Automotive News - November 17, 2008 - (Page 33) NOVEMBER 17, 2008 • 33 Dealers lobby for bailout Richard Truett and Chrissie Thompson rtruett@crain.com VALUE Public dealership groups feel the heat continued from Page 1 As Congress considers $25 billion in emergency loans to the Detroit 3 this week, the companies are deploying one of their most potent lobbying weapons: their dealers. The dealers hope to sway Republican lawmakers on key congressional committees who have expressed opposition — or at least coolness — to the loan proposal. But they concede their efforts face big obstacles. Late last week, Gary Brown, a Cadillac and Chevrolet dealer in Louisville, Ky., was planning to call his homestate senator, Republican Mitch McConnell, to lobby for the loans. Brown described himself as a registered Republican, albeit one who doesn’t always follow the party line. But he said he doubted his lobbying would pay off. Since President George Bush has expressed reluctance to sign loan legislation, Brown questioned whether McConnell, the Senate Republican leader, would be willing to take a contrary view. Last week, GM urged its roughly 7,000 U.S. dealers and its employees to lobby Congress for federal loans. “I know a lot of Republican car dealers who support it,” said Rex Gingerich, who owns a Buick-CadillacJeep dealership in Kokomo, Ind. Gingerich said his letters to lawmakers — including Indiana Sens. Richard Lugar, a Republican, and Democrat Evan Bayh, a Banking Committee member — emphasize that the automakers’ problems resulted from the credit crisis, not necessarily from poor management. Republican senators are telling dealership group leaders they will not commit to support the bill until they’ve read its specifics. “Not at this point have (manufacturers) submitted any changes that they’re willing to make to their operations, so I think that’s their main con- cern at this point,” said Pete McNamara, president of the New Hampshire Automobile Dealers Association. New Hampshire has two Republican senators. McNamara said the anxiety and uncertainty are growing for GM and Chrysler dealers in his state. “It’s similar to going into a doctor and having to wait months for a diagnosis,” he said. “And you know something’s wrong.” Ken Crowley owns eight franchised dealerships in Connecticut. If the Detroit 3 don’t get federal loans and must file for bankruptcy protection, he warned, the impact will be felt in his state as well as around the nation. “It’s not a damn handout,” Crowley said. “It’s a bridge loan. There’s nothing wrong with that. We haven’t got time for that partisan issue crap. We’ve got to get our sleeves rolled up and do what we’ve got to do.” c Bradford Wernle and Harry Stoffer contributed to this report competitors to know he has shopped his store. “They hid behind market conditions to get the price discounted. I am not desperate. I am associated with a great brand.” Standoff over price lower real estate values. But the write-downs — which amounted to $1.46 billion for AutoNation, $30 million for Group 1 and $21 million for Sonic — offer a glimpse at how virtually all dealers — public and private — are faring. The write-downs are “not surprising given the profitability of certain brands in recent years,” Sonic President Scott Smith told analysts. AutoNation’s Jackson said prices are too high for premium import brands. “Right now there’s a standoff between sellers and buyers over price,” Jackson said. “We’ll have to see what happens.” Group 1 would be willing to add import and luxury brands, but not at today’s prices. The only stores available at reasonable prices are domestic brands, said Randy Callison, senior vice president. “Prices still need to come down on desirable franchises,” he said. “There are some reasonably priced domestics, which is not what we are looking to add to our portfolio.” Last year, Penske Automotive Group Inc. — the second-largest public group after AutoNation, with about 160 U.S. dealerships — added $1.5 billion in revenues through acquisitions — triple its target for the year. But 2008 is a different story. Said Asbury Automotive Group CEO Charles Oglesby: “We will not consider any additional acquisitions until the financial and economic environment has improved significantly.” In 2006, Lithia Motors Inc. announced plans to quadruple its dealership network to 350 stores by 2014. But since June, Lithia has divested 14 small domestic stores and plans to divest 15 more. It now has 98 dealerships in 13 states. “From our beginning as a public company, our focus has been growth,” said Lithia CEO Sid DeBoer. “Now is not the time to pursue that growth objective.” This year Group 1 has acquired five franchises expected to generate $90.2 million in annual revenues. But the company does not anticipate any more acquisitions in 2008. “There are cheap acquisitions to be made,” says Group 1’s Callison, “but not a lot of capital.” c Freezing acquisitions The slumping economy and tight credit market have pushed public retailers to slash expenses, pay down debt and shed unprofitable dealerships. And after a buying frenzy over the past dozen years that drove up franchise values, the six public groups have slammed the brakes on acquisitions. Experts say that with deals on hold, values are plummeting even faster. “The whole game of Wall Street has been to grow earnings through the use of leverage to buy dealerships,” said Sandler, managing partner of Bel Air Partners in Skillman, N.J. “But in this climate, credit is so hard to come by that you try to maintain the cash level. The dynamic has totally changed.” Some dealerships have lost half their value from a year ago, Sandler said. Some have lost all value. Some have closed. Mark Johnson, a Seattle dealer consultant specializing in acquisitions, said top stores are selling at healthy prices, but “there are just fewer deals.” One import dealer who recently tried to sell to a public dealership group says the group tried to discount the price first by 25 percent, then 30 percent, then 33 percent. “I don’t think we were actually going to find the bottom,” said the dealer, who asked not to be identified because he doesn’t want employees or “What we’re doing is fighting for survival,” Chrysler co-President Jim Press told dealers. “We recognize it’s a hand-to-handcombat situation where we’re digging for every sale.” CHRYSLER Will incentives spur dealers to buy? continued from Page 1 Chrysler’s plea To persuade dealers to buy more vehicles, Chrysler offers incentives. Who’s eligible: Dealers who order allocations by Friday, Nov. 21 What’s covered: Vehicles built in November and December Incentives: Dealers, whether or not they floorplan with Chrysler Financial, who reach wholesale objectives get 2 percentage point reduction in floorplan interest rates for January and February Dealers who hit wholesale target negotiated with factory get cash rewards and coupons Participants’ sales held steady, while sales at nonparticipating stores dropped 30 percent from levels before the program. Mixed reaction Dealers had mixed reactions to the incentive program. Wes Lutz, owner of Extreme Dodge in Jackson, Mich., said Chrysler’s sales goals for his dealership were realistic. Lutz joined the first phase and plans to take part in the second. He said that showroom traffic has picked up markedly in the past 10 days and that customers are particularly interested in the 2009 Ram 1500 pickup. But a New England dealer who declined to be identified said he would not participate because he has too many unsold cars on his lot. He said his target was more than double what he has been selling in recent months. “Nothing they said makes me want to buy more cars,” the dealer said. He said he has nearly 90 units at his store and has sold fewer than five this month. An executive at a dealership group said he had instructed his managers to buy only the Chrysler vehicles they absolutely need because of uncertainty about Chrysler’s future. “If a company goes bankrupt, there’s some doubt about their ability to be a going concern,” the executive said. “These vehicles lose their value.” c plored dealers to contact Congress to make the case for a bridge loan for the Detroit 3. Press also said the 2009 Dodge Ram pickup gives the company a chance to poach customers from General Motors. “There’s a beam of sunlight out there,” he said. Cash, lower rates Press and Steven Landry, Chrysler’s executive vice president for North America sales, also urged dealers last week to participate in the second phase of a wholesale incentive program, called “In It to Win It Phase 2.” Chrysler is extending the plan, which it introduced last month. Under the plan, Chrysler gives cash bonuses to dealers who meet or exceed the company’s wholesale purchasing target. Dealers must order by Friday, Nov. 21. Participating dealers will receive a rate cut of 2 percentage points on their floorplan interest for January and February. The company is offering floorplan relief to all Chrysler, Dodge and Jeep dealers — whether or not they floorplan with Chrysler Financial. Dealers will get as much as $1,000 per unit if they buy their target number of vehicles for November and December. They will get $2,000 per unit for each vehicle above the target. Dealers who order enough vehicles for December will receive coupons — that is, dealer cash — for use in January. Dealers can use the coupons to make deals with customers, or they can keep them and pocket the cash. About 55 percent of dealers participated in the first phase of the incentive program. Press said their sales performance topped that of dealers who did not take part. http://www.insigniagroup.com/guarantee http://www.insigniagroup.com/guarantee
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