B.E. 100s Switching Lanes.

B.E. auto dealers survive the threat of an economic crash by weaving import dealerships and holding companies into their course

AFTER TWO CONSECUTIVE YEARS OF RECORD-SHATTERING car and truck sales, things in the auto industry have slowed down. Sales of new vehicles in 1999 were pegged at $16.9 billion. In 2000, the numbers were higher, at $17.4 billion. But the National Automobile Dealers Association (NADA) in McLean, Virginia, forecasts that 2001 totals will be slightly less, at $16.3 billion. Why? Gas prices are up, there was a major tire recall in 2000, consumer confidence is down, and massive layoffs are occurring. Chrysler announced it was laying off 26,000 employees and closing six plants, the stock market is having its ups and downs, and many economists are predicting a recession. All the while, the Big Three continue to suffer market share declines against the imports.

It was rough going for a number of African American auto dealers in the last quarter of 2000, and the first few months of this year have been brutal for some of them. Some economists believe things in the auto industry will get worse before they get better and are predicting a shakeout in the industry, one that will hit African American dealers the hardest.

According to The Economy, Competition, and the Retail Automotive Dealer, a new study released by the University of Michigan Office for the Study of Automotive Transportation, from 1978 to 1998 there were three recessions and in each one there was acceleration in the closing of auto dealerships. Four dealerships exited the BE AUTO DEALER 100 list since the 2000 list was published. BLACK ENTERPRISE'S Auto Dealer of the Year in 1996, Carl L. Barnett Sr., sold his three Houston dealerships back to the manufacturer in October. "The Houston stores had six good years of sales and I felt it was time to move on, especially with the downturn in the economy and a slowdown in car sales," says Barnett (see "Dealer Sells Abruptly," Newspoints, May 2001). Barnett's company, Barnett Auto Group L.P. in Houston, had sales of more than $105 million in 1999 and now, left with only one dealership, his company grossed only $26.3 million in 2000. The cutoff for this year's BE AUTO DEALER 100 list was $28 million. Dealerships that were sold (and, consequently, fell off the list) were Quality Dodge in Union City, Georgia; Branker Buick Nissan Hyundai Inc. in Lincoln, Nebraska; and Old Orchard Chevrolet-Mazda Inc. in Skokie, Illinois (Nos. 92, 95, and 98 on the 2000 BE AUTO DEALER 100 list with $26.1 million, $25.3 million, $24.3 million in sales, respectively).

"We, as an organization, requested a moratorium on shutting down those minority dealers who are having problems," says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealers (NAMAD), an industry member organization in Lanham, Maryland. In fact, Ford Motor Co. put one in place until June 2001, as part of a program to help struggling dealerships, according to Vaden-Williams.

Dr. Michael Flynn, associate director of the University of Michigan Office for the Study of Automotive Transportation, says black dealers are less capitalized and are therefore less likely to weather economic storms. "Dealerships have not been in their families for decades. They cannot wait nine months for the economy to turn around like many majority dealers can. They have a shorter time cushion."

"We don't have the fat on the bones," explains Don Tinsley, chairman of NAMAD and president of Legacy Ford Inc. in Brunswick, Ohio. "Again, the problem is available capital. A number of dealerships are no longer in business since the first of the year. It's tough when you start losing money. That's when the manufacturers start cleaning house. And we're usually the ones that get swept away."

One dealer who saw profits decline was Mel Farr Sr. of Mel Farr Automotive Group in Detroit. For years, Farr was the nation's No. 1 black auto dealer. This year, he fell from the top spot to No. 3 with $298.5 million in sales last year, a 50% drop from his high in 1999 (see "Built to Last," this issue).

Despite the challenges facing African American auto dealers, the top 100 increased their total number of employees from 11,296 in 1999 to 12,257 in 2000, up 8.5%, and expanded their total sales from $7.3 billion in 1999 to $8.7 billion last year, a jump of 20.4%.

OVERCOMING THE ODDS

Sales from Gregory Jackson's Prestige Automotive based in Detroit, raked in a staggering $657.7 million in 2000, earning him the No. 1 spot on the BE AUTO DEALER 100 list. That's a jump of 160% over his 1999 sales of $252.7 million. He was No. 3 on the list last year. Since 72% of the $405 million increase in sales was due, in large part, to fleet sales to car rental companies and government agencies, it did not amount to much of a profit for Jackson.

Dorian S. Boyland, owner of Boyland Auto Group, in Gresham, Oregon, was another dealer who overcame last year's challenges. Thanks to additional dealerships and increased efficiency, he went from No. 30 on the 2000 BE AUTO DEALER 100 list with $78 million in sales to No. 12 this year, with $156.3 million in sales, a 100% increase.

Boyland has six dealerships. They include Gresham Dodge in a suburb of Portland, Oregon; Beverton Nissan in Beverton, Oregon; Astoria Ford in Astoria, Oregon; Boyland Honda in Milwaukee; All Star Ford in Olympia, Washington; and All Star Toyota in Seattle. "I have one of the highest profit Nissan/Ford dealerships in the Northwest," says Boyland.

Boyland says he is able to keep from 2.5% to 4% profit from his stores. He says that despite a drop in sales at the end of 2000, he was able to net a 3.6% profit from his sales of $156 million.

BIGGER CAN MEAN BETTER

To further meet the challenges of the downturn in the economy and a slowdown in car sales, more African American dealers are jumping on the holding company bandwagon. Increasingly, holding companies are being created to increase the numbers of dealerships owned by African Americans and at the same time to reduce costs. Examples of such a feat are Tony March and Ernest Hodge, who in May 1998, joined forces to create a mega company, March/-Hodge Holding Co. in Hartford, Connecticut. March is based in Hartford, Connecticut, and Hodge is in Atlanta. Today, the company is No. 2 on the BE AUTO DEALER 100 list with $324.5 million in sales divided among 19 dealerships representing 13 manufacturers. That's an increase of more than 25% from its 1999 sales of $258.4 million.

"Our holding company has done very, very well," says Hodge, 50. "We seek out the best possible managers and make them partners in our stores. They have their hard-earned money in these stores and they tend to be more involved when they have money invested. We do not build a store unless we have an equity partner. That's our operating philosophy from day one," explains Hodge, who say's the holding company has six new buildings under construction for dealerships across the nation.

There are many advantages to forming holding companies, including savings on buying insurance for large groups of employees, buying supplies in bulk, and consolidating media budgets.

Cornelius A. Martin is another proponent of holding companies. He is the head of the Martin Automotive Group based in Bowling Green, Kentucky. Martin has 12 dealerships in four states, including Martin Dodge-Jeep-Eagle in Bowling Green; Saturn of Dayton, located in Dayton, Ohio; and Hurricane Chevrolet in Hurricane, West Virginia. Last year, sales totaled $258.4 million. That's a 37% jump from 1999 sales of $188.5 million. Martin Automotive Group remained at No. 6 on the BE AUTO DEALER 100 list in 2000 and this year.

"I think the future of black dealers is tied to the expansion into automotive groups such as Martin Automotive," says Martin, who became a GM dealer in 1985 and was the BE Auto Dealer of the Year in 1997. Martin says forming a holding company has also allowed him to be more prepared for an economic downturn, should a serious one occur. "I think the market might be off anywhere from 5% to 10% over the next two years," says the 52-year-old auto veteran. "We do have cash reserves built up so the downturn won't take that much of a toll on us."

RUSH TO GET AN IMPORT DEALERSHIP

As the economy tightens and the Big Three lose ground to the import manufacturers, more African Americans are going after import dealerships. While there are no foolproof plans to protect imports from an economic downturn, in many instances, they can hold up better than U.S. manufacturers.

"It seems clear that many drivers prefer the imports," says NAMAD's Vaden-Williams. "The perception is that they [imports] are better cars and Detroit is continuing to lose market share to the imports. While these dealerships are very desirable for our members, it's much harder getting those dealerships because they don't have many training programs and financing."

New to the import business is baseball legend Hank Aaron, who owns Hank Aaron BMW in Atlanta. The dealership opened in December 1999 and last year had sales of $32.9 million, making it No. 87 on the BE AUTO DEALER list.

The construction cost of the new dealership was $4 million. Even still, the dealership is reaping big returns from its investment. According to Sidney Barron, Hank Aaron BMW's dealer-operator and general manager, BMW officials said it would take the dealership at least 12 to 14 months to make a profit. Barron says they turned a profit in just three months. Since opening the dealership, Hank Aaron BMW has increased BMW market share in south Atlanta from 13.1% to more than 20%. "We were more profitable in January 2001 than we were any month in 2000," says Barron, 40. "An economic slowdown hits us last and we are the first to rebound" (see "Neighborhood Improvement," this issue).

But in order for more African American dealers to get lucrative import dealerships, pressure must be put on those manufacturers, say officials with NAMAD. "In 1999, we saw much more activity on the import front," explains Vaden-Williams. "But we saw less activity in 2000."

A LOOK TO THE FUTURE

Paul Taylor, the chief economist with NADA, says, "The first quarter of this year was weaker than last year, but we have already seen some pick up. The Fed

is lowering interest rates and that is helping sagging consumer confidence," he explains, saying consumers tend to feel better about spending money when interest rates are lower.

Top 10 Growth Leaders

                                          1999       2000        %
COMPANY               LOCATION          SALES(*)   SALES(*)   INCREASE

Freehold Chevrolet    Freehold, NJ       28.450    213.400     650.09%
Palanker Chevrolet    West Baylon, NY    22.500    121.595     440.42%
Prestige Automotive   Detroit, MI       252.697    657.734     160.29%
Reid Automative
  Group               Gaffney, SC        23.199     56.966     145.55%
Boyland Auto Group    Gresham, OR        77.812    156.318     100.89%
Ford of Montebello    Montebello, CA     27.652     53.716      94.26%
Jimmy Walker Auto
  Group               Laurel, MS         22.643     38.970      72.11%
Orange Ford
  Lincoln-Mercury
  Inc.                Orange, TX         17.349     28.262      62.91%
Ray Wilkinson Buick
  Cadillac            Racine, WI        169.200    268.593      58.74%
Briarwood Ford        Saline, MI         77.639    116.234      49.71%

(*) In millions of dollars to the nearest thousand. Prepared
by B.E. Research. Reviewed by Mitchell & Titus L.L.P.