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With Recession on People’s Minds, Car Dealers Aren’t Just Spinning Their Wheels

Gary Rome hears it — a steady drip-drip-drip of pessimistic economic forecasts for 2008, spurred by everything from fuel and health care costs to the subprime mortgage mess. He knows his customers hear it, too.
“I think people are more cautious, because they’re hearing little tidbits of bad news all the time, which is worse than hearing one large message of bad news,” said Rome, general manager of the Hyundai dealership in Holyoke that bears his name.
“People in general have short memories, so if you tell them bad news once, they forget about it,” he elaborated. “But when they hear it over and over again, it grinds on them.”
Cliff Dexheimer, Rome’s general sales manager, agreed that potential car buyers are being affected by the daily onslaught of economic bad news.
“Consumers tend to be very sensitive to negative news, regardless of whether they have money in the stock market or whether a half-point difference in the prime rate would actually affect them,” he said. “It’s just the temper of the times, and it creates caution.”
That said, Hyundai, which is a make known for low cost, fuel economy, and extensive warranties, is exactly the type of car a dealer wants to be selling at such a time, said Rome.
“We’ve just about shed that stigma from the ’80s and ’90s of Hyundai as a disposable car,” he said, citing favorable quality reports from trade magazines. “So when you can get good quality and twice the warranty, why would you spend $4,500 more for a Toyota or $11,000, $12,000, or $13,000 more for a Lexus? People want to shop with confidence. It’s not an emotional decision today; it’s a rational decision.”
“I’d rather be selling Hyundais today than Lexuses,” Dexheimer agreed.
But Kimberlynn Cartelli, director of Marketing for Fathers & Sons in West Springfield, which sells more upscale cars, has a different take.
“Business is actually pretty good despite the bleak outlook from analysts,” she told BusinessWest. “We can attribute that to a variety of things, including some new products that are generating excitement. We really haven’t been affected by the downturn in the economy.”
Of the cars Fathers & Sons sells, Volvo and Audi continue to be top performers, she noted, while Porsches are also doing well.
“I don’t think the Porsche buyer is as affected by fluctuations in the economy. It’s been our experience that those people buy when they’re ready. They’re not as affected by downturns.” On the other end, Kias are holding steady as well, but “obviously that consumer is a little more conservative and sensitive to the fluctuations. All in all, we’re pretty strong.”
As area dealers told BusinessWest, although cracks are appearing in consumer confidence, so far not too many people are putting off car purchases. But at a sensitive time, they continue to aggressively market themselves, knowing that moods can change quickly.

Engine Trouble
The mood has already shifted in some quarters. Experts predict that sales of domestic cars will drop below the 16 million mark this year for the first time since 1998, a situation exacerbated by a struggling housing industry, troubles in the credit market, and high fuel costs.
“Things have changed drastically for the worse,” wrote George Magliano, director of automotive research for Global Insight, an economic analysis and forecasting company. “There will be nearly no [economic] growth next year. We haven’t seen the worst of the credit crisis or the housing market.”
Joseph Topor III, general manager of Topor Dodge in Chicopee, agreed. “With the credit challenges and the cost of oil getting to $100 a barrel, it has affected people’s disposable income,” he said. “Everyone knows about the subprime housing issues and the credit issues; I don’t know how the general public looks at that, but they hear about it a lot on TV.
“Personally, I think John Q. Public really looks at what’s in his own wallet and bank account, and what his Visa bill is every month, and adjusts spending accordingly,” he continued. “The ones who don’t know much about managing money are the ones now defaulting on credit cards and loans, and that, to me, is extremely frustrating. It’s something that has definitely affected us. I’m seeing a lot more checks coming back returned, and we’ve had to tighten up our credit policies.”
Topor’s take on who is shopping for what type of car mirrors the subprime housing situation, in which people with poor credit and savings were persuaded to buy outside their means.
“The people with the good credit scores, or who have equity in their vehicles, are the folks who are looking at less expensive models. They think, ‘financially, this is what I can afford,’” he said. “The people who come in and say, ‘this is what I want’ are the folks who don’t have a grasp of what it entails, in terms of paying the whole thing off.”
Furthermore, he said, 25 years ago perhaps one in 50 customers were what he called “credit-challenged.” Today, the number is much higher, and that can make it difficult for manufacturer-backed dealerships to compete with smaller lots with less-stringent credit policies.
“I know a guy who sells used cars, and next to him is a buy-here, pay-here lot that can make a decision typically within six hours. But the bank he deals with has a 24-hour turnaround, so he’s losing deals. People think it’s like a drive-thru at Burger King — just walk in and drive out with a car.”

Indicator Lights
Topor said it’s important in these times to stay on top of industry forecasts. For example, last year he heard rumblings about a flat new-car market for his lines, so the dealership focused strongly on the commercial and pre-owned business.
He said providing good service is a must these days — although in an uncertain economy, he notices some customers only bringing their cars in for repair when they absolutely have to, choosing to drive around with issues they would fix immediately in better times.
Cartelli suggested that the most successful car sellers today are dealer groups that can utilize economies of scale in their marketing and purchasing patterns. She compared it to having a balanced stock portfolio: if one franchise is down, another might be up, thereby mitigating some of the highs and lows of the business. “This is especially crucial,” she said, “in a deflating market when decreasing expenses is the only option for small, single-point dealers.”
Another trend Cartelli has noticed is the prevalence of the Internet, which has resulted in savvier car buyers. Many customers research dealer invoices before arriving in the showroom, she explained, while price differences among dealers are smaller than ever. And if price is no longer a major determination of where people will shop, dealers need to come up with other ways to differentiate themselves.
Fathers & Sons has embraced that trend, restructuring its Web site and employing a new Internet service provider, one more skilled at search engine optimization, bringing many more clicks to the site.
“We had used the Internet in the past as a lot of dealers did — as a placeholder — and it wasn’t all that functional; it was more a way to keep up with everyone else and have a Web presence,” Cartelli said. “Since we switched to someone who’s more of a Google specialist, we’ve seen a huge increase in the number of visitors. We used to see 1,200 to 2,000 a month; now we’re seeing that every week because of the enhancements we’ve made.”
That in turn has allowed Fathers & Sons to put more resources into online marketing as opposed to traditional media, which is effective since the dealership is reaching people who are already in the shopping process — and are easier to convert into sales — as opposed to trying to pull people in off the street.
Automation has crept into other parts of the service business as well. Fathers & Sons sends automatic service reminders to customers, while Rome offers an easy-to-use online scheduling form. “Even the most disciplined customer doesn’t want to wait on hold to make an appointment,” he said. “This is another way to make it easier to do business with us.”
“Certain parts of the business are changing,” Topor said. “But it all comes down to how you treat people in the showroom.”
And, increasingly, how to get them there.

Joseph Bednar can be reached at [email protected]