Car dealers hit sales dead end

For the first time in a decade, more auto sellers closed last year in Md. than opened for business

April 26, 2008|By Tricia Bishop | Tricia Bishop,Sun reporter

Towson Ford is gone. So are Baltimore's Apple Lincoln Mercury and Miller Motors Buick.

The family businesses all shut down last year, after a combined 200 years of operation, along with a half-dozen other Maryland car dealerships. This month, Dulaney Lincoln Mercury of Timonium shut its doors after 60 years.

For the first time in at least a decade, Maryland had a net loss of automobile sellers last year, according to the Maryland Automobile Dealers Association. Nationwide, 621 dealerships representing the big three Detroit manufacturers closed last year, according to the Automotive News Dealer Census.

They're victims of multiple factors: the slumping economy, rising fuel prices, the housing slowdown, credit troubles and even the Internet, which has introduced more price competition to lure information-overloaded buyers. Some dealers are finding that they can make more money getting out of the business than staying in, simply because their land is worth more than the business.

Manufacturers aren't making survival easy either; they're encouraging some dealers to fold to consolidate operations. It's a Darwinian thing, with the fittest - read "biggest" - dealerships surviving the lean times. Some dealers choosing to stick it out say you have to love cars to want to keep going.

"There's no reason to believe things will be getting better any time soon," said Peter Kitzmiller, the Maryland association's president.

Domestic dealerships have taken the hardest hits over the past decade, continually losing market share to their import competitors. Last month, GM and Chrysler each had a 19 percent sales drop, while Ford fell 14 percent.

But foreign nameplates did only marginally better: Toyota had 10 percent fewer sales, Nissan was down 4 percent and Honda dipped 3 percent.

"It's just awful; it's the perfect storm," said John Wolkonowicz, a senior auto analyst with the Global Insight research firm in Lexington, Mass. "Just about everything that could go wrong has gone wrong."

Part of the domestic manufacturers' problem is that their profitability depends largely on sales of SUVs and full-size pickup trucks, which aren't selling well. The SUVs are doing poorly because of their low gas mileage and gas prices that are expected to reach $4 per gallon by simmer. Truck sales are faltering for some of the same reasons and because the slow housing market means construction workers don't need - or can't afford - them.

Sales of Ford's F series trucks are down 25 percent over the past two years, Wolkonowicz said.

Ford readily admits that it focused too much on the larger vehicles and not enough on the smaller ones.

"We lost our eye on the car market," said company spokeswoman Marisa Bradley.

The decline in market share and overall sales has also led to a strategy of consolidation. The company has been counseling area dealerships to give up operations if they're at all inclined.

"We have too many dealers," Bradley said. Last year, 211 Ford dealerships, about 5 percent of the total, closed down, selling their operations to nearby competitors that offer multiple brands from one retail location.

Ferd H. Onnen sold Towson Ford, which he had owned since 1981, early last year after realizing he could make more by developing the York Road property than by selling cars.

"In metro areas, what's happened is the value of the real estate has surpassed the value of the franchise," he said. "Ultimately, you have to be pragmatic about your future and what makes best sense for all involved. In reality, I just did not see a future selling domestic products in this metro area."

General Motors kicked off the consolidation trend years back, analysts said, combining Pontiac, Buick and GMC. There's also the Ford, Lincoln and Mercury trio, and earlier this year, Chrysler said it planned to combine Chrysler, Jeep and Dodge at dealerships. This month, Cadillac, Saab and Hummer announced plans for a similar triple play.

"The mom-and-pop dealerships of days of old is not the model anymore; it's the mega-dealership," Wolkonowicz said. "The guy who wants to be an independent can't anymore."

Consolidation is often accompanied by other adjustments meant to stave off failure. Many companies are focusing on selling less-expensive used cars, letting staff go and cutting other costs, including their electricity use.

But it also takes a certain love of the business and the product - the kind that borders on the obsessive - to bother to survive.

"It's a business that's concentrated in two interests: One's cars, and the other's people. I would say you need a passion for both those areas to be successful today in the car business," said Chip Doetsch, who owns Apple Ford in Columbia.

He used to own Apple Lincoln Mercury on Belair Road, but he sold it last year after considering the declining market share, management changes within the operation and how best to spread his resources.

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