Dealers More Optimistic Than Their Customers

Dealers are feeling better about their prospects than their customers are feeling about theirs.

Greg Goebel, president of Greg Goebel Training and Consulting, said confidence remains high among the dealers he consults with.

"I haven't talked to many that are concerned over the economy taking down the industry like it did in 2008," Goebel said. "Most all the dealers that I have talked with are having great years and had great years in 2010."

The strong dealers continue to perform well, but not all dealers are that well off.
Ron Brown, president of Larry's Auto Sales in Fresno, Calif., speaks with many who are having a hard time. His store has been in business since the last major downturn 30 years ago and they'll weather this one.

"We're fine, we own everything," Brown said. "We're not struggling, but other people are struggling."

State and local governments are some of the biggest employers in California, as they are everywhere. In Brown's state, though, they've been struggling especially hard.

Vallejo, a city north of San Francisco, recently went bankrupt and Brown expects more to follow.

He finds the store taking smaller down payments. But even though people have less money, they have greater expectations.

"For $1,000, they want a $3,000 car," Brown said.

Other dealers are more confused than concerned, said Brent Carmichael, a consultant with NCM Associates Inc.

"The dealers I work with are scratching their heads," Carmichael said.

Some of the dealers in his Twenty Groups had their best summer ever while others had their worst. No pattern proved obvious, such as geography or local employers.

Carmichael expects the usual August slowdown to hit all dealers as they compete with back to school sales and state fairs for their customers' dollars.
He said all dealers can do in that situation is work on turning the ups that come to the store into sales.

Jerry McDonald, owner of Big Tex Auto Mart in Dallas, said he's having hardly any potential sales walk in the door these days.

"Walk-up traffic is nearly at a standstill," McDonald said.

He's doing fine thanks to repeat and referral business at his buy-here, pay-here store.

McDonald also sells classic cars and that market is hurt more by consumer confidence. He said consumers are putting their money into gold or paying off debt rather than purchasing the dream car of their teen years.

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Alleged Immaturity Lands Dealership in Hot Water

A Chicago dealership faces a lawsuit after some alleged locker room behavior by its employees.

Earlier this month, a man filed a lawsuit against Grossinger City Autoplex in Chicago, claiming he received some rather brutal harassment from five of the dealership's employees.

The suit alleges the man was threatened, harassed and even given a "hanging wedgie" on one occasion by the Grossinger employees over the course of a month-long period in 2009.

It's unknown if the accuser was an employee of the dealership or a customer.
He claims to have received death threats, along with being strangled with a phone cord and being called a homosexual.

The alleged abuse went on while the Grossinger employees were working at the store.

The lawsuit, which was filed in the Cook County Circuit Court, is seeking $600,000 in damages.

Representatives of Grossinger City Autoplex have not responded for comment on the suit.

The Grossinger Auto Group operates nine new-car stores throughout the Chicago area.

Despite not being accredited, by the BBB, the Chicago Grossinger store where the alleged harassment took place has a decent track record with the Northern Illinois Better Business Bureau.

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Credit Unions Face Challenges

Dealers have turned to credit unions to finance their customers more than ever since the economic slowdown started three years ago.
But how financially secure are credit unions compared to banks?

About a third of the nation's 7,391 credit unions are considered weak by Weiss Ratings. The rating agency ranks only 10 percent of credit unions as strong.

That sounds like a potential problem, but what it really means is most are average, said Gene Kirsch, bank analyst for Weiss.

Size plays a major part in the ratings. Most credit unions are small, often with only one branch.

"Typically, those tend to be the weaker ones, because they can't withstand any significant loan loses," Kirsch said.

Even the largest credit union, Navy Federal Credit Union, is smaller than the 20 largest banks.

Credit unions still have a lot going for them.

Overall, the nation's credit unions increased profits by $658 million to $1.7 billion despite a $6.1 billion decline in lending in the first quarter, compared to the same period last year. Deposits grew, year-over-year, by almost 5 percent to $822.7 billion.

Those are the most recent numbers available.

Industry liquidity - short-term assets as a percentage of short-term liabilities - increased from 10.4 percent at March 31, 2010 to 22.2 percent at March 31, 2011, an indication that the industry may be better equipped to weather economic downturns.

And if a third of credit unions ranking as weak seems high, that's still lower than the number of weak banks.

This proves good news for car dealers because credit unions focus on the auto finance business.

"Their bread and butter is car loans," Kirsch said.

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Consignment Store Owners See National Potential in Their Model

A trio of MBAs are trying to create a new model for selling cars at a consignment store they hope will somebody be the flagship of a new chain.

Michael Bor, Aaron Montgomery and Will Boland opened shop earlier this summer at CarLotz in Richmond, Va.

Although they've sold fewer than 100 units so far, they hope to follow the path of Richmond neighbor CarMax Inc.

The idea for the store came about when the partners were driving around town. They would see cars for sale by owner parked on the corner of busy streets.

"We thought there had to be a more efficient way for the private seller to sell their car than parking it on the side of the road," Bor said.

So they raised capital for a new venture even though only Montgomery had any dealership experience.

He had worked for several large dealer groups and as an auto consultant for McKinsey & Co.

"His hands-on dealership experience has been invaluable in getting this off the ground and developing processes that makes this a business than can have some considerable scale," Bor said.

Bor and Boland came from the finance business.

The store opened at the start of the summer with capacity for 60 cars. They thought the rollout would take a while, but they filled the lot within two months.
By mid-August, CarLotz consigned 90 cars and sold about half of them.

The founders handle all aspects of the process themselves, so far. They employ one person and a couple of interns.

They don't call themselves salespeople, though, or even associates.

They are "coaches."

A large role the coaches play is in managing people's expectations.

Many times people believe their cars are worth more than they think while other times they underestimate the value.

CarLotz appeals to consignors because they handle the hard work involved with selling a car.

Each vehicle is detailed as soon as it is taken on consignment.

It is then photographed and marketed on all the major websites, such as AutoTrader.com and Cars.com.

The CarLotz staff keeps the car clean and the tank full until the vehicle sells.

The biggest advantage for the consignors is not having to leave their offices at lunch time to meet some stranger in a Wal-Mart parking lot to sell a car, Bor said.

Buyers come to CarLotz for the same reasons as any traditional dealership. The store offers financing, service contracts and a wide selection of vehicles.

"What we're trying to provide people is a super transparent way of buying cars," Bor said.

That selection is a little different in one way, though. It's dictated by what people want to sell rather than what people want to buy.

That creates some challenges for the CarLotz owners.

They overcome that by marketing to find a buyer who may differ from the traditional private sale customer, such as an exporter.

CarLotz is located in a prime location along the Midlothian Turnpike.

It's nestled between a Porsche dealership and a Volvo store, across from a CarMax.

Finding a site like that was crucial, Bor said, because they needed a place where people would feel comfortable leaving their cars.

The CarLotz founders can find some hope for their business plan in the success of Gulliver's in Japan. That chain of consignment stores has grown into a major player overseas.

The downside of that is Gulliver's has been eyeing the U.S. market for expansion, as well.

It already has a store in California.

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