Surrounded by mainstream media reporters, Fred Frederick, owner of the Maryland-based Fred Frederick Chrysler, held the line. He shrugged off the possibility of moving less vehicles in 2009 than he’s used to, and did the same when asked about the prospect of Chrysler changing its product mix.
“Listen, we, including you guys, need to get off the devastation,” he told the throng of reporters. “Things are not bad. I’m telling you, we got the people to get the job done and I think we’re going to get it done, but have we done a good job of delivering that message to the marketplace? No.”
Frederick’s mood seemed to change, however, when asked about credit availability. “That’s more difficult,” explained Frederick, who said SunTrust Bank, BB&T and PNC Bank have stuck with his dealerships. “We’re not seeing anything they’re doing in Washington filtering down to main street.”
Not far away was Chuck Eddy, who was also surrounded by a pack of reporters. Eddy, who said credit unions, U.S. Bank, and Chase have stepped up for his Austintown, Ohio-based dealerships, also held the line.
“Our store in northeast Ohio was only eight percent off last year,” said Eddy, who was one of the dealers who went to Washington, D.C., to lobby for the bailout loans for Chrysler and General Motors. “Personally, we’re hiring salespeople. I haven’t had to layoff anyone.”
This was one of many scenes at the 2009 National Automobile Dealers Association (NADA) Convention and Expo. Fittingly set in New Orleans — a city swept away by its own storm four years ago — the 92nd annual show reeked of questions about the future of the industry and the U.S. economy.
The NADA’s Chief Economist Paul Taylor gave his best estimate on the industry’s future, putting 2009 sales at 12.7 million units. Taylor also brushed aside comparisons of the current economic crisis to the Great Depression, as he said the current recession mirrors that of the early 1980s.
“While I like history, I find that people who are comparing what’s going on now to the Great Depression somewhat misguided,” he said. “This looks a lot like the ’80-’82 recession, and it’s useful to look at that time for guidance.”
The show itself was noticeably light on attendees, with association officials putting attendance down 40 percent from last year. Also noticeable was the absence of several major companies, particularly in the F&I product side. What was clear is the industry is now in uncharted water.
“In a normal year, the chairman’s duties begin to wind down a bit, allowing us to begin planning for the next year,” noted Annette Sykora, the 2008 NADA chairwoman. “But we’ve all just experienced something different.”
Sykora’s sentiment wasn’t lost with John McEleney when the 2009 NADA chairman took the stage, but he also acknowledged the opportunities that have come out of the crisis. “The unprecedented nature of the times we find ourselves living in has been both a blessing and a curse,” he said. “It’s drawn the kind of attention to our industry that we haven’t encountered in years. Much of the attention has been favorable.”
Road Leads Back to F&I
It was clear by the event’s workshop agenda that the focus was on finding new ways to reach today’s vehicle buyers. Even industry icon Jim Ziegler acknowledged the need for change during his “Technology-Enabled Sales and Marketing” workshop. “Nothing is going to stay the way it was. Me, I made the commitment to change,” he said, as he described how to use social networking sites like Facebook and MySpace to market inventories.
Even Anne McCloskey, wife of Joe McCloskey, a 2009 F&I Pacesetter and owner of the Colorado-based McCloskey Auto Group, echoed Ziegler’s comments after attending his workshop. “We need to take it to the next level,” she said.
But as much as technology companies talked about the importance of inventory management, lead generation, and improving dealer Websites, the discussion always seemed to come back to F&I.
“When you look at the F&I department versus every other department in the dealership, 65 to 75 cents of every dollar goes to the bottom line. That’s because the only expenses tagged to F&I are compensation and charge-backs,” said Jim McDavid, an executive with the JM&A Group. “Right now, one of the biggest things we’re doing is helping dealers get the bank to buy their customers.”
Much of the discussion among F&I-related exhibitors focused on a dealer’s ability to get deals bought by lenders, especially those with F&I products attached. Many agreed the key driver going forward will be compliance.
The Compliance Paradox
Raj Sundaram, a senior executive with DealerTrack, said as much when he described the software provider’s four-quadrant view of the business, which included dealer management systems, compliance, sales, and inventory management. He did so despite the company focusing much of its press conference on the acquisition of JM Dealer Services’ AAX suite of inventory management solutions.
“The DMS is a no-brainer; inventory management we think is really critical in today’s market; compliance, we think, is absolutely underestimated,” he said while discussing the company’s new automated adverse action notice communications enhancement for its DealerTrack Compliance Solution. “I don’t think dealers realize that lenders are really going to be the driver of this. Forget the government, it’s going to be there anyway. It’s the lenders that are concerned about how compliant dealers are.”
Exhibitors said it’s crucial dealers understand the importance of properly representing their customers, monitoring how those customers perform after securing their loan, and making sure their relationships with lenders look good on paper.
“Dealers need to know where they stand in losses, where they stand as far as their repossession ratio. They need to know their 30-day, 60-day and 90-day delinquencies, and they need to know how all of that compares to their lenders’ average portfolios,” said Mike Jurecki, CEO of RouteOne. “That’s more important than any technology we can sell. And if they’re below average on all of that, they need a plan to get better. And that’s where we can help.”
Making it tough for lenders not to do business with one’s dealership was Jurecki’s main message.
Driving the point home even further, but from a regulator’s standpoint, was Reynolds and Reynolds’ Terry O’Loughlin. He pulled out a list of 22 hot-button compliance issues, including the possible loss of arbitration, new amendments for the Used Car Rule, and the possible implementation of risk-based pricing notices. Similar to adverse action notices, the rule will require dealers to send out notices to inform customers of their credit standing.
“I used to work with a lot of consumer-interest groups, and they’re lined up to get a lot of these things passed,” said O’Loughlin. “The one that really scares me is the Federal Consumer Credit Safety Commission Senator Richard Durbin (D-Ill.) is proposing. It would be another layer of government bureaucracy dictating how finance transactions should be addressed by dealers.”
Where Are the Lenders?
It was clear lending was also on the minds of dealer attendees, especially with the crowded scene at the CUDL booth the second day of the show. “We’re fairly popular right now, and we like popular,” said company CEO Tony Boutelle. “In years’ past, attendees visited us for our bear giveaway, not for financing. Now, if they’re not on our program, they will be.”
Even the people at Drive Financial, a nonprime financing brand under Santandar Consumer USA Inc., felt a little redemption. “We love it. We’ve always been a bit of a second-class citizen because of our fee,” said Deborah Malinowski, national sales director. “But that’s the right way to buy a deal. I know we’re expensive, but if you have customers with bad credit, they’re going to have to buy their way out of it.”
Even Jim Fleck, director of dealer channel marketing for GMAC Financial Services, acknowledged the need for change. “The day of almost unfettered credit access is behind us, and the lenders that will be successful are the ones that can put their arms around the risk they want to take and at what price,” he said. “And that’s why we’re excited about having bank-holding status, because we’re building the foundation for a viable finance company.”
Looking at third quarter 2008 finance data, Experian Automotive’s Melinda Zabritski said pricing for profitability is only part of what lenders are looking for these days. How the loan performs over time is equally critical right now, she added. “That’s definitely a concern for lenders right now,” she explained.
Despite delinquencies rising at an alarming rate, Zabritski said credit quality is improving across the board, six points for new and one point for used. She attributed the improvement to a variety of reasons, including less active subprime lenders, and shrinking loan advances and terms. “It’s becoming a market where the lenders are going to be playing a much more dominant role,” she said.
Bill Lovegreen, owner of Lovegreen Ford Mercury in Kirksville, Mo., seemed to grasp Zabritski’s point when asked about what his dealership’s doing to secure loan approvals. “I think the owner/operator has to be more engaged,” he said. “I think during the easier times, they don’t have to be, and can rely on their people. But when it’s tough, I think the owner/operator has to be engaged in more activities than he was two or three years ago.”
By the Numbers:
16,000 attendees (2009) vs. 23,000 (2008)
40 countries represented by dealers
1,885 allied industry