Pressure Builds Up In the Auto Industry

Anthony Fontanelle
February 5, 2007

Sales are down; so is profitability. No doubt, the automotive world is tracking on a rocky and bumpy terrain and it has got the faintest idea of when the misery would end.

Automakers are experiencing almost incessant sales doldrums and domestic dealers are more pressured than before. Moreover, it is said that this year will not be any easier for those inside the industry. Critics are saying that business will get worse before it gets better.

Earlier, dealers in the United States met with the industry leaders in Las Vegas at their annual conference. Dealers urged Detroit’s automakers to do better marketing campaigns and produce more hot-selling vehicles. However, they are also anticipating that despite the improvement in auto campaigns, some of them will no longer be around a few years from now.

"People are in shock," said Bill Keith, who owns two New Jersey auto dealerships. "You've been in this business your whole life, and it's always been a certain way. I think some people are still hoping for next week's special thing to come along. And I don't think its going to happen."

General Motors Corp., Ford Motor Co. and the Chrysler Group are in massive restructuring programs. These automakers earlier announced that they need fewer dealers due to its reduced sales. In the past 15 years, the combined sales of these Detroit automakers fell by 15 percent which falls to around 2.5 million vehicles. That is rather a big deal on dealers who bank on auto sales for revenue.

According to the J.D. Power and Associates Power Information Network, the average Chevrolet dealer sells 583 cars a year. Ford dealers sell 631 vehicles a year on average. Also, Dodge dealers sell 375 units on average. All these automakers are sharply down from previous years. The only automakers in good light are the Toyota Motor Corp. and Honda Motor Co. which sold 1,685 and 1,289 vehicles, respectively.

Tough foreign automakers, trusted for their superiority in car parts and accessories like EBC rotors, engines, mufflers and other notable features, sold approximately half of all the vehicles in the United States each year. These companies only have few dealers. Detroit automakers’ dealership ratio to foreign car makers is nearly 5 to 1. "Most dealers are in touch with the reality that there's too many," said Rod White, who works as an automotive retail practice leader for J.D. Power and Associates. "It's just a question of who's going to close their store. Every dealer thinks they're the best."

The mounting pressure on dealers is apparent while new strategies are expected to be tougher on them. Detroit automakers have to reduce deep incentives, even at the risk losing a considerable share in the auto market. Fewer incentives may result to automakers getting more money for the vehicles they sell. However, for some dealers, lower incentives will mean lower sales volumes.

In one of the recent surveys conducted by UBS Securities having vehicle dealers as respondents, Ford ranked last among the top 20 U.S. brands. "It's dire," said Michelle Van Vorst, executive director of the Ford Dealer Alliance. She also did say that such has been critical of the company. "I've been with the company 27 years and never seen anything like this," she adds.

Cisco Codina, head of marketing, sales and service for Ford in North America, said Ford will continue its dealer consolidation effort and it has abolished 126 dealerships in crowded markets. "We've been very aggressive in our plans to reduce the number of dealers."

Tom LaSorda, Chrysler CEO, said making dealers more profitable will be one of the company's top goals this year. "They're the only ones that bring revenue, and I've got to turn that around so that they're profitable again. I let them down, and I'm going to build the trust back."

Source: Amazines.com