Auto dealers having best year since crisis

Posted on August 15, 2012

Boosted by the strongest new-vehicle market since 2007 and with 3,000 fewer competitors, most auto dealers are having their most profitable year since the financial crisis, according to a Detroit-based consulting firm’s annual state of the industry report.

Sales per dealership are expected to reach 805 this year, according to Urban Science, the retail consultant that has tracked auto retailing since 1990. That would be a 12% increase from 2011.

“I’m probably going to double that average number here,” said Jody Lee, new-car sales manager at Taylor Chevrolet. “We’ve grown the last four years.”

Dealers that survived General Motors’ and Chrysler’s bankruptcies and Ford’s close-out of its Mercury brand are thriving.

“It’s very encouraging,” said Cheryl Staples, sales manager at Bob Maxey Ford in Detroit. “Financing is getting a lot stronger, the banks are stepping up, the customers are coming in with a lot more knowledge of the products. The economy is becoming a lot more stable, and it’s driving customers into the stores.”

To be sure, there has been a painful shakeout. The U.S. had 17,770 dealerships at the end of June, unchanged from the end of 2011, but down 15% from 20,985 in 2007. Chrysler and President Barack Obama’s auto task force stripped nearly one-quarter of the automaker’s dealers of their franchises in 2009. GM severed ties with a smaller number, while Ford bought out more than 100 Lincoln dealers in its ongoing reinvention of the luxury brand.

Saab, a former GM brand, has closed 59 stand-alone dealerships this year. That included four in Michigan, which lost 10 dealerships overall during the first six months of the year.

John Frith, Urban Science vice president, said the market seems to be “settling in” at about 17,770 dealerships after an average annual decline of 2.5% since 1990.

Dealers say customers are buying because they’re more confident in their job stability, while others need to replace an old vehicle and have heard that new vehicles are greatly improved.

“They’re built better, they’re going to last and they’re going to get better fuel economy and get better features,” said Bill Golling, president of Golling Chrysler-Dodge-Jeep-Ram in Bloomfield Hills. New-vehicle sales are expected to come in between 14.1 million and 14.4 million for 2012. The industry sold 8.4 million vehicles in the first seven months of the year, up 12% from the same period in 2011, according to Autodata Corp.

Meanwhile, dealers are extracting more profit from each sale. reported that incentives — that is, the amount automakers spend on rebates, special financing or lease subsidies — represented 8.2% of the average transaction in July, down from 8.6% a year earlier.

In the world’s largest car market, China, the retail picture is not as bright. Urban Science warned that auto dealers there have too much inventory, a sign of slowing economic growth in a market that has experienced meteoric expansion in the last decade.

“It’s a big challenge for the dealers right now,” said Hamilton Gayden, Urban Science’s managing director in China. “Their profit margins are eroding very quickly.”

That’s particularly notable for GM, which sells more cars in China than it does in the U.S. In China, new-vehicle sales are expected to hit about 19.5 million for 2012.

By: Nathan Bomey, The Detroit Free Press