Wednesday, January 28, 2009

NADA: Dealers Need To Polish Image

Auto dealers need to tell state and national leaders and the public that dealers are an asset, not a liability. That was the central message from the National Automobile Dealers Association (NADA) incoming chairman John McEleney, an Iowa dealer who sells GM, Toyota and Hyundai vehicles.

Association members hunkered down in New Orleans last weekend trying to stay afloat in a flood of bad news: a frozen credit situation, plummeting consumer confidence this month, massive layoffs, and plunging auto sales that caused some 1,000 GM, Ford and Chrysler dealers to go under last year.

McEleney said dealers and NADA's PR and political efforts helped get GM and Chrysler government loans and Treasury backing for GMAC and Chrysler Financial to offer credit. "Their efforts paid off," he said, while counseling dealers to continue the push, by promoting themselves as pillars of their communities and of the state and national economy. And, he said, dealers have to participate in the debate on how to rebuild the economy and how to create national emission standards--particularly in the next two months, in which GM and Chrysler approach their deadlines for showing the efficacy of government bailouts.

Those deadlines--mid-February for GM and Chrysler to submit viability reports on their efforts to boost revenue and mid-March to demonstrate they have cut their debt by two-thirds in order to get an additional $4 billion--were the subtext of Chrysler Vice-Chairman Jim Press' speech to dealers at NADA. Press and Chrysler executives exhorted Chrysler's 3,300 dealers to order 78,000 new vehicles from Chrysler next month--2% less than last year, but far more than they need, given Chrysler's 53% drop in new-vehicle sales last month (and 31% for the year).

At a NADA meeting last week, Press conceded that Chrysler posted zero revenue in the month after Dec. 19, during which it shut factories. Chrysler launched a new round of incentives last week, called "Employee Pricing Plus Plus," offering both 0% deals, and up to $6,000 off MSRP. One former GM marketing executive, who requested not to be named, said that since Chrysler bases revenue on vehicles delivered to dealers (not sold by dealers), the company is essentially asking dealers to create the impression that Chrysler--with an eye to its date with the government--is in fact turning around.

"They are trying to show the government they have revenue; they are asking dealers to take more inventory even if they can't sell it," he says. "It will look like revenue spiked in January. And the car czar won't have any idea of what transpired. They'll say, 'oh, revenue is up--they're back on track!'"

McEleney said dealers, meanwhile, have to battle the opinion that they are a drag on the economy. "Some pundits characterized dealers as a drain on the books of automakers and suggested it was time to do away with the franchise system," he said. "In a $17 million sales year, it may be enough for us to share that we sponsor Little League teams or that we helped to fund the new wing at the local hospital; in a $12 million sales year, we've got to tell how we contribute to our community's bottom line."

He suggested that dealers inform the public about how the dealer franchise business affects local, state and national economies, including sales taxes, and that auto sales account for 20% of all retail spending in the U.S.

McEleney was ultimately sanguine about the future of the business, saying that the downturn won't last forever. "Our job is to protect and strengthen our dealerships so that as the cycle turns upward, we are in a position to thrive," he said.

NADA's chief economist, Paul Taylor, predicts that sales won't pick up until the third quarter, and that the year will finish with 12.7 million vehicles sold, versus last year's 13.2 million.

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