Showroom angst

Todd McInturf / The Detroit News AutoNation’s decision to sell 23 outlets and take a $490 charge against earnings shows how difficult the market is and its uncertain future.

Dealers being forced to retool

New competition, Internet is pushing retailers to change

By David Welch / The Detroit News

    DETROIT — When billionaire H. Wayne Huizenga drove headlong into the auto retailing business five years ago, he vowed to do no less than revolutionize the way cars and trucks are bought and sold in the United States.

    It hasn’t worked out that way. Huizenga, moving on several fronts at once, built a chain of used-car superstores across the country and became the nation’s top new-car dealer with more than 400 franchises.

    But AutoNation Inc., the publicly owned company that Huizenga controls, is struggling to make inroads in the highly fragmented $600-billion new and used car business.

    Last month, AutoNation threw in the towel on the used-car superstore business announcing it would close 23 outlets and take a $490-million charge against earnings.

    “They’re finding out it’s not so easy to run a dealership,” says Lou Stanford, who owns a Ford dealership in Ann Arbor and a Lincoln Mercury store in Novi. “This business is more work than people and the automakers give dealers credit for.”

    The shift at AutoNation comes at a turbulent time for auto retailers. Even as the industry enjoys a sales and profit renaissance — harkening back to the golden age of the late ‘50s and early ‘60s — auto retailing is undergoing an evolution with an uncertain future.

    The business has been roiled by the emergence of large publicly owned dealer chains like AutoNation, efforts by automakers to consolidate or own their dealer bodies and the rapid rise of the Internet, which is shifting power from dealers and manufacturers to consumers.

    For all the talk about a retail revolution, the 1990s have been marked by widespread experimentation and mostly gradual change. Experts say it is unclear what retailing models will prevail in an industry characterized by cutthroat competition.

    Despite the rise of megadealers tapping into Wall Street money, the business is still dominated largely by individual dealers, independent entrepreneurs who have deep connections in the communities where they sell cars.

    To be sure, they are being forced to change in the face of increasing competition and the appearance of Internet-savvy consumers who come equipped with specifications, features and invoice prices even before stepping through the showroom doors.

    Dealers are emphasizing training as never before, experimenting with no-haggle policies and hiring Web-wise employees to turn cyberspace sales leads and into completed sales. They are beefing up higher profit used-car, service and financial operations.

    Mark Snethkamp, owner of Snethkamp Chrysler Plymouth Jeep in Detroit, says competition from megadealers and Internet buying services and pressure from manufacturers is forcing dealers to improve their operations or perish.

    “One thing it does is raise the bar for the dealers,” Snethkamp says. “They are making us raise our level of service.”

    The dealership is a lasting, albeit tarnished, symbol of Main Steet. Consumers and even some forward-looking dealers have long argued the business was a relic long due for an overhaul.

    Faced with strong import competition in the 1980s, the automakers focused on restructuring their manufacturing, product development and supply operations. Only recently have they turned their attention to distribution, which accounts for 30 percent of the cost of a vehicle.

    For years, the dealer body has been shrinking as larger operators with better locations have taken over smaller, poorer performers. Since 1980, the number of dealerships has fallen 20 percent to 22,400. But the manufacturers want the consolidation to go faster.

    Ford Motor Co. and General Motors Corp. have tried to speed the process, but have run into stiff resistence from dealers who have fought back by lobbying state legislators to stiffen franchise laws to prohibit manufacturing takeovers.

    Ford recently backed away from its efforts to set up Auto Collections — clusters of dealerships in medium-size cities that are owned at least in part by Ford. Dealers opposed Ford’s efforts in several markets. In the five cities where it set up retail groups it has had trouble making profits and growing market share.

    James O’Connor, Ford division president, says the company underestimated how difficult its retail restructuring would be. He said the company tried to change the culture of car dealerships to no-haggle, one-price selling too quickly.

    Dealer resistance has also put a crimp in the automakers’ plans to own stakes in dealerships. In Fort Worth, Texas, Ford had to sell five stores that its acquired because the state dealers organization persuaded lawmakers to ban ownership by auto manufacturers.

    Similar laws have been passed in at least a dozen other states as well.

    GM had a similar experience. It formed GM Retail Holdings Inc. last summer to acquire up to 10 percent of its 7,700 dealerships nationwide. But the company quickly retreated after the National Automobile Dealers Association publicly blasted the plan.

    To assuage angered dealers, GM Chairman Jack Smith said the company would move more slowly and only buy dealerships in partnership with franchise owners in markets where there is opportunity to improve the company’s retail presence.

    While the dealers have been successful in fending off the manufacturers and the big-box used car rivals, they face a tougher task in coping with and adjusting to the changes being brought about by the Internet.

    Analysts argue that it is incumbent on dealers and manufacturers to embrace the Internet if they are going to remain in control of the selling process.

    “The Internet can become a tremendous resource,” says Maryann Keller, president of Priceline.com’s automotive group, which allows shoppers to take bids on cars from dealers.

    “People can become very well informed with a few clicks of a mouse. The good dealers will embrace the Internet.”

    Dave Nathanson, a former dealer who runs the auto retail consulting group for PricewaterhouseCoopers in Detroit, says the key for automakers is meshing the power of the Internet with the strength of the traditional dealership.

    All of the major domestic automakers are enhancing their online retail capabilities.

    Ford is working with Microsoft Corp.’s CarPoint auto retail Web site to link buyers to its dealerships and allow consumers to custom order vehicles. GM has a similar deal with Microsoft competitor Sun Microsystems to boost the capabilities of its GM BuyPower Internet service.

    But many dealers remain skeptical of the Web. Many complain that their dealerships pay several sources for online sales leads, but only a small percentage of them become actual buyers.