Car lots always seem to glitter from a distance, but a closer look reveals a business fraught with challenges-from attracting car buyers in a recession to bouncing back from recalls and a financial crisis that shuttered domestic dealerships nationwide.
That said, two foreign brands have been steadily rising up the charts: Hyundai and Subaru. And while 2009 was considered the worst year in the car industry in 30 years, according to Edmunds.com, an online auto industry resource, 2011 is proving more promising. The NH Auto Dealers Association reported new and used car sales were up 11 percent in January over the same time last year. Nationally, Edmunds.com reported that total car sales rose 18 percent.
Continuing that success will require both a continually improving economy-as people hold onto their cars longer in down economies-and replenishing the state's used car stock. While the popular Cash For Clunkers Program in 2009, which allowed people to exchange older less fuel efficient cars for newer more fuel efficient ones, boosted new car sales for many dealers, it had drawbacks. The so-called clunkers were destroyed, reducing the used car inventory, a problem that still persists today.
A Tough Sales Market
It's said a good salesman can sell anything. The problem in the car market in recent years has been either fewer products-in the case of used cars and some popular new cars-or fewer sales associates to do the selling. In NH, 22 dealerships shuttered between 2004 and 2009 and 1,000 sales jobs were lost, based on National Automobile Dealers Association data.
Toyota dealers not only faced a down economy, but also a massive recall due to problems with sudden acceleration. Toyota of Nashua reports sales fell 30 percent after the recall in early 2010, though things have since rebounded and the company is on track to sell more cars this year than last, says Sales Manager Michael Blatus. We're still coming back, not all the way back, but getting there, he says.
His dealership invested heavily in service to appeal to customers, including opening a drive-through oil change service and extending service center hours. He says the used car business is up, with sales of about 200 used cars a month.
Grappone Auto Group in Bow, which employs about 300, found its size and diversified product offerings helped keep business going, as did a focus on balancing sales and service. Our retail sales decreased by 6 percent from 2008 to 2009, but parts and service gross in that same time period was up 8 percent. Then retail sales increased by 13 percent from 2009 to 2010, while our parts and service business remained flat, says Greg Grappone, co-owner and chief information officer for the Auto Group.
Grappone sells six brands of new cars along with used cars. Greg Grappone says the diverse nature of the state, both rural and suburban, means there is a place for trucks, SUVs and smaller, fuel-efficient cars. Still, the balance has changed. I think consumers have rethought the way they think about vehicles.
Some three-car families may be down to two, and people who had driven SUVs may start to drive smaller cars due to gas prices, says Grappone. There's a built in market for all those [trucks and SUVs]. It just won't be the way it used to be as far as getting a fun vehicle.
A Mixed Blessing
While the 2009 Cash for Clunkers Program brought many buyers to dealerships, it took many cars off the roads, and off future used car lots.
Cash For Clunkers provided consumers $3,500 to $4,500 in credit toward a new car when trading in used vehicles for more efficient models. To qualify, cars being traded had to have a combined highway/city gas mileage of 18 miles per gallon or less. In NH, that program resulted in rebates totaling $22.8 million for 5,376 vehicles, according to the U.S. Department of Transportation. The new cars averaged nine miles per gallon more than the trade ins.
Linda Murphy, general manager of the Honda Barn on Route 108 in Stratham, fondly remembers the advent of the Cash for Clunkers program as one of the pinnacles of her 30-year career. I know it wasn't designed for the imports to advance themselves, but it was fabulous, says Murphy. The showroom was packed with customers, and the day after it was over, it looked like the circus had come and gone. There were no cars left, there was trash everywhere-it was something I had never seen before.
Grappone agrees. He says that program delivered the best sales month in the dealership's 87-year history.
Yet the program proved to be a double-edged sword. While new-car dealers like Murphy were experiencing a boom, used-car dealerships lacked inventory. [Cash for Clunkers] absolutely ruined the used-car business, changed it drastically, says Brian Lee, president of White Mountain Auto Brokers, a chain of four used car dealerships in Northern NH and Vermont. What it did was take out probably 600,000 to 900,000 cars that would have been perfect used cars for people, and took that money out of an already shrinking market.
Faced with a small range of vehicles to sell, Lee found his car sales flat, so he enhanced the car-financing arm of his business, providing loans to people not able to get them elsewhere.
We're still not setting the world on fire, but we're maintaining [ourselves] largely because we're in sub-prime [auto] financing, says Lee. Between 50 and 70 percent of people nationwide have a blemish on their credit rating, and when you go to a bank, they will look at that. We've lost a lot of good customers we've had for years, but thanks to this we're gaining some new ones.
At S&J Motors in Merrimack, a 60-year-old independent used car dealership, leveraged the national market to increase sales. Faced with a 15 percent drop in sales due to Cash for Clunkers eating into its supply of cheaper cars, the dealership added luxury lines like Lexus, Audi, Mercedes and high-end trucks and SUVs. It also went online, signing up for autotrader.com and cars.com.
Using the national sites, buyers nationwide choose the car they want and can get it at the dealership, or have it shipped. Where S&J's market used to be local, within a 25-mile radius of Merrimack, its market now stretches thousands of miles, with online sales accounting for 60 percent of business. Salesman Stan Kilbreth says the dealership used to sell 20 to 30 cars a month, and now sells 30 to 40. He says the dealership will send a driver to Manchester-Boston Regional Airport to pick up a customer, or will suggest shipping brokers.
Kilbreth says the national market allows them to take advantage of regional shortages of certain models. For instance, he says, a Pennsylvania man recently bought a low-mileage Ford Escort for $4,500 and paid about $350 to have it shipped.
Grappone says while the lack of used cars available for sale is partly attributable to the Cash for Clunkers program, it isn't the only reason. He says people are holding onto their cars for longer periods of time, and car rental companies, during the recession, purchased fewer new vehicles for their fleets, meaning they have fewer used cars to sell back into the market to car dealerships.
It cut the supply to used car dealers, Grappone says. And bidding at auctions is getting more aggressive. Greg Grappone says it is becoming routine to see cars sell above their blue book value at auctions. That makes it tough for dealerships, which must then account for the money they will invest in a car to fix it before putting it up for sale, he says.
Rising Stars
Those looking for good news in auto sales can find it. On the domestic front, Ford--the only member of the Detroit Big Three not to receive bailout funds-has seen its fortunes rise as it has added more hybrids and smaller, fuel-efficient vehicles. One of them, the Ford Flex, made Parents magazine and Edmunds.com list of the best family cars for 2010. Grappone reports Ford sales are strong, noting the new Fiesta is one bright spot. Another dealer, Ford of Londonderry, opened a new showroom last year. Ford of Londonderry is part of a family of three Ford dealerships and one Subaru dealership, and has actually made money year-over-year since 2008, says Jim McGovern, general manager of Ford of Londonderry. He attributes his success to cost-saving measures put in place. In terms of volume, we broke a small barrier in February. It was a little bit higher than anticipated, McGovern says. I think it's on the upswing. I'm all for slow and steady increases.
But the real winners in recent years were Hyundai and Subaru. Subaru sold 15 percent more cars in 2009 than 2008 according to Edmunds.com, a year considered the worst in the car industry in three decades. And last summer, the Hyundai Sonata was the sixth best-selling car in the country.
Whenever gas prices seem to go up or people feel like they need to save money at the pump, we just keep increasing our sales, says Hyundai of Nashua salesperson Les Novak. His dealership had a 100 percent increase in sales during the past five years-a 40 percent increase from 2009 to 2010 alone.
Subaru has had similarly good fortunes. Todd Berkowitz, president of Manchester Subaru, says business was up 25 percent last year, the biggest increase in the eight years he's owned the dealership. Berkowitz and his team don't need to do a hard sell either, as 80 percent of customers look online and come in knowing exactly what car they want. For the most part the people that come in actually want to [test drive] a Subaru. They've already done their homework, Berkowitz says.
Where Are We Now?
There's a modicum of optimism among NH's dealerships. I wouldn't say we're quite back where we were before the recession started, but they're definitely on their way back, there's no doubt about that, said NHADA president Pete McNamara. Even just with comparing January [2011 to the same time last year]it's looking very positive.
Matthew Mowry contributed to this article.
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