Auto dealers, especially those hardest hit by the current economic slowdown, must be very careful not to cause themselves additional damage by allowing customers to perceive that their specific dealership is having difficulties.

That is the advice of a consulting firm based on a new survey that shows medium and small-size business owners believe dealers are among the businesses most damaged by the current soft economy.

"This survey highlights the danger of a perception growing into a self-fulfilling prophecy," said Donald J. Fletcher, president of the George S. May International Company, a consulting firm to auto dealers and other medium and small businesses.

"Customers respect and prefer to do business with successful people," Fletcher said. "While they may feel sorry for a business that is having hard times, it is dangerous for a dealership to show its difficulties. If it does, consumers will begin taking their business elsewhere."

According to Fletcher, this reaction is part human nature and part business nature. "It is very difficult to turn that impression around once it is made," he said.

The reasons for this are based on the expectations of today's consumers, according to Fletcher. Car dealers are expected to have a selection of vehicles and efficient services for owners. They are also expected to be problem solvers. However, when selection is cut back or the problem solver is seen as having problems of its own, customers may begin to look down the street.

"Customers have expectations," Fletcher said. "If these are not met, customers will sense something is wrong and go elsewhere. They'll forgive an occasional lapse. But if it becomes a general trend, they'll start to shop elsewhere. Customers may say it is just to 'check out' the other guy. But if they try and like the other guy, the first dealer is in serious danger of losing that customer."

Majority of Dealers Favor Growth-Oriented Responses

The importance for auto and truck dealers of presenting a successful impression to the customer is supported by the fact that positive, growth-oriented actions were selected by 59 percent of survey respondents as their response to the slowing economy. These activities include increasing sales and marketing (30 percent of responses), retaining or increasing current employee benefits (12 percent), increasing employees (5 percent), and increasing inventory (3 percent).

Only 41 percent are reducing business activity, according to the study. Among these measures are reducing inventory (17 percent), decreasing employees (14 percent), and reducing benefits (11 percent).

"Having the appropriate inventory on hand and a suitable number of employees for conditions are important issues," Fletcher said. "Reducing these haphazardly can have a boomerang effect when the economy picks up. Dealerships need to be careful to analyze the situation. Short-term attempts at a solution can actually compound basic problems the operation is experiencing."

Most Dealers Affected by Economic Changes: Survey

The survey showed that there was general agreement that the softening economy is hurting the majority of businesses, at least in the short run.

Among the businesses being hurt the most are retailers, dealerships, manufacturers and trucking companies.

The majority of respondents -- 56 percent -- said their companies are being hurt by the economic slowdown. Most of these (50 percent) report experiencing moderate negative effects, while 6 percent report a very negative impact.

Most Believe Economy Will Speed Up Within a Year

A clear majority believes the downturn will last less than a year, according to the study.

"While 76 percent of the respondents say the economy will turn around before 12 months is over, there is little agreement how many months it will take," Fletcher said. "In our survey, people's opinions are closely divided among six months (21 percent), nine months (25 percent), or 12 months (20 percent)."

An overwhelming 71 percent believe the business environment is more competitive than in the past, while 25 percent think it is about the same and only 4 percent believe it has gotten less competitive.

"Perhaps the four percent who think it is easier are the ones who've seen some of their competition eliminated," Fletcher speculated. "Even if that's the case, now is not the time to relax. Those customers are looking for another source and that is an opportunity for smart business people to capture more market share."