Automotive News - May 5, 2008 - (Page 36)

36 • MAY 5, 2008 The resilient dealer INSIGHT Key to managing floorplan costs: Be realistic Jim Henry autonews@crain.com Managing inventory and floorplan expenses in a downturn is a core dealership skill, since now more than ever no one wants to get caught with unsold cars racking up interest charges. “Anybody in the new-car business is going to tell you they’re going to look twice before they take something else on their lot,” says Marty Collins, western region vice president for Group 1 Automotive Inc., of Houston. Pete DeLongchamps, Group 1 vice president of manufacturer relations and public affairs, says dealers have to temper their entrepreneurial optimism. “The mistake is to think that next month, next quarter, it will be back like it was,” he says. “The tendency is to force the market, add inventory and do some more advertising. It’s been proven to be a false strategy.” Costlier inventory Floorplan interest charges for the top U.S. publicly traded dealership groups (in millions) COMPANY 2007 2006 % CHANGE Inventory advice Dealership group executives offer these tips for managing inventory: � Be realistic. “That 100-car store is now a 75-car store” per month, DeLongchamps says. “You’ve got to plan your business accordingly.” � Reassess more often. “We are managing our inventories much tighter,” says Mike Maroone, COO of AutoNation Inc. in Fort Lauderdale, Fla. � Cut back if necessary. Collins says AutoNation PAG Sonic Group 1 Asbury Total Source: Company reports $133.1 $74.7 $67.6 $48.1 $43.1 $366.6 $138.2 $59.8 $59.6 $46.7 $40.5 $344.8 –3.7 +24.9 +13.1 +3.0 +6.4 +6.3 DeLongchamps: Maroone: Tighten Temper optimism inventories er, and they can stock them in a proactive way to meet market needs, which is a little different from the allocations they get on the new-car side,” says Tom Kontos, vice president of ADESA Analytical Services in Carmel, Ind. � Don’t keep unsold used cars past 60 days. “Very simple,” Maroone says. “Sixty days, and it’s gone.” Group 1 uses the same guideline. The top five publicly traded dealership groups combined incurred a total of $366.6 million in floorplan interest charges in 2007, an increase of 6.3 percent from 2006. Some of that amount — in some cases, most of it — was offset by floorplan assistance from the manufacturers. Group 1 disclosed that floorplan assistance paid for most of its floorplan interest expenses in 2007. For the year, floorplan interest for Group 1 was $48.1 million, offset by $38.2 million in floorplan assistance. Similarly, AutoNation got $100 million in floorplan assistance, toward $133.1 million in interest expenses. Other public groups don’t disclose their floorplan assistance as a separate line item, but all dealers expect the same treatment. his region cut head count about 8 percent in the fourth quarter of 2007. As painful as it was, business conditions have worsened since. � Stock up carefully on used cars. “Used cars remain available to a deal- - Some good news A couple of positive factors are taking some of the pressure off floorplanning, even though new-vehicle demand is soft. Paul Taylor, chief economist for the National Automobile Dealers Association in McLean, Va., says Federal Reserve interest-rate cuts begun last fall should make themselves felt in the second half of 2008. For the first two months this year, the average U.S. dealership has spent $179 per new vehicle retailed in floorplan expense, down from $200 in the year-ago period. For 2007, the average expense per new vehicle retailed was $167, down from $173 in 2006. Also, the factories seem to be resisting the temptation to jam dealer lots with unwanted cars, says AutoNation’s Maroone. But Collins at Group 1 warns that doesn’t mean conditions are ideal. “We’re still being asked to buy more than we would like,” he says. “March is usually a good month, but March was down significantly. A year ago, we had too much inventory in a stronger market. Today, we have a more measured inventory, but it’s in a more difficult market.” Maroone says another factor that’s different for this recession is that import brands are experiencing higher inventories, too. That includes Toyota, Honda and Nissan, he says. Nevertheless, Maroone says inventories for the domestic brands are tougher to manage because of so many models. “We are under tremendous (financial) pressure, yet you need a tremendous stock to offer what the customer needs. Very few customers customorder vehicles. “It’s a very slow retail sales environment. It’s a challenge.”c http://www.protective.com/dealerservices http://www.protective.com/dealerservices

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Automotive News - May 5, 2008 Dodge dealers battle to bust Ram logjam Used-car price slump slams luxury makes INDUSTRY IN DISTRESS Tesla opens first dealership in L.A. Los Angeles Top auto execs to talk marketing at seminar Nader and the Corvair: GM edition tells whole story Dealers take Tundra to the people UAW official expects American Axle buyouts Ford plans more UAW buyouts at 2 plants Honda to some dealers: Upgrade or else Hyundai: Powertrains will take us halfway to mpg target Diesel dynamo Daimler cuts Chrysler value, again Ford domestic dealer count dips below 4,000 Seems like old times: More cash on the hood Toyota sister car poses a challenge for Subaru Suzuki to offer standard navigation in $16,000 car Mpg plan fuels states-rights battle Kerkorian interest buoys Ford stock Henderson: GM will keep tight rein on inventory Is it real, or is it just temporary? Ford Motor must stay focused on recovery 'Have you lost your mind?' Dealers are victims of Axle strike Federal oversight? Good heavens, no Geoff Polites: A salute Save a board seat for the UAW A car for everyone or cut, cut, cut, cut? Think of Buick as part of B-P-G Costs up in China, but bargains still abound Mexico sales fall 17% in March Obituary Hyundai reworks Sonata sooner rather than later Nissan's Dominique gets to the big dance Dana seeks new business with Japanese companies ZF will supply Nissan Certified Tool closes a plant German engineering company plans Ala. factory Dealers A Lexus colossus Used-vehicle leasing boosts showroom traffic Certified buyers opt for extended service contracts Repossessed vehicles offer dealers a profit opening Prepaid plans spark service visits beyond oil changes Key to managing floorplan costs: Be realistic Long-term loans: Convenience or bad deal? Dealers hunt upside-down buyers with leases, incentives and long-term loans Where have all the investors gone? Dealer rebounds from contract mess Dealers must choose: Reynolds, GM — or start over AutoTrader.com makes big pitch to bump up new-vehicle sales CAW, Ford reach extensive early labor deal Infiniti asks: Do you smell something? Sure, Nissan GT-R is impractical — but what a rush Faurecia: We'll break even in N.A. Suppliers join carmakers' charge into Russia Chrysler small cars, Jeep crossovers are hot A dreary April in Detroit Penske earnings rise in 1st quarter Lithia posts $1.9 million loss GM makes 2nd ethanol deal Group 1's earnings slip Magna profits down; sales rise AIADA picks dealer of the year Vox(wagen) populi — plus a sales pitch Wagoner's pension shift: More earlier, less overall COMMENT: Bargaining barbs will sting for a long time Bugging the boss: Who's listening to Porsche CEO? New models from the post office Critics have kind words for Pontiac's G8 Ford can't picture kids at design studio

Automotive News - May 5, 2008

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