Rough road for car dealers

Not so long ago, auto buyers stumbled over themselves —- and sometimes their own financial well-being —- to get new rides. They raced through lease paperwork, grabbed easy credit and volunteered home equity loans to cover monthly vehicle payments.

Of course, that was before consumers had their feet yanked off the economic pedal, leaving a lot less love on dealer lots.

Now, dealers around metro Atlanta and across the nation are scrambling to rework their businesses to survive one of the industry’s roughest slumps in decades. Depending on the dealership, customers are likely to notice the changes, from fewer vehicles available on lots to harder-charging salespeople and more pressure to pull into dealer service bays, typically a source of higher profit margins.

Some changes may reach further. One of the nation’s biggest dealership groups, Asbury Automotive Group, which is moving its headquarters from New York to Duluth, is preparing to add salary to what had been largely commission-only compensation of its salespeople.

It’s an attempt to help talented employees get through the current hungry times, said chief executive Charles Oglesby, who previously oversaw the group’s Nalley Automotive Group in metro Atlanta.

But he said he’s hoping it will stick, even after the market improves, leading to higher pay for salespeople overall and easing pressure to negotiate a fast deal.

Most dealers, though, would be happy just to get through the industry’s immediate pain.

Steve Rayman, who has ownership stakes in nine dealerships, including five in metro Atlanta, has been in the auto business 30 years.

The current market, he said, “is the toughest I’ve seen.”

Sales are half what they were just a year ago, he said. “It’s mind-boggling.”

Every month a vehicle sits unsold adds more financing expenses for the dealer.

“Our new car departments are terrible. We are losing a lot of money. There really is no net profit,” Rayman said. “When customers come in the dealership now we are a lot more aggressive. We have got to put every customer in a car.”

Nationally, new car sales have slipped like a clunker’s clutch on the side of Brasstown Bald.

The economy slowed. Lenders cut back on credit for buyers. Gas prices surged. Banks and lending arms of automakers opted to curb or eliminate leasing options that in the past enabled consumers to get more expensive vehicles and keep them for shorter periods. At the same time, many manufacturers —- particularly domestic makers —- are teetering after a stunning shift in the kinds of vehicles consumers want to buy: smaller, more efficient cars.

Adjusted prices for used full-size SUVs sank 26 percent in July compared with July 2007, said Tom Webb, the chief economist for Manheim Consulting, an arm of a large wholesale auto auction company owned by the parent company of The Atlanta Journal-Constitution. Full-size pickups fell nearly as much, while prices for used compact cars jumped 16 percent compared with a year ago.

The problem for dealers is that small cars aren’t making up for the slack from large vehicles. Overall new car sales are down. And profit margins tend to be lower on smaller vehicles that are selling, compared with decked-out SUVs and pickups.

Oglesby of Asbury Automotive doesn’t see the market coming back for perhaps six more months. And even when it does, he predicts dealers won’t see the demand for pickups and SUVs that they had grown used to.

“We have to adjust our business model,” he said.

Asbury is looking for other ways to improve its finances, particularly with higher-margin areas of the business, such as service and parts. The company has gotten more disciplined in following the lead of dentists: setting up appointments for future visits before customers drive away after service. And it recently began offering Sunday hours at its metro Atlanta service departments, with the idea of eventually doing the same at dealerships in other states.

Though car sales have slowed, customers often are finding fewer vehicles on dealers’ lots. That’s because many have cut new vehicle delivery to shed costs.

The result, said Oglesby, is that more customers “may not be able to leave with a car today as they could yesterday… . The selling process is becoming different. You are going to come in and almost order your car. That aspect I like because it takes the pressure off the deal.”

Dealers have found other ways to cut costs. They’ve slashed advertising —- an expense that often amounts to several hundred dollars for each vehicle sale. And their payrolls are shrinking because the sales forces’ compensation usually is tied to the amount of profit made on each vehicle.

Rayman said he has already slashed his advertising budget by at least 50 percent compared with a year ago. And the number of salespeople at his dealerships is down 20 percent, he said.

Other dealers have also seen an exodus of staff, either because of job cuts or because shrinking pay became untenable.

There are other difficulties. In hard times, dealers often look for ways to milk more money from used-car sales, which tend to offer higher profits. But for many dealers, that area has soured, also.

Mike Sobh, general manager for his dad’s Lou Sobh Pontiac, Buick, GMC, Hummer dealership in Duluth, said he has watched sales plummet from a healthy 240 new and used vehicles a month to 140. Lou Sobh has dealerships in other states, but sales of big vehicles have been particularly slow locally, the son said. He cited the problems in the construction industry, which had been a crucial component of the Atlanta economy.

The dealerships cut support staff and consolidated back-office functions of three local dealerships, Mike Sobh said. But even with the tough times, he said he has been careful not to change sales tactics to get more people to buy.

“This will turn around,” he said. “We are not going to sacrifice our name.”

Oglesby, 61, has seen lots of industry pain before. He was a young finance manager at a Pontiac and Cadillac dealership in the 1970s when an oil embargo sent sales of big cars into a deep dive.

The dealership slashed its sales force, and Oglesby had to pull double duty working the sales floor. The result: He made more money.

“There’s always business out there,” he said, “if you have the belief system that, if somebody is going to buy a car, they are going to buy from me.”

Number of new vehicles sold in the United States (in millions)

2008*: 15.6

2007: 16.1

2006: 16.5

2005: 16.9

2004: 16.9

2003: 16.6

2002: 16.8

2001: 17.1

2000: 17.3

1999: 16.9

1998: 15.5

*NADA projection / Source: National Automobile Dealers Association

New car dealerships in Georgia

2008 —- 603

2007 —- 616

2006 —- 618

2005 —- 623

2004 —- 619

Source: National Automobile Dealers Association

Total new-vehicle registrations in Georgia

2007: 466,284

2006: 499,669

2005: 507,011

2004: 494,564

Sources: Polk Co. and National Automobile Dealers Association

Auto and other motor vehicle dealer sales

July 2008: $61.4 billion

July 2007: $69.6 billion

Decline: $8.2 billion or down 11.8 percent

New-car dealer sales

2008 January through June: $316 billion

2007 January through June: $344 billion

Decline: $28 billion or 8.1 percent

Source: U.S. Department of Commerce