Remaining Chrysler and GM Dealerships See Record Profits
10-03-2013, 02:56 PM
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Remaining Chrysler and GM Dealerships See Record Profits Government forced dealership cuts help remaining store profits surge
David Kelleher used to struggle to sell one or two Sebrings a month at his Chrysler store. After four nearby dealers shut and the automaker emerged from bankruptcy with better cars, he’s spending $2 million to expand.
Healthy and growing dealerships are precisely what Barack Obama’s auto task force and the predecessors of Chrysler Group LLC and General Motors Co. envisioned when they insisted that the 2009 bailout slim down their bloated retail networks. Record sales per dealer are an indication the U.S. market’s recovery will remain intact even if analysts are correct in predicting the first drop in industry deliveries in 27 months.
A salesman helps a customer at Stewart Chevrolet Cadillac dealership in Colma, California. The industry has come a long way for dealers to be praising the consolidation of new-car outlets, even if their approval is limited to the result and not the process that used bankruptcy to circumvent protection through state franchise laws. Photographer: David Paul Morris/Bloomberg
“The terminations, albeit evil, gave us the opportunity to correct ourselves,” said Kelleher, who opposed the forced dealer closings that occurred through Chrysler and GM’s government-financed bankruptcies. “It accomplished what they set out to do.”
Industrywide per-store dealership profit has tripled from 2008. Dealers who survived the industry’s plunge to a 27-year low in sales in 2009 are rehiring salesmen and technicians. Employment at vehicle and parts dealers has increased in 34 of the last 37 months, according to the Bureau of Labor Statistics in Washington.
Kelleher is adding seven sales stations and five service bays each stocked with iPads for customers to choose cars or consider repairs at his store in Glen Mills, Pennsylvania.
Dealers praising the consolidation of new-car outlets shows how far the industry has come, even if their approval is limited to the results and not to the use of bankruptcy to circumvent protections under state franchise laws. The shutdowns drew rebukes from dealers, members of congress and the Special Inspector General for the Troubled Asset Relief Program.
GM (GM) had 4,355 U.S. dealers at the beginning of this year, 31 percent fewer than at the end of 2008, according to the Automotive News Data center. Chrysler has about 2,600 dealerships in the market, 21 percent fewer than 2008, according to regulatory filings. Toyota Motor Corp. (7203) said it has about 1,700 dealers handling 14.4 percent of this year’s new-vehicle market.
A smaller network in a rebounding market resulted in a surge in industrywide sales per dealership, enabling owners to invest in sprucing up their facilities and bringing them up to snuff with the more competitive passenger cars on their lots. This month, GM moved to continue paying back stakeholders from its bailout and won an investment-grade credit rating, and Chrysler filed for an initial public offering.
“We never would have been able to right-size the network under different circumstances,” Kurt McNeil, GM’s vice president of U.S. sales operations, said in a telephone interview. “We’re in a much better place.”
The industry’s recovery has been profound, even as a quirk of the sales-reporting calendar may interrupt a more than two-year streak of monthly gains in U.S. car and light truck sales. Analysts predict September deliveries slipped 3.8 percent to 1.14 million, the average of 10 estimates in a survey by Bloomberg News.
The monthly results that automakers report tomorrow won’t include deliveries for the first two days of the month -- including the Labor Day holiday -- because those sales were counted in August figures.
The annualized industry sales rate, adjusted for seasonal trends, may climb to 15.4 million, the average of 16 estimates, from 14.8 million a year earlier. While the pace is slower than August’s 16.1 million, carmakers this year are still on track for the most U.S. deliveries since 2007.
The anomaly in the sales schedule may end an even longer streak of gains for Auburn Hills, Michigan-based Chrysler, which ranks fourth with 11.4 percent of the U.S. market. Its deliveries probably dropped 2.8 percent, the average of seven estimates. That would end Chrysler’s run of 41 monthly increases.
The possibility of a dip this month doesn’t deter Kelleher. Square footage at his Pennsylvania dealership will swell by almost 50 percent.
“I look at the next two years of Chrysler’s projections -- which have been conservative and they’ve hit every one -- and it’s not that difficult a proposition,” Kelleher said. “The worst thing I can do is be cautious and sit on my hands.”
GM deliveries may have declined 4.2 percent, the average of nine estimates. The Detroit-based automaker, with an industry-leading 18.1 percent of sales through August, was raised to investment grade for the first time in eight years by Moody’s Investors Service on Sept. 23. The company purchased 120 million preferred shares held by the United Auto Workers retiree medical trust for about $3.2 billion, or $27 each. The U.S. Treasury also began selling down the rest of its 101.3 million shares.
“It’s a good time to be a car dealer, but it’s also a good time to practice conservatism and not get too loose or comfortable,” said Shaun Del Grande, president of Del Grande Dealer Group in San Jose, California. He owns a Chevy franchise that just completed a $2.5 million renovation. “Things can change quickly. You’ll see things change just August to September.”
GM and Chrysler’s bankruptcy plans called for eliminating more than 2,200 dealers as part of their 2009 reorganizations. They shrunk their networks to avoid having dealers compete with each other in the same markets.
More than 90 percent of GM’s dealers are profitable, McNeil said, up from about half in 2008 and 2009. More than 3,600, or more than 80 percent, of GM’s dealers are undergoing about $3 billion of upgrades and renovation through the third quarter of 2016, the automaker said.
“We’re changing perceptions, and a lot of that’s product-driven,” McNeil said. “But to try to convince somebody who’s never driven a domestic or a General Motors product to come in and consider the great new products that we have, and then for them to be staring at a facility that was built in the 1930s or 1940s or 1950s, it just reinforces all of those bad perceptions.”
GM and Chrysler weren’t alone in shrinking their dealership networks. Ford Motor Co. (F), the No. 2 U.S. automaker with 16 percent of the market through August, has about 3,100 dealers, down from almost 4,400 in 2005. The Dearborn, Michigan-based automaker told dealers in February that it will match dollar-for-dollar, up to $750,000 per dealership, investments in the exterior and interior of their facilities.
For AutoBuilders General Contracting Services Inc., which works with dealers on new store construction and renovations, 41 percent of its projects since last year were for Detroit Three brand franchises, said Linda Barnette, a vice president. That’s up from 15 percent of business for the closely held West Palm Beach, Florida-based contractor in 2010 and 2011, she said.
Ford deliveries in September probably will be little changed from a year earlier, the average of nine estimates. Joe Hinrichs, the company’s president of the Americas, said last week that the pace of industry sales slowed this month.
“It’s still a healthy industry, but it’s taking a little bit of a breather from the last three months,” Hinrichs said in an interview in Dallas at the State Fair of Texas.
The average U.S. auto dealer earned a pretax profit of $843,697 last year on revenue of $38.3 million, according to the McLean, Virginia-based National Automobile Dealers Association, which represents 16,000 new-car dealers. Dealers’ average pretax profit was $279,685 in 2008.
U.S. auto sales per dealer may rise about 3.3 percent to 840 vehicles this year, surpassing last year’s record of 813, according to Urban Science, which advises automakers on their retail networks. The firm has compiled its data since 1990.
“If you’re not enjoying the automobile industry at this point, go do something else, because this is absolutely as good as it gets,” Mike Jackson, chief executive officer of AutoNation Inc. (AN), the largest U.S. dealership group, said this month during an industry forum at Bloomberg’s Detroit bureau.
In reducing the size of their dealership bases, U.S. automakers were emulating Japanese automakers, led by Toyota. Whereas GM, Ford and Chrysler built their networks when they controlled almost all of the U.S. market, Toyota, Honda Motor Co. (7267) and Nissan Motor Co. (7201) have operated with far fewer dealers even as they captured a bigger slice of sales.
The average estimate of seven analysts is for declines of 2.5 percent by Toyota, 0.6 percent by Tokyo-based Honda and 4.8 percent by Yokohama, Japan-based Nissan for September sales.
Dealers for Toyota City, Japan-based Toyota have invested almost $7 billion in the past seven years in their facilities, according to Jim Lentz, the CEO of Toyota Motor Corp.’s North American operations.
“Of all these competitive advantages we have, the dealer channel is number one,” Lentz said this month in an interview at Bloomberg’s New York headquarters. “They do that because they trust us and they know the future is better.”
http://www.bloomberg.com/news/2013-0...ting-cuts.html
David Kelleher used to struggle to sell one or two Sebrings a month at his Chrysler store. After four nearby dealers shut and the automaker emerged from bankruptcy with better cars, he’s spending $2 million to expand.
Healthy and growing dealerships are precisely what Barack Obama’s auto task force and the predecessors of Chrysler Group LLC and General Motors Co. envisioned when they insisted that the 2009 bailout slim down their bloated retail networks. Record sales per dealer are an indication the U.S. market’s recovery will remain intact even if analysts are correct in predicting the first drop in industry deliveries in 27 months.
A salesman helps a customer at Stewart Chevrolet Cadillac dealership in Colma, California. The industry has come a long way for dealers to be praising the consolidation of new-car outlets, even if their approval is limited to the result and not the process that used bankruptcy to circumvent protection through state franchise laws. Photographer: David Paul Morris/Bloomberg
“The terminations, albeit evil, gave us the opportunity to correct ourselves,” said Kelleher, who opposed the forced dealer closings that occurred through Chrysler and GM’s government-financed bankruptcies. “It accomplished what they set out to do.”
Industrywide per-store dealership profit has tripled from 2008. Dealers who survived the industry’s plunge to a 27-year low in sales in 2009 are rehiring salesmen and technicians. Employment at vehicle and parts dealers has increased in 34 of the last 37 months, according to the Bureau of Labor Statistics in Washington.
Kelleher is adding seven sales stations and five service bays each stocked with iPads for customers to choose cars or consider repairs at his store in Glen Mills, Pennsylvania.
Dealers praising the consolidation of new-car outlets shows how far the industry has come, even if their approval is limited to the results and not to the use of bankruptcy to circumvent protections under state franchise laws. The shutdowns drew rebukes from dealers, members of congress and the Special Inspector General for the Troubled Asset Relief Program.
GM (GM) had 4,355 U.S. dealers at the beginning of this year, 31 percent fewer than at the end of 2008, according to the Automotive News Data center. Chrysler has about 2,600 dealerships in the market, 21 percent fewer than 2008, according to regulatory filings. Toyota Motor Corp. (7203) said it has about 1,700 dealers handling 14.4 percent of this year’s new-vehicle market.
A smaller network in a rebounding market resulted in a surge in industrywide sales per dealership, enabling owners to invest in sprucing up their facilities and bringing them up to snuff with the more competitive passenger cars on their lots. This month, GM moved to continue paying back stakeholders from its bailout and won an investment-grade credit rating, and Chrysler filed for an initial public offering.
“We never would have been able to right-size the network under different circumstances,” Kurt McNeil, GM’s vice president of U.S. sales operations, said in a telephone interview. “We’re in a much better place.”
The industry’s recovery has been profound, even as a quirk of the sales-reporting calendar may interrupt a more than two-year streak of monthly gains in U.S. car and light truck sales. Analysts predict September deliveries slipped 3.8 percent to 1.14 million, the average of 10 estimates in a survey by Bloomberg News.
The monthly results that automakers report tomorrow won’t include deliveries for the first two days of the month -- including the Labor Day holiday -- because those sales were counted in August figures.
The annualized industry sales rate, adjusted for seasonal trends, may climb to 15.4 million, the average of 16 estimates, from 14.8 million a year earlier. While the pace is slower than August’s 16.1 million, carmakers this year are still on track for the most U.S. deliveries since 2007.
The anomaly in the sales schedule may end an even longer streak of gains for Auburn Hills, Michigan-based Chrysler, which ranks fourth with 11.4 percent of the U.S. market. Its deliveries probably dropped 2.8 percent, the average of seven estimates. That would end Chrysler’s run of 41 monthly increases.
The possibility of a dip this month doesn’t deter Kelleher. Square footage at his Pennsylvania dealership will swell by almost 50 percent.
“I look at the next two years of Chrysler’s projections -- which have been conservative and they’ve hit every one -- and it’s not that difficult a proposition,” Kelleher said. “The worst thing I can do is be cautious and sit on my hands.”
GM deliveries may have declined 4.2 percent, the average of nine estimates. The Detroit-based automaker, with an industry-leading 18.1 percent of sales through August, was raised to investment grade for the first time in eight years by Moody’s Investors Service on Sept. 23. The company purchased 120 million preferred shares held by the United Auto Workers retiree medical trust for about $3.2 billion, or $27 each. The U.S. Treasury also began selling down the rest of its 101.3 million shares.
“It’s a good time to be a car dealer, but it’s also a good time to practice conservatism and not get too loose or comfortable,” said Shaun Del Grande, president of Del Grande Dealer Group in San Jose, California. He owns a Chevy franchise that just completed a $2.5 million renovation. “Things can change quickly. You’ll see things change just August to September.”
GM and Chrysler’s bankruptcy plans called for eliminating more than 2,200 dealers as part of their 2009 reorganizations. They shrunk their networks to avoid having dealers compete with each other in the same markets.
More than 90 percent of GM’s dealers are profitable, McNeil said, up from about half in 2008 and 2009. More than 3,600, or more than 80 percent, of GM’s dealers are undergoing about $3 billion of upgrades and renovation through the third quarter of 2016, the automaker said.
“We’re changing perceptions, and a lot of that’s product-driven,” McNeil said. “But to try to convince somebody who’s never driven a domestic or a General Motors product to come in and consider the great new products that we have, and then for them to be staring at a facility that was built in the 1930s or 1940s or 1950s, it just reinforces all of those bad perceptions.”
GM and Chrysler weren’t alone in shrinking their dealership networks. Ford Motor Co. (F), the No. 2 U.S. automaker with 16 percent of the market through August, has about 3,100 dealers, down from almost 4,400 in 2005. The Dearborn, Michigan-based automaker told dealers in February that it will match dollar-for-dollar, up to $750,000 per dealership, investments in the exterior and interior of their facilities.
For AutoBuilders General Contracting Services Inc., which works with dealers on new store construction and renovations, 41 percent of its projects since last year were for Detroit Three brand franchises, said Linda Barnette, a vice president. That’s up from 15 percent of business for the closely held West Palm Beach, Florida-based contractor in 2010 and 2011, she said.
Ford deliveries in September probably will be little changed from a year earlier, the average of nine estimates. Joe Hinrichs, the company’s president of the Americas, said last week that the pace of industry sales slowed this month.
“It’s still a healthy industry, but it’s taking a little bit of a breather from the last three months,” Hinrichs said in an interview in Dallas at the State Fair of Texas.
The average U.S. auto dealer earned a pretax profit of $843,697 last year on revenue of $38.3 million, according to the McLean, Virginia-based National Automobile Dealers Association, which represents 16,000 new-car dealers. Dealers’ average pretax profit was $279,685 in 2008.
U.S. auto sales per dealer may rise about 3.3 percent to 840 vehicles this year, surpassing last year’s record of 813, according to Urban Science, which advises automakers on their retail networks. The firm has compiled its data since 1990.
“If you’re not enjoying the automobile industry at this point, go do something else, because this is absolutely as good as it gets,” Mike Jackson, chief executive officer of AutoNation Inc. (AN), the largest U.S. dealership group, said this month during an industry forum at Bloomberg’s Detroit bureau.
In reducing the size of their dealership bases, U.S. automakers were emulating Japanese automakers, led by Toyota. Whereas GM, Ford and Chrysler built their networks when they controlled almost all of the U.S. market, Toyota, Honda Motor Co. (7267) and Nissan Motor Co. (7201) have operated with far fewer dealers even as they captured a bigger slice of sales.
The average estimate of seven analysts is for declines of 2.5 percent by Toyota, 0.6 percent by Tokyo-based Honda and 4.8 percent by Yokohama, Japan-based Nissan for September sales.
Dealers for Toyota City, Japan-based Toyota have invested almost $7 billion in the past seven years in their facilities, according to Jim Lentz, the CEO of Toyota Motor Corp.’s North American operations.
“Of all these competitive advantages we have, the dealer channel is number one,” Lentz said this month in an interview at Bloomberg’s New York headquarters. “They do that because they trust us and they know the future is better.”
http://www.bloomberg.com/news/2013-0...ting-cuts.html
