Thursday 24 Jul
 
 
 photo BO-Button1_zps13524083.jpg

 

OKG Newsletter


Home · Articles · News · News · Secondary vendors take major hit...
News
 

Secondary vendors take major hit with auto dealerships in bankruptcy


Grant Slater June 11th, 2009

The radio spot writes itself: "Come on down to family-owned Chrysler-Jeep-Dodge. We've been family-operated here in Everytown, Oklahoma, since probably before you were born." G...

Hudiburg-Chevrolet-Steve-Bl

The radio spot writes itself: "Come on down to family-owned Chrysler-Jeep-Dodge. We've been family-operated here in Everytown, Oklahoma, since probably before you were born."

GET THE CARS OFF THE LOT
INDUSTRY SNAPSHOT
NO 'KOOL-AID STAND' EXPERIENCE
THE GREAT TAILGATE HEIST

Whether it dates back 20, 30 or 50 years, nearly every Oklahoma dealership has a rags-to-riches story behind the name on the big sign that looms over the highway, a monument to fortunes won through handshakes and hefty helpings of credit.

Underneath that sign, the dealer parks row after row of the latest showroom lookers, slightly scuffed but still-certified used cars, and as-is-no-warranty bargains. Those are liquid assets, the stuff of commerce.

In a business built on personal relationships, the name on the sign is also money in the bank. It's an omnipresent voice during commercial breaks on the evening news. But what about the Chrysler or Chevy logo above the nameplate?

"There is an intrinsic value to a dealership and what the potential earnings are. It equates to blue sky," said Max McKinsey, the owner of McKinsey Motor Company in Clinton. "Because of the letter I got May 14 from Dodge, it's worth nothing."

McKinsey is not alone. Dealerships across the state received Dear John letters from Detroit as two iconic automakers dove into the fortified bunker of bankruptcy in recent weeks hoping to escape the nuclear fallout of the recession.

The remaining dealerships are stuck in neutral, waiting for the Geiger counter to stop clicking so they can start selling like its 2005.

The shuttering of Chrysler and General Motors outlets may be one of the most visible signs to date of the current economic slide in Oklahoma, where the recession has largely whistled past on its way from east to west.

The economic impact is not slight. With 13,000 employees that make up some 13 percent of the state's total wages, any shift in the automobile industry has far-reaching consequences, according to figures from the Oklahoma Automobile Dealers' Association.

Beyond that, there are secondary vendors " body shops, IT contractors, those who peddle wind-machine clowns or giant American flags " that are taking a major hit as car sales slide.

At the same time, dealers, vendors and car fanatics are all casting a wary eye on what they see as strong-arm and knee-jerk tactics by the Obama administration to shore up the manufacturers. The brands that they grew up loving and now work with everyday could be watered down by bureaucratic bean counters with no experience in big business, they say.

GET THE CARS OFF THE LOT
McKinsey said he "smelled a rat" months ago as President Barack Obama stepped up to the microphone flanked by Treasury Secretary Timothy Geithner and delivered an ultimatum to Chrysler: Shape up in 30 days or shut it down.

A month later, Chrysler went with option two.

His dealership in Clinton is 23 miles from the closest Chrysler store to the west and 13 miles from the closest to the east " too close for comfort. He thought bankruptcy was imminent, and his head looked ripe for the chopping.

"I looked at it best case or worst case. And worst case is what happened," he said.

Chrysler gave him three weeks to liquidate what took 26 years to build. All the cars needed to be off the lot by June 9, and they wouldn't be squaring up on what they owed him in parts, warranty repairs or special tools.

"It seems to me illegal, immoral at best," McKinsey said. The temptation of litigation crossed his mind, he said, but does one really want to go to federal court against an automaker that's now partly owned by the federal government to get back pennies on the dollar?

McKinsey is also luckier than some. He sells Ford vehicles out of the same building and off the same lot in Clinton. That business shows no signs of shutting down, he said. Customers have been patting him on the back for selling Ford, a company that hasn't sought taxpayer dollars to stay afloat.

GM dealers across the state were given until October 2010 before their lease on life ran out compared to the three-week notice from Chrysler.

Most shuttered dealerships were reticent to speak publicly about the end of their business. Some, like City Chevrolet in Oklahoma City, are under a strict gag order from corporate headquarters in other states, as they planned to fight back against the automakers' pronouncements.

Sonic Automotive, the Charlotte, N.C.,-based umbrella that owns City and more than 100 dealerships nationwide, including 11 in state, confirmed several of its Oklahoma stores received letters, according to its press office.

Chrysler and GM did not choose their targets with a map and a handful of darts. The prime concern was proximity, as evidenced by a sea of closings east of the Mississippi, where some cities comparable in size to Oklahoma City have dozens of dealerships. By comparison, Oklahoma City has six Chevy stores.

Most small Oklahoma towns are lucky if they have one. Lucky because the dealerships' names are often emblazoned on the back of Little League uniforms or on banners over charity golf tournaments. Every dealer contacted said they had severely curtailed that kind of charitable spending this year.

"We support the football, the band, the wrestling, the cheerleaders, the local music," McKinsey said.

INDUSTRY SNAPSHOT
Every month, Chade Martin sends out a team of field representatives to 93 dealerships across four states where they take between 12 and 44 pictures of thousands of cars.

His company, Teton Solutions Group, takes those pictures and posts them on third-party Web sites, eBay or sites managed by his company, like The Oklahoman's CarsOK, all for a fee.

"We have our fingers in all aspects of this wonderful puzzle," Martin said.

The number of pictures he takes may be one of the best and most immediate gauges of the health of the Oklahoma automobile industry.

If he doesn't take a picture of a car, that means a dealer hasn't bought a car, which in turn means that they haven't sold a car.

Last May, Martin said Teton processed 7,000 cars, but that was down to 4,500 this May. That means less revenue for Martin and, by extension, for the dealers and vendors that rely on them.

Revenue at Teton Solutions is off 15 percent total from last year, and the company was forced to lay off two of its 15 employees, Martin said.

Among Teton's clients is the Hudiburg Auto Group, where general manager Steve Blake enumerated a laundry list of vendors like Teton that have lost some, if not all, of their income from his business.

Even the window washer took a 20 percent pay cut, he said.

NO 'KOOL-AID STAND' EXPERIENCE
On a Tuesday afternoon outside Hudiburg Chevrolet, two sales reps tossed what appeared to be a pretty tight spiral back and forth over a row of Chevy Malibus.

Why the game of catch?

"Definitely not selling any cars," was the answer.

Inside, Blake held forth on the relationship between his dealership " one of the largest in the state " and the "New GM," as corporate agitprop out of Detroit has taken to calling the post-bankruptcy General Motors.

As dealerships close or consolidate, Blake said, GM informed all the survivors last week by certified letter that expectations will rise.

In the past, dealers were expected to sell roughly the same percentage of Chevys or Buicks in their respective markets as GM garnered across the nation as a whole. If they fell short, they were vulnerable to the axe, although Detroit hasn't had the power to make good on that threat in recent years, he said.

Now that number is going to go up beyond the baseline. But there are concerns that a GM now federally owned by 60 percent will have other motives aside from market share.

"I'm scared to death," Blake said. "They've never run a Kool-Aid stand and they're going to run General Motors? Come on!"

A strand of right-leaning fears over creeping socialism and corporate shenanigans ran through the musings of Oklahoma auto enthusiasts, as well. People like Robert DeBerry, a Corvette enthusiast and wheel distributor in Duncan, were weaned on straight V8s and 409s.

He wouldn't stray from Chevy, but he doubts the predictive power of those in Washington or Detroit.

"They've just been losing it for years," DeBerry said. "They had the wrong people up there trying to predict what we would buy."

THE GREAT TAILGATE HEIST
Under the cover of darkness on the night of June 2, someone snuck onto the lot at Knippelmier Chevrolet in Blanchard and boosted the tailgates from 22 new trucks. The next day, police tracked down the tailgates, which would have fetched about $500 a piece on the street.

For the thief, that was one way to deal with a liquidity crisis. When the credit markets locked up, Knippelmier turned to local credit unions as lenders like GMAC " the lending arm spun off from GM last year " froze up and stopped granting loans in 2008.

Jeff Lister, general manager at Knippelmier, said that nothing short of a wholesale recovery of the U.S. economy would get Oklahoma's automobile industry humming again.

Unlike most dealers, he sees the federal government investment as a sign of confidence in Detroit and the pivot point toward a quick recovery.

GMAC stopped providing loans in the spring of last year. The required credit score for a car loan skyrocketed, and money down became essential because loans could only be made for dealer retail and not full sticker price. As an independent bank, GMAC sucked up $12 billion in government bailout money before it clawed its way back to being Knippelmier's most steady lender.

As the credits markets loosen, he said, the customers will trickle back, and the sign may someday loom larger over U.S. Highway 62. "Grant Slater

 
  • Currently 3.5/5 Stars.
  • 1
  • 2
  • 3
  • 4
  • 5
 
 

 

 
 
 
Close
Close
Close