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Changing lanes: in a tough market, auto dealerships make quick moves to boost the bottom line.

For black-owned auto dealerships, business in 2004 was a two-way street. While the auto industry sold near-record numbers of new vehicles, indicating a drive in the right direction, many dealerships were forced to shut their doors. As a result, growth in the number of black auto dealerships all but stalled.

In fact, sales for the BE AUTO DEALER 100 were downright anemic. These dealerships grossed $8.91 billion in 2004 compared to $9.03 billion in 2003, a 1.34% drop. The CEOs of these companies also trimmed payroll by 3.86%, from 12,295 workers in 2003 to 11,821 in 2004.

Despite flat sales for most black dealerships, some hot wheels took off. Purchases of crossover utility vehicles such as the Ford Escape, Honda Pilot, and Toyota Rav4 grew 16.6%. Large domestic sedan sales rose 13.9%, with continued strength expected in the consumer, business, government, and rental-car fleets. With the improving economy in 2004, business purchases boosted sales of large vans 6.6%, while more exciting minivan designs helped increase overall van sales by 4.1%.

Luxury car sales dropped 2.5% in 2004 on weak stock market performance, but BMW of the Hudson Valley (No. 77 on the BE AUTO DEALER 100 list with $36 million in sales) is one of many auto dealers making quick moves to keep sales up. At the beginning of 2004, Roland J. Walton, president of the Poughkeepsie, New York-based dealership, forecast and achieved a 20% sales increase by cashing in on the lucrative repair business. During 2004, Walton invested $250,000 to build a certified collision center, repositioning his dealership into a full-featured BMW service, parts, and repair outlet. "There is a tremendous opportunity for us in the fixed operations area," he says. Walton expanded operations to include service technicians, counter people in the parts department, and an expensive technology infrastructure to support complex BMW servicing.

Walton estimates that the new collision center, which opened Jan. 1, 2005, will increase his dealership's bottom line by 20% in 2005, and be expects a 100% return within 18 months. "It's already starting to show returns," says Walton. "There's no question in my mind it's going to have a huge impact on our bottom line this year and, more importantly, in the years to come."

Gregory Jackson of Prestige Automotive (No. 1 on the list with $1.1 billion) is another auto dealer who made hard-line moves to counter a tough market. His dealership pushed revenues above the $1 billion mark by increasing its volume of fleet sales, which are generally less profitable than retail sales. But the sheer volume of these sales, along with some built-in servicing agreements, allowed Prestige to increase its sales as well as its profitability in 2004.

Dealers like Jackson and Walton, who could maneuver the changing roads during 2004, maintained their course toward profitability. But those that couldn't fell by the wayside. Among the former BE auto dealers that no longer own their dealerships are: Freehold Chevrolet, Cobb Parkway Chevrolet, and Chandler Lee Buick-Pontiac-GMC Inc.

SHIFTING INTO REVERSE GEAR

Foreign-car sales continue to accelerate past domestic vehicles this year. "There is not a dealer I know who would not be pleased to have a Toyota, Lexus, Nissan, Infiniti, Honda, or Acura franchise," says Sheila Vaden-Williams, president of the National Association of Minority Automobile Dealers. The problem is that manufacturers feel they have enough dealerships and are not expanding import franchises, which means dealers must turn to the open market to buy popular import franchises--at a high price. "It's not uncommon to see a prime Mercedes Benz or Lexus store carry a price tag that includes $10 million to $20 million in blue sky," says Vaden-Williams.

Paul Taylor, chief economist at the National Automobile Dealers Association, says that an important financial objective for dealers is to generate more business by servicing vehicles over their operational life. And with continued economic improvement expected in 2005, used-car sales will also contribute to dealerships' financial performance, says Taylor.

In addition to his new collision center, Walton is also expanding his pre-owned business beyond focusing on certified BMW products as he has in the past. The dealership started out a with a 50/50 mix of new and used-car sales. But as BMW expanded its new-car focus, Walton's new-car business increased faster than his used-car business, resulting in a shift to 70% new and 30% used.

Lackluster domestic sales also means tough times for African American auto dealerships with the Big Three. Numbers of African American-owned GM dealerships continue to fall from a peak of 160 in 1998. Currently, black-owned GM stores make up just 1.6% of GM dealerships, with 113 stores out of 7,200--the lowest number since 1988. "We are going backwards, no question," says Marjorie Staten, executive director of the General Motors Minority Dealers Association, a nonprofit organization that is not directly affiliated with GM. "We had a total of about 17 terminations of African American dealerships due to unprofitability, and approximately eight of those did not continue with a minority-owned dealership," says Staten.

At Ford, the number of African American-owned dealerships decreased from 205 to 199. However, no black Ford dealers on the BE AUTO DEALER 100 list went out of business, says A.V. Fleming, executive director of the Ford Motors Minority Dealers Association.

The number of black DaimlerChrysler dealers held steady last year, with 17 franchise sales balanced by 15 or 16 new appointments, says Jesse Greathouse, president of the DaimlerChrysler Minority Dealer Association. Customer traffic in most members' showrooms during the 2004 third and fourth quarters matched the previous year's numbers, but dropped in the first quarter of 2005 by 15% to 25%. "Growing import share is definitely having an effect on us. If your domestic manufacturer just isn't selling any product, that's going to hit us first before it hits the big guy, because they can continue to have the money to pound away with advertising and try to draw in customers," says Greathouse.

While foreign sales continue to rev up industry-wide, Ed Fitzpatrick, CEO of Fitzpatrick Dealership Group in Modesto, California (No. 16 on the list with $125 million in sales) says American manufacturers are introducing better and more stylish cars that will win consumer acceptance. "The domestics are moving forward, but the goalposts are changing, because the imports aren't standing still. It's going to be very interesting the next few years," says Fitzpatrick. All three of his Valley-branded dealerships have expansion or new building projects in the works. And Valley BMW aims to increase its base 50% by moving 500 cars in 2005 and 650 in 2006, topping BMW's expectations for 300 vehicles a year.

The key to its 11.6% sales increase from 2003 to 2004 is the dealership's small but strong service and parts area, says Fitzpatrick, who also owns Coliseum Lexus in Oakland.

Last year, Fitzpatrick led car dealers to drive through Proposition 64, a California ballot initiative restricting shakedown lawsuits by private attorneys. Ambiguities in California's open-ended 1933 Unfair Competition Law allowed lawyers to file a wave of frivolous suits against businesses, eroding their bottom lines. Proposition 64 effectively struck down this law, passing with 57% of the vote last November. Fitzpatrick will continue his leadership among dealers as chairman of the 1,400-member California Motor Car Dealers Association, second in size only to NADA, through the end of 2005.

SHOWING HIS COLORS

With Isuzu losing ground in the U.S., revenues for Nederland, Texas-based JK Chevrolet Isuzu (No. 50 on the list with $54.9 million in sales) stalled 11% in 2004. Isuzu's U.S. market share has dropped 20% to 25% each year for the past three years, which impacted JK's formerly Isuzu-heavy sales. "That had a traumatic effect on our sales and service numbers," says JK President Robert Turner. Four years ago, JK sold 40 to 45 Isuzu vehicles per month; now selling six is a good month. For the past two years, rather than actively creating new models that draw customer interest, Isuzu bought other manufacturers' overcapacity, reselling cars designed by other companies.

Turner's good news is that he retired all of his debt to GM's Motors Holding Division, the financial partner that lends to most startup GM minority dealers. The dealership delivered more than 1,200 new Chevrolets and approximately 800 used vehicles last year, and expects similar volume this year. With the GM loans behind him, Turner, 46, is in an "opportunity model," where he can now invest in other dealer ventures or non-automotive businesses using store profits that once went toward paying his GM debt.

Turner says that taking advantage of minority business opportunities and becoming a supplier to large corporations present new horizons for growth. He plans to offer retail and automobile service for companies trying to meet diversity goals or that use out-of-market minority vendors. Turner also plans to expand commercial retail sales by attracting business from nearby Fortune 500 companies. To help with these goals, Turner escalated his local visibility by joining the board of directors of the large Beaumont Rotary Club and the Better Business Bureau of Southeast Texas. Now he can stay on top of the business climate and use his knowledge of businesses entering or exiting the marketplace to help with sales prospects and maintaining receivables.

The civic contributions of franchise new-car dealerships and their employees are unrivaled, but dealerships' roles in local community activities is not fully appreciated, says NADA's Taylor. NADA is also leading efforts to provide more transparency and better understanding of the auto financing process. Its Website, www.nada.org, has a section devoted to consumer education.

MINORITY JACKPOT

William E. Shack, president of Shack Findlay Honda (No. 18 on the list with $110 million in sales) saw an immediate boost in sales this year when he beefed up personnel and revamped advertising campaigns to better target minority outlets.

Shack added 10% more staff and shifted print and radio advertising toward the dealership's Hispanic and African American markets. Along with Shack Findlay Honda's strong, fuel-efficient Honda products, these quick moves powered the Henderson, Nevada, dealership through a period of high gasoline prices to increase revenues 49.6% over the previous year, from $73.5 million in 2003 to $110 million in 2004. The dealership leaped from selling a total of 165 new vehicles per month in 2003 to 200 in 2004, and from 66 used cars per month in 2003 to 88 in 2004.

Shack takes pride in his dealership's 2004 customer satisfaction-based Honda President's Award, which puts Shack Findlay in the top 5% of U.S. Honda dealers for the fourth consecutive year. Offering good customer service and fuel-efficient vehicles are key to the dealership's success, says Shack. "Gas prices and vehicle quality drove people toward Honda; we had a growth in the overall marketplace here in Las Vegas-Henderson, and we focused on customer satisfaction," says Shack "We feel part of our growth had to do with how we take care of our customers."

Auto Dealer

[Eligibility]

an auto dealership[ must be at least 51% black-owned and have been fully operational for the previous calendar year.
Top 10 Growth Leaders

 2004
Company Location Sales *

Shack Findlay Honda Henderson, NV $110.000
Prestige Automotive Detroit, MI 1066.579
McKinney Dodge McKinney,TX 50.005
Ultimate Pontiac Buick GMC Isuzu Fredericksburg, VA 40.600
Walker Family Auto Group Laurel, MS 49.549
Baranco Automotive Group Lilburn, GA 151.215
Panhandle Automotive Inc. Crestview, FL 140.000
Nissan-Mitsubishi-Kia of Lake Charles Lake Charles, LA 42.581
Forest Lake Ford Forest Lake, MN 29.944
BMW of the Hudson Valley Poughkeepsie, NY 36.027

 2003 %
Company Sales * Increase

Shack Findlay Honda $73.540 49.58
Prestige Automotive 766.507 39.15
McKinney Dodge 37.142 34.63
Ultimate Pontiac Buick GMC Isuzu 30.200 34.44
Walker Family Auto Group 36.911 34.24
Baranco Automotive Group 120.125 25.88
Panhandle Automotive Inc. 111.881 25.13
Nissan-Mitsubishi-Kia of Lake Charles 34.048 25.06
Forest Lake Ford 24.094 24.28
BMW of the Hudson Valley 29.387 22.60

* IN MILLIONS OD DOLLARS. TO THE NEAREST THOUSAND. AS OF DEC. 31,
PREPARE BY B.E. RESEARCH REVIEWED BY THE CERTIFIED PUBLIC ACCOUNTING
FIRM EDWARDS & CO.

Top 100 Auto Dealers Summary 2005

 2004 2003 % Change

Total Staff 11,821 12,295 -3.86
Total Sales * $8,906.685 $9,027.646 -1.34

* IN MILLIONS OF DOLLARS. TO THE NEAREST THOUSAND. AS OF DEC. 31,
PREPARE BY B.E. RESEARCH REVIEWED BY THE CERTIFIED PUBLIC ACCOUNTING
FIRM EDWARDS & CO.
COPYRIGHT 2005 Earl G. Graves Publishing Co., Inc.
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Title Annotation:B.E. AUTO INDUSTRY OVERVIEW
Author:Hocker, Cliff
Publication:Black Enterprise
Article Type:Industry Overview
Geographic Code:1USA
Date:Jun 1, 2005
Words:2099
Previous Article:Critical mass: when Dimensions International acquired fellow BE 100s firm SENTEL Corp., it created a new force in the homeland security sector.
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