There is a very interesting article that showed up at CNN today about how neighborhood car dealers are facing extinction. The sub-headline to the article reads, “The small, independent dealership is struggling to compete in an increasingly cutthroat auto market.”
The example takes place in Westfield, New Jersey, but the reality is that this is happening across the United States right now as market forces have created a tremendous amount of pressure on small dealerships. They simply can’t stay in business any longer. The combination of the fluctuation in gas prices, reduced sales and a sour economy have forced car dealers who have been in business for decades to shut their doors.
The business model of having to inventory cars, which are depreciating assets, and every month a new NADA book coming out stating the vehicles are worth less, has not been a good one lately. If a car dealership has to inventory just 20 cars that are worth an average of $15,000 each, they have $300,000 in cash tied up in those vehicles. They are not going up in value the longer they stay on their car lot and they have to pay hefty interest fees on $300,000, plus reconditioning, rent, fuel, employees, licensing, taxes and all the other costs associated with running a traditional business.
One of the biggest challenges though, that the article addressed is the following…
“But in late 2008 gas prices rocketed up, leaving him stuck with lots of big trucks nobody wanted. Then, in the fall, the banking system went into a skid. New Norris’s customers couldn’t get car loans and GMAC, which financed his own inventory as well as his customers’ purchases, started demanding big payments on all those unsold trucks and SUVs.”
Talk about a huge problem. Vehicles that you own, you have to make payments on and people who want to buy your inventory can’t get financed by the banks. That’s a sure fire trip down disaster lane.
Trucks and automobiles are way more complicated than people realize though because no two vehicles are the same. Especially when it comes to used cars which most people purchase. There are thousands of parts and thousands of things that can go wrong with an automobile. Don’t believe me? I spent about $75,000 last year repairing vehicles.
I’ve seen this coming for quite sometime in the automotive industry, but it’s a disappearing business model as pointed out in the CNN article.
“A disappearing business model
In 2008, New Jersey lost about 60 car dealerships, or roughly 10% of its total dealership population, said Jim Appleton, president of New Jersey Coalition of Automotive Retailers. “We’ll probably lose another 50 dealers this year,” he said.
Nationally, the United States lost about 900 car dealerships last year, according the National Automobile Dealers Association. About 66% percent of the dealers that closed last year were single-brand dealers.”
It will be interesting to see how the market shakes out, but I think we’re going to see fewer people willing to take the risk to open car dealerships using the old style business model.
Instead, you will see more people offering services like I do as The Cool Car Guy by helping support smaller car dealerships without the overhead of a traditional business. Of course, you’ll have to decide at that point who you can trust and who really knows what they are doing.
I could be wrong, but I’ll continue to operate like a real estate agent for cars by working through a car dealership as an automotive consultant. This way I can pass my expertise and knowledge on to my clients who know and trust me to save them time, money and the brain damage of having to know the in’s and out’s of a very complex industry.
Auto Consultant – John Boyd: The Cool Car Guy
John is an auto consultant with his license at a car dealership in Denver, Colorado. He can help you save time and money on any make or model, new or used, lease or purchase – nationwide! Call or email John about your next vehicle! firstname.lastname@example.org or Twitter @coolcarguy