.

"We keep everything," Garvey says.

The survey suggests that the credit crunch generated by the subprime housing mess is taking a toll on car dealers. Two-thirds of dealers in the survey say they are having more trouble financing customers with credit problems than they did a year ago.

And half of the Detroit 3 dealers surveyed said most of the new-vehicle customers they now see are "upside down," owing more on their trade-ins than the vehicles are worth.

Even luxury-brand dealers are suffering. A majority of those surveyed reported lower profits and new-vehicle sales in the first quarter.

Perhaps the only bright spot: More than nine of 10 dealers agreed that getting floorplan financing is no harder now than it was last year.
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