Friday, February 10, 2012

Auto dealers see sunshine after dark days

Auto dealers see sunshine after dark days

A Chrysler Jeep Dodge dealer's sign.

By Paul A. Eisenstein, contributor

When Chuck Fortinberry checks in for the National Automobile Dealers Association (NADA) convention this weekend, he’ll be coming to Las Vegas as an outsider. The long-time dealer recently saw his Chrysler showroom close after a quarter century of doing business in Detroit.

“I was one of the guys who got screwed,” he said, a bit of a laugh barely concealing his bitterness. Despite an arbitration process pushed through Congress, Fortinberry was one of hundreds of U.S. dealers dropped by Chrysler and General Motors after their 2009 bankruptcies and bailouts.

But much has changed in the car industry since those darks days when several dealers a week were closing their doors. And the mood is clearly expected to be upbeat when Fortinberry and thousands of former colleagues and competitors fly into Sin City for the annual NADA convention.

Indeed, on Wednesday Chrysler reported its best January sales in four years, and General Motors is expected to report billions in earnings in mid-February. No wonder Fortinberry recently went looking for another Chrysler dealership he’d like to buy.

But not everything is upbeat. Dealers fret that with the U.S. auto industry on the growth path again they will become pawns in the increasingly bitter battle for brand domination.

Lincoln, for example, plans to require retailers to adopt a lavish new showroom design that could cost a million dollars or more -- even requiring some dealers to move to better locations.

It’s a pattern being followed by other mainstream automakers, from Chevrolet to high-line Mercedes-Benz, and dealers fear the required investments could more than offset the gains they’ve been desperately awaiting as U.S. car sales finally start to rebound.

“If our members are going to spend the money they want to see there’s a return on their dollars,” complained outgoing NADA Chairman Steven Wade, who had to face demands for changes at one of his Utah showrooms, he recalled, because the manufacturer said the tile he used “wasn’t the right shade of gray.”

NADA has hinted it could go to court on behalf of its members, but now that those dealers are finally beginning to see customers flock back to their showrooms it’s uncertain they’ll have the stomach for a costly legal battle.

President Barack Obama launched his State of the Union speech late last month by proclaiming “the U.S. auto industry is back.” Sales might have fallen a little short of the original 13 million forecast for 2011, but many analysts are now upgrading their estimates for 2012 based on end-of-year momentum that carried into January.

Deutsche Bank’s Rod Lache this week raised his production and sales estimates by as much as 800,000 units compared to earlier predictions, and he and a number of colleagues are now looking at numbers that could nudge the 14 million mark -- a figure generally seen as the point of a true industry recovery.

Significantly, the trend is up even as manufacturers have slashed incentives by as much as 10 percent below year-earlier levels. And average transaction prices -- ATPs, in industry lingo, or what the typical buyer actually spends out-of-pocket -- have risen sharply.

One key factor expected to drive the market for at least the next year or two is so-called pent-up demand.

The typical U.S. car, truck or crossover is now 10.8 years old, according to a new study by the suburban Detroit-based research firm Polk. That’s up a full year compared to 2007, just before the U.S. economy spun into the ditch, and the oldest that analysts have ever seen.

While better quality means vehicles can last longer, they eventually do wind up in the junkyard and have to be replaced. But millions of American have put off the day of reckoning, which is why the size of the American automotive fleet has actually declined by about a half-percent to 240.5 million since the start of the Great Recession.

“We’re clearly seeing that driving business at the dealer level,” said Jim Farley, Ford’s chief marketing officer.

Considering the potential for everyone to share in the industry’s recovery, the 2012 NADA convention is expected to see more focus on the positives than in the recent past. And NADA’s own studies show that the “happiness factor” among those retailers has clearly been rising.

It’s not surprising then that the trade group’s annual Dealer Attitude Survey (DAS) finds the highest level of satisfaction with brands on the upswing. Hyundai, for example, has been setting sales records and has led the survey’s brand list for three years running, even if they demand dealers invest in showroom upgrades. Subaru, another brand setting records, ranked second in the DAS, followed by Toyota’s high-line Lexus brand.

For his part, Fortinberry decided not to buy the new Chrysler store he looked at, worried mandated investments would overcome the profit potential.

For now, he’s focusing on a new line of products he is marketing to assist disabled drivers. But the trader instinct is clearly in his blood and he knows that when he gets to Las Vegas it could be difficult for him to avoid looking for another store -- especially now that the business is building back up after the tough times he and the rest of the nation’s dealers went through.

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