Not daddy's dealership

Jan. 1, 2020
Let the "Schadenfreude" party begin! The wave of enjoyment taken from the recent misfortune of new car dealerships has many in the aftermarket almost giddy. Not only are car manufacturers and their dealers in line to have one of their worst years in
aftermarket distribution automotive dealerships
Let the "Schadenfreude" party begin! The wave of enjoyment taken from the recent misfortune of new car dealerships has many in the aftermarket almost giddy. Not only are car manufacturers and their dealers in line to have one of their worst years in a decade, but also there is an increasing number of dealerships that are shutting their doors. Just how widespread are the business failures?The National Automobile Dealers Association (NADA) reports that the number of dealerships shrank from 21,200 in 2006 to 20,770 in 2007, a 2 percent drop.

There's every reason to think that their plight will worsen this year. Just look what happened to Bill Heard Enterprises. Up until a few weeks ago, Heard was the world's top-selling Chevrolet dealership group and No. 13 on the Automotive News list of the top 125 U.S. dealership groups. Apparently even such a lofty organization fell victim to what most dealers are struggling with –– losing money on new vehicles and declining warranty work — as the company recently filed for Chapter 11 bankruptcy. It probably didn't help that Heard continued to rely on the sale of trucks and SUVs. Live by the truck and die by the truck, so to speak.

Of course, the dealerships aren't totally to blame for their dilemma. Consumers aren't motivated to go into debt to buy new cars when they're unsure about an economy that has seen the collapse of some major financial institutions. Throw in higher fuel prices and tighter credit for consumers, and you have a perfect storm that has hit the automakers.

So yippie, hooray, hallelujah. Savor the rancid condition of the dealers, you Schadenfreuders.

Well, not so fast. Your celebration may be a little premature. The remaining dealerships are backed into a corner and will do whatever they need to do to survive. Some will downsize. Others will concentrate on the more lucrative business of selling used vehicles. Still others will seek new revenue streams such as collision centers, rental car businesses and satellite repair facilities. Desperation no doubt will inspire them. But doing some of these will take funding, and in a tight credit market, dealerships will look to do what has the potential for the highest and quickest return, which means they will increase their efforts to get your business and the business of your commercial customers. And why not? They hold the keys to the parts and service kingdom. They have the fit, form and function parts. They have the equipment. The special tools. The first and complete access to diagnostic information and service bulletins. In essence, they have a jump start on the aftermarket. Making matters worse, there is an increasing number of dealerships that can match the aftermarket for service blow for blow. Bottom line is that dealerships are not going to sit around and admire their empty bays.

To play out one scenario, dealers could start concentrating on the aforementioned sale of used cars, which provides them a faster opportunity to see these cars for repair work. They could even offer free extended warranties, which are not really free, but buried in the price of their used cars. Either way, the dealers are bound to pick up new repair business. And if they perform good service on the used cars they sell, they might just pick up other work from customers who have other cars. If it's not that scenario, it will be a dozen others just as deadly.

Today's dealerships are no longer your daddy's dealerships. They are the survivors, much like the jobber survivors who became better businesses as a result of having to be better businesses. The aftermarket has about 70 percent of the repair business because the independent repair shops provide better service to customers and are more trusted by them. Only two things could weaken those numbers: 1) the lack of cooperation between channel members and 2) the little unresolved issue called Right toRepair. If the automakers get desperate enough they might cease their cooperation in providing the aftermarket with needed diagnostic codes and tools. And there's nothing on the books to stop them. (This just in:Ford drops 34 percent; Toyota, -32; Honda, -27; GM,-16.)

Larry Silvey, a 26-year veteran of the automotive aftermarket, is editor-in-chief of Aftermarket Business and editorial director for the Advanstar Automotive Group, which consists of Aftermarket Business, Motor Age, ABRN and Styling and Performance.