The last time the National Automobile Dealers Association was able to hold its annual convention in person, the mood was very different. In a word, grimmer.
Just before the pandemic, there was a lot of pessimism among the nearly 18,000 new car dealers in the country. Threats loomed over the traditional sales model—one of the great generators of local American wealth for over a century.
There was also concern about the inexorable advance of electric cars, with their higher price tags and presumed reduced service needs. Autonomous cars predicted a decline in car ownership (and buying) with their promise of expanded driving and car-sharing.
Then the Covid-19 pandemic arrived in March 2020 to deal a dreaded death blow. While the year started with a solid showroom visit, it bottomed out, with car sales dropping to 8.8 million year-on-year in April, about half the normal clip. Dealers rushed the exit doors, looking for companies that might suddenly be worth only the price of their underlying real estate, if so.
But the pandemic has shaken up the economy in ways that are big and small, predictable and highly erratic. Jobs disappeared, but recovered fairly quickly. Online sales went very fast. Supply chains got messy and inflation only grew. And for car dealers, the unexpected happened.
Turnover recovered quickly. And by the time the dealers gathered in Las Vegas last month for the 105th annual conference, they were lavish, toasting cocktail parties and stalking the convention floor. Salespeople, with everything a car dealer could need or dream of, were armed with enough promotional tchotchkes to fill several gymnasiums.
There was much to celebrate. Rather than imploding during the pandemic, profits for automakers and dealers alike exploded and continued to rise. While some brands reported lower sales, transaction prices rose sharply to make up for lost volume, allowing many makers to record record profits, sales, or both. And look, car dealerships had their best year in history.
“These are crazy times right now,” said Bruce Bendell, one of the founders of the Major World and City World chains, which have eight dealers in the Bronx and Queens.
Sheldon Sandler, a Wall Street accountant turned car dealership, agreed. “Every dealer makes money hand over hand these days,” he said. “Dealers make money with all brands, even second or third line brands.”
Mr. Sandler is a founder and managing partner at Bel Air Partners, a New Jersey-based consulting firm that specializes in selling private dealers and dealer groups to publicly traded companies. If he had a problem these days, he said, it was finding dealers willing to sell their stores.
A critical year for electric vehicles
The popularity of battery-powered cars is rising worldwide, even as the general car market is stagnating.
Fluctuations in the trajectory of the pandemic could still hamper demand: After a strong first two months of the year, industry sales fell in March as fears of the coronavirus and home ordering kept consumers away from dealers.
But America’s auto sales account for nearly a trillion dollars in annual economic activity and provide 2.3 million jobs. And this year’s industry convention, after going virtual in 2021, was a reminder of the good old days, with dealmakers making deals, automakers outlining future products and plans in private meetings with their franchise dealers, and a staggering number of salespeople selling everything. from car sales – from washing and tire changing equipment to gigantic outdoor machines that can lift cars 25 feet off the ground so they can be seen from great distances, spinning endlessly.
“Dealers make a lot of money,” said David Rosenberg, president of DSR Motor Group and former owner of Prime Automotive, one of the nation’s largest dealer groups, which today owns seven auto dealerships in New England. “The average Toyota dealer in the Boston area made between $2 and $2.2 million in the best years. Last year the average net profit was $6 million.”
While not much in absolute terms, stimulus money was crucial, said Steve Greenfield, chief executive of Automotive Ventures, an Atlanta investment advisory firm. The government support was “psychological enough to make people feel like they could still spend money,” said Mr Greenfield.
“The supply of both new and used cars was so limited that when consumers found a car, they seized it, and they were totally price insensitive,” he continued. “The dealers have turned that into more profit out the back, with finance and insurance and perks, and for whatever reason, consumers were so desperate that if they found a car, they’d pay anything for it.”
But as I meandered the massive floors of the Las Vegas Convention Center and adjacent hotel suites, there were plenty of worries. For starters, customers are getting mad at dealers because supplies are limited and prices are rising.
“Now if I have 15 to 20 cars in stock per dealership,” said Mr. Bendell, “I normally have 200 to 300. When a truck with eight cars comes in these days, I’m lucky to have one left. .”
His stores have even resorted to brokers. “I pay $2,000 more than the sticker price, as a dealer in the Bronx,” he said. “Then the car is sold 30 seconds later. So we pay more than the list to get stock, but customers blame the dealers for high prices.”
The list price or, as it is technically known, the manufacturer’s suggested retail price is a sore spot for Jim Appleton.
“You’ve been selling cars below MSRP for 40 years,” says Mr. Appleton, an attorney and president of the New Jersey Coalition of Automotive Retailers, an advocacy group. “Suddenly the MSRP is this glass ceiling that you can’t break. Well, your expenses haven’t changed. You have 20 percent of the product you would normally get and you have the same cost structure.”
But, he said, manufacturers like to let dealers take the blame.
“There is X profit in building and selling a vehicle and the OEMs, well, nobody knows what they are making from the cars they sell,” continued Mr. Appleton, referring to the original equipment manufacturers.
Mr. Appleton sees the growing influence of Wall Street and private equity firms behind many dealer problems.
“I’m taking a step back as a dealer lawyer. I’m an observer and Wall Street hates these guys,” he said. “Wall Street hates the millionaire on Main Street, the car dealership. In New Jersey, it’s a $36 billion a year industry: 500 rooftops, Main Street businesses. The profits go right back to Main Street causes and Main Street’s economic development, and Wall Street investors and Silicon Valley investors are saying, ‘What a shame. You know, we should have some of that action. Why aren’t we part of that action?’”
A particular cause for concern is the global chip shortage, which is expected to persist through 2025, leaving inventories tight. Some attendees expressed concern about the push for electric vehicles, which require twice as many chips as fossil fuel cars.
A more optimistic thought about EVs also seeped into the convention floor. Electricity profits are waiting to be mined, said Buddy Dearman, a Memphis-based dealer practice managing partner at Dixon Hughes Goodman, an international accounting firm. “I’ve read that 60 percent of customers plan to take their electric car to their dealer for repair. I think there’s a big opportunity in EV service.”
Dealers today, Mr. Dearman said, only make up 30 percent of the services market. “People take their cars to Pep Boys, they go to AutoZone,” he said. “And I don’t know if they’ll do that with EVs that often. When dealers are ready, I think they can capitalize.”
Larry Vellequette, a reporter for Automotive News, a trade publication, saw further opportunities in dealers’ embrace of electric cars and suggested that manufacturers’ infatuation with the Tesla dealerless sales model could wane.
“They finally figured out that Tesla’s Achilles heel is in service,” he said. “If there is a problem, where can I solve it? And how bad will it look if I can only get my car repaired by tweeting to the CEO?”
Another persistent concern among those in attendance was the need to hire and retain good employees. A job with chronic undersupply is a service technician. Meredith Collins, a director of the consulting firm Carlisle & Company, said demand for such workers outpaced supply by a ratio of nearly 5 to 1. But, she said, an obvious solution is near.
“Less than 1 percent of service technicians are women,” Ms Collins said, adding that racial minorities are also significantly underrepresented, but not to the same extent.
“For years it’s been an ignored population, just the assumption of ‘Oh, women just don’t want to be technicians,'” she said. “So there are no female technicians, and until recently a lot of attention was paid to that.” Reflecting today’s corporate social mores, issues of diversity, inclusion and equality were laced with many of the speeches and panels at the convention, even as more than a few dealers rolled their eyes, moaned and yawned.
As long as stocks remain tight, the consensus on the trading floor seemed to be, dealers will remain in good shape.
“Dealers are very capable so if something happens we are the first to make changes and manufacturers have realized they couldn’t beat it if they tried to own dealers themselves,” said Mr. bendell.
However, Mr. Rosenberg, the longtime New England dealer, be careful. “When Covid hit, many dealers decided that maybe the model needed to change,” he said. “We all started out selling cars online, bringing cars to people, doing things that we probably should have done a long time ago. Now that we’re more or less over that and there’s a huge scarcity of products, I’m seeing again many bad habits arise.”
He pointed to “dealer addendum stickers,” with heavily marked add-ons, and dealers charging thousands of dollars above list price.
“Often dealers will stop delivering vehicles to someone’s home,” added Mr Rosenberg. “It’s gone down a bit because right now it’s a seller’s market.”
Glenn Mercer, a long-time industry analyst at McKinsey & Company before starting his own research firm, is more optimistic. “We can think of the two fundamentally different visions of modern auto retailing of new cars in the United States,” said Mr. Mercer. “Either the industry is 125 years old and therefore ripe for death, or the industry is 125 years old and that’s because it’s highly adaptable. I’m going for the latter.”
