Desperate in Detroit: Black dealerships retune their businesses as consumer demands change.

FEW INDUSTRIES ARE AS HIGHLY COMPETITIVE as the automotive business. Changes in consumer demand have forced the three major American automakers to recalibrate their models. Meanwhile, Japanese automaker Toyota gained momentum and is now poised to supplant Ford from its long-held position as the No. 2 automaker in the U.S. To remain viable and competitive, black auto dealers--the majority of which sell Ford, General Motors, and Chrysler vehicles--either began wholesale fleet transactions or realigned their businesses to focus more on servicing and used car sales.

Among them is Steven Ewing, owner of Smyrna, Georgia-based Wade Ford Inc. (No. 8 on the BE AUTO DEALER 100 list with $248.9 million in sales). To keep his dealership in the black, Ewing decided to enter the commercial fleet business and focus on his auto parts business. His dealership wooed corporate customers to the tune of 7,000 fleet vehicles last year. This increased revenues, but since these volume sales are made at a deep discount, profits were essentially flat at the dealership. Total sales were up, but retail sales were down. Combined service and parts revenues were up 25% because the dealership got "real serious about going after the parts business," Ewing says. "We were very fortunate that we were able to go and find new revenue streams and new business. And that is what I'm pursuing right now--new business. I'm not sticking my head in the sand."

Other dealers sought exit strategies. Hank L. Aaron Sr., CEO of Hank Aaron Automotive Group (No. 15 on the 2006 BE AUTO DEALER 100 list) sold four of his five dealerships: BMW and MINI Cooper in Union City, Georgia, and Honda and Hyundai in Griffin, Georgia. Aaron still retains the lone dealership, Toyota in McDonough, Georgia, but is expected to sell that one too. Aaron was BLACK ENTERPRISE'S 2004 Auto Dealer of the Year.

CHANGING TIMES

Consumer demand dictated the need for readjustment from dealers to suppliers to the manufacturers themselves. The total number of light vehicles sold in the U.S. decreased by 2.6% from 2005. Chrysler sold 7.0% fewer units, Ford Motor Co. was down 8.3%, and GM was off by 8.7%. By comparison, Asian and European imports rose 5.1% and 2.8%, respectively. And while GM still sells more cars than any of its competitors, that lead is being eaten away.

GM maintains a 24% to 25% market share in the U.S. while Toyota, whose market share ranges from 15% to 16%, now jockeys with Ford for the No. 2 position. Toyota has momentum on its side, with the greatest growth in the U.S. market in recent years. In February 2002, Toyota had just 9.3% of the U.S. market share. "We forecast that by this summer, Toyota is likely to surpass Ford as the No. 2 automaker on a permanent basis in the United States," says Jesse Toprak, executive director of industry analysis for Edmunds.com.

What went wrong in Detroit? According to Aaron Bragman, research analyst of the Americas for market research firm Global Insight, the biggest mistake that the Detroit Three have made is focusing too much of their attention on their full-sized trucks and SUVs over the past several years and neglecting their passenger car market. "They were focusing on where the market was and producing what the consumers wanted, but when the gasoline prices went sky-high and the demand for big trucks and SUVs basically fell out of the market, they found themselves unprepared for the new market reality--smaller more fuel-efficient vehicles."

While American automakers have struggled, imports and the luxury segment continue to be sweet spots for auto dealers fortunate enough to offer these cars. Among them is Orlando, Florida-based Boyland Auto Group (No. 4 on the BE AUTO DEALER 100 list with $391.6 million in sales). Owner Dorian Boyland says his fleet of Mercedes helped the dealership increase auto sales by 15%. Gregory Jackson, owner of Prestige Automotive (No. 1 on the BE AUTO DEALER 100 list with $1.5 billion in sales), noted that sales for 2006 surpassed 2005 by more than 50% thanks in part to the opening of additional retail outlets. About 10% of the sales boost came from a new Mercedes-Benz store that opened in St. Clair Shores, Michigan, last May.

FLOUNDERING FORD?

Ford's performance took a toll on its black-owned dealers. The Ford Motor Minority Dealers Association currently has 138 African American members owning a total of 159 dealerships. During 2006, nine new black Ford dealerships came aboard, but 38 African American-owned dealerships were sold or lost. Among them were Duane L. Reid (No. 44 in 2006), who sold off his Rome, Georgia, dealership, and Bryant Williams (No. 87 in 2006), who exited his sole Highland Park Illinois, dealership.

As Ford continued to lose market share, several dealers on our BE AUTO DEALER 100 list got rid of Dearborn nameplates while keeping their other dealerships. "They didn't sell all their dealerships; they just got away from their Ford dealerships because the Ford dealerships weren't making any money," says Dr. A. V. Fleming, executive director of the Ford Motor Minority Dealers Association. Among them were: Baranco Automotive Group of Lilburn, Georgia; Mike Pruitt Automotive Group in Akron, Ohio; and Aeneas Williams in Bastrop, Louisiana.

GM: TRYING TO RIGHT ITS SHIP

GM has begun its turnaround plan. It has introduced very desirable and successful products that were well received by the industry. Some examples are the new GM trucks--Chevrolet Silverado and GMC Sierra 1500--and the new Chevy Tahoe and Suburban. Its respected Cadillac brand is enjoying a bit of a revival, and the Saturn line had one of its best months in February. "We see that GM is bringing out a lot of new passenger car models, a lot of more fuel-efficient crossover utility vehicles. It's taken some time to get to this point, but we think they are on the right track," says Bragman.

GM hopes that new designs and greater emphasis on technology will translate into consumer demand. "Executing great exterior designs will continue to be a major focus. Additionally, interior design, where our customers 'live' in their cars, will continue to be a priority as well," says Edward T. Welburn Jr., GM's vice president of Global Design. "GM is living each day as a global company, linking 11 design and engineering centers, giving us an opportunity to surface fresh ideas on every project."

If there is light at the end of GM's tunnel, it would be welcome news for the company's minority dealers. The No. 1 automaker had 344 minority-owned dealerships at the end of 2006, down from 359 in 2005, which was a difficult year for some black auto dealers. That year, approximately 20 African American dealerships either chose to exit the business or were terminated by GM. The picture is beginning to look less grim. "GM started thinking out of the box, and some of our members who were in a loss position or maybe in line to lose their dealerships were given opportunities to restructure or strengthen their dealership with some support from GM," says Marjorie Staten, executive director of the GM Minority Dealer Association.

CHRYSLER: BENT BUT NOT BROKEN

Chrysler Group fared the best of the Big Three, holding onto its 13% market share, whereas Ford and GM both lost ground. Despite this, DaimlerChrysler AG, the German parent company, is soliciting acquisition bids for the U.S. automaker.

No Chrysler Group dealers on last year's auto dealer list went out of business, reports Jesse Greathouse, president of the DaimlerChrysler Minority Dealer Association. Of Chrysler Group's 3,800 dealers, roughly 150 are ethnic minorities, 65 of them African American. With a smaller dealer network than Ford or GM, Chrysler Group store owners penetrate fewer layers of management to get heard in Detroit. "We can pretty much get to speak and have all our concerns dealt with on a person-to-person basis," says Greathouse. "We don't seem to have some of the same communication challenges that the other domestic groups have with their manufacturers."

TOYOTA GAINS GROUND

Toyota managed to experience the greatest gains while keeping its incentive spending in check. According to Toprak, Toyota enjoys very strong demand in the critical markets on the West and East coasts, and in Southern California, Southern Florida, New York, and surrounding states. Aiding the Japanese manufacturer's cause is a full spectrum of vehicles--from the economical Yaris with its $12,000 price tag to the $60,000-plus Lexus LS 07.

This was good news for black auto dealers. In fact, no BE-listed Toyota or Lexus dealers went out of business in 2006, says Perry Watson III, president of the Toyota-Lexus Minority Dealer Association and owner of Indiana-based Lexus of Mishawaka (No. 74 on the BE AUTO DEALER 100 list with $33.2 million in sales). "Anybody who has Toyota or Lexus had a far better year than the industry." Out of 233 Lexus and about 1,245 Toyota dealerships nationwide, 97 are minority-owned and 33 are African American-owned. The company had a net gain of four black dealers last year, and Watson expects one more black dealer by the end of 2007.

In most Lexus stores, sales were down slightly, but profits were equal to or greater than profits in 2005. Volume was way up at Toyota stores. Typical Toyota profit margins were 2.5% last year, while Lexus dealers earned between 5% and 7.5%. This has made some of these dealerships attractive to investors. According to Watson, Toyota franchises are being bought at five to six times earnings with prices driven up by private equity groups and public companies. Among those to be sold is San Juan Capistrano, California-based Family Automotive Group (No. 7 on the 2006 BE AUTO DEALER 100 list).

35 Annual Report on Black Business

B.E. 100s Flashback 

June 1999

In our first Auto Overview, June 1999, we found that the AUTO DEALER 100 had benefited from the record sales of the Big Three automakers at the time--General Motors. Ford, and DaimlerChrysler: The dealers' collective gross revenues of $6.3 billion that year had increased by 13% from the previous year. However, only 28 of them carried imports, even though nearly half of the imports sold in the U.S. had been purchased by African Americans. Sheila Vaden-Williams, then the executive director of the National Association of Minority Automobile Dealers, was among those leading the charge for black dealers to "get their fair share of opportunity." Today, almost half the BE auto dealers sell imports.

PHOTOGRAPH BY ALEX JONES

Top [10] Growth Leaders

Company                                Location

Briarwood Ford Inc.                    Saline, MI
Walker Family Auto Group               Laurel, MS
Wade Ford Inc.                         Smyrna, GA
Prestige Automotive                    St. Clair Shores, MI
Hubard Automotive Group                Charlotte, NC
Northpoint Ford Lincoln Mercury Inc.   Bastrop, LA
Cox Nissan Inc.                        Bronx, NY
Boyland Auto Group                     Orlando, FL
Westborough Buick Pontiac GMC Inc.     Westborough, MA
Coastal Motorcars                      Corpus Christi, TX

                                         2006        2005
Company                                 Sales *     Sales *    Increase

Briarwood Ford Inc.                     $145.311     $57.439     153.10
Walker Family Auto Group                  98.901      52.581      88.09
Wade Ford Inc.                           248.912     135.411      83.73
Prestige Automotive                    1,545.524   1,010.284      52.98
Hubard Automotive Group                  133.358      89.374      49.21
Northpoint Ford Lincoln Mercury Inc.      28.600      19.478      46.83
Cox Nissan Inc.                           57.413      39.432      45.60
Boyland Auto Group                       391.620     275.995      41.89
Westborough Buick Pontiac GMC Inc.        20.331      14.543      39.80
Coastal Motorcars                         34.761      26.267      32.34

Auto Summary

               2006         2005      % Change

Employees       11,766       12,207      -3.61
Sales *     $9,508.623   $9,018.526       5.43

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