Dealerships feel trickle-down effect

With executives from the Big Three automakers - Ford, GM and Chrysler - pleading for a $25 billion congressional bailout and consumers lukewarm to purchasing cars in a weakened economy, local car dealerships appear stuck between a rock and a hard place.

Congress blames the failing auto industry for its lack of technological innovation and its self-created financial burden from retiree packages and executive bonuses and salaries, as well as union wages. Auto industry leaders say if their companies fail, the entire country will be in jeopardy.

Local car dealerships are among those directly affected by what happens to the Big Three automakers that, bailout or not, many experts say will drastically change how they do business.

Many auto dealers don't believe the domestic car market will collapse, but local car dealers are adapting to the pending crisis by trimming operating costs plus diversifying their operations to include foreign cars and repair and body shops.

In the best-case scenario, the companies reorganize and the industry turns around much like in the 1970s with new products such as electric cars and alternative-fuel engines. In the worst-case scenario, product lines will be downsized or companies could even disappear, according to many reports on the industry.

Automobile dealers in the local metropolitan area employed 701 people with an annual payroll of $22.5 million, according to the 2002 Economic Census, the last year data is available. The statistics do not show how many dealers focus on domestic cars, but a survey of the Yellow Book shows that a third of all car dealers - 11 of 32 - have domestic products attached to their names and therefore may be affected by what's going on with Chrysler, Ford and GM.

Sales of domestic vehicles had double-digit declines in October compared to a year ago, decreases that included 45 percent for General Motors, 29 percent for Ford and 35 percent for Chrysler, as reported by the Washington Post earlier this month.

After the Big Three appealed for emergency governmental assistance Tuesday, their stocks plunged Wednesday - General Motors by 10 percent to $2.78 a share and Ford by 24 percent to $1.27 per share.

"Our dealers have been in business for 71 years, and they've seen tough times before," said Joel Stephenson, general manager at Bentley Chevrolet Cadillac in Florence, which employs 60 people.

"(GM) may have to restructure - just to think they would fold up - that's not going to happen."

Stephenson said the service department is doing well as people seek to repair their vehicles instead of trading in. The business still plans to renovate its building, purchased in 2005.

"Your strong dealer will survive by having a strong used car, parts, body and service departments," Stephenson said. "Most people prefer to bring their car back to the dealer."

Brad Bishop, owner of Jim Bishop Chevrolet Pontiac Buick GMC and Jim Bishop Toyota in Tuscumbia, said "all the negative press that the industry is getting is hurting more than what's really going on.

"It's more to do with consumer confidence than what's going on in Detroit at my level, at the dealer level."

As for how GM comes out of congressional negotiations, Bishop said he had no opinion either way. "Whatever happens, we'll just have to adjust from there," he said.

Some auto dealers have already diversified outside the domestic market, including Bishop with Jim Bishop Toyota and Richard Thigpen who owns Family Ford and Family Hyundai.

Some dealers are reacting to the market by trimming costs wherever possible.

Reusing paper, turning down the thermostat, turning off high-cost outdoor lighting and even cutting down demo rides are some approaches being used by Thigpen, whose business employs 82 people.

"We are using every means to cut back in order to prepare for the lack of sales."

In fact, the entire car dealership industry is bracing for the trickle-down effects of whether Congress gives the auto industry $25 billion in funding diverted from energy efficiency initiatives or whether the automakers file Chapter 11 reorganization bankruptcy.

In an open letter published Monday in USA Today, Annette Sykora, chairwoman of the National Automobile Dealers Association, stated, "Auto dealers directly employ 1.1 million people, more than the domestic automakers combined. In fact, in many communities across the country, the largest local employer is the auto dealership, with jobs in sales and service and parts and financing - good jobs that can't be outsourced."

Congressional hearings this week not only put Congress head to head with the auto industry, but showed a north/south divide as Republican Alabama Sen. Richard Shelby, the ranking member of the banking committee, firmly opposed any bailout package.

Congressional members from Michigan and many Democrats supported the move to divert $25 billion from the recently passed $700 billion Troubled Assets Relief Program, and to divert an additional $25 billion earmarked for research into fuel-efficiency technologies.

"Industry analysts contend that the firms trail their major competitors in almost every category necessary to compete and make a profit," Shelby stated Tuesday. "In fact, even when the firms were setting sales records, they were barely making money. We need to understand why this has been the case."

For many car dealers, the why is clear.

"We got sidetracked on these SUVs and these big engines like hemis," Thigpen said. "With the gas going up to $4, it crippled everything, and we never recovered from it."

Trevor Stokes can be reached at 740-5728 or trevor.stokes@TimesDaily.com.