What about the car dealers?

Local Big 3 franchise holders favor industry government assisted restructuring, not a bailout

Merriam-Webster Dictionary has declared “bailout” the word of the year. “Bankruptcy,” “collateralized loans,” and “restructuring” have also dominated the media’s vocabulary and almost everyone's daily conversation. All four terms have been used too many times to count as the country’s financial system teeters in the worst meltdown since the Great Depression.

Now, the nation’s Big 3 American automakers, once the envy of the world, are also looking to Washington for help.

Here in New Hampshire, the state’s automobile dealers association (NHADA) has been quoted as supporting a Detroit bailout, saying that almost 90 GM, Ford, and Chrysler dealers and as many as 13,000 direct and indirect jobs could disappear from the Granite State’s landscape if General Motors, Ford and Chrysler are allowed to fail.

Nationwide, the numbers are even more dramatic. There are some 20,000 new car dealers employing a workforce of more than 1-million. If 20-percent of them go out of business at an average of 50-plus employees per dealership, the job loss nationwide could be as many as 200,000.

“Not so fast,” say the owners and managers of three major Lakes Region auto dealers who are affiliated with the Big 3. All are opposed to Washington “bailing out” the Detroit-based companies. Bankruptcy is not an option either, they agree, since it could lead to the ultimate dissolution of the companies and have a devastating ripple effect across the nation’s economy.

They all agree, however, that a major restructuring of the three is in order. Further, they agree Congress has a role to play in that process.

While it many not be “business as we like it” for the local dealers interviewed last week, there does not seem to be “despair in the air” of their sales floors either.

“Cantin Chevrolet opened its doors in the first quarter of 1929," said Tom Cantin, president and general manager of Cantin Chevrolet Cadillac on Union Avenue. "It was the worst time to start a business. The stock market crash — the big one — happened in the 3rd quarter of that year. Eight years of the Great Depression followed. Shortly thereafter, the American auto industry stopped automobile production completely in order to meet the needs of the war effort. We had no new cars to sell. Cantin survived then. We have made it through every crisis since. I’m confident we will survive the current economic downturn.”

In fact, according to Cantin’s general sales manager, Carl DeProspo, the 80-year old dealership has sold two more units this month than it did during the same period in November a year ago. The fact that almost 70-percent of the units sold this month were full-size pickups and SUVs makes you scratch your head in wonder. After all, every manufacturer, Chevy included, has been heavily advertising their fuel efficient models. Until the past few weeks, it also appeared that $4.00 a gallon gasoline was going to drive everyone to those gas-sipping models.

Similar, somewhat optimistic sentiments came from two other large Lakes Region auto dealers — Peter Irwin, president of Irwin Motors (Ford and Toyota) on Bisson Avenue in Laconia, and David McGreevy, the marketing manager of AutoServ of Tilton, Concord, Laconia and Plymouth. McGreevy spoke on behalf of the dealerships’ owners, the Paul Gaudet family.

The relatively positive assessment of their futures was in response to questions about the effect the dim financial prospects for America’s Big Three automakers was having on local dealers. According to the almost daily media reports, General Motors will run out of operating cash soon, possibly before the end of the year. Chrysler is in similar shape. The outlook for Ford seems a little better, but the sharp downturn in sales brought on by the recessionary economy suggests the Ford future looks dismal as well. Together, the three manufacturers account for as much as 40-percent of the domestic market for passenger cars and trucks. If even one of them fails, the ripple effect through the economy would be significant.

Irwin was emphatic in response to a question about the impact of bankruptcy by any of the Big 3.

“The question is irrelevant,” he said.

To the prospect of a bailout for one or all of the manufacturers, Cantin responded, “I am not in favor of a bailout. I am in favor of the government structuring a collateralized loan for each of the companies — a loan or loans that are logical from a business standpoint. The manufacturers need to develop sensible business plans; they need to go back to the basics that are part of fundamental business acumen. As dealers we have to do those things when we go to our banks for expansion or operating funds. Congress should expect nothing less from Detroit.”

According to Irwin, Congress and the administration could have been more pro active when the first signals of a downturn appeared. “The tax code could have been amended to continue accelerated depreciation of business use vehicles and business expensing of auto lease costs,” Irwin said. “A consumer’s tax deduction for auto loan interest would have stimulated sales. Likewise, a consumer tax credit for car and truck purchases might have been considered. Perhaps these ideas are impractical because they could involve treating domestic manufacturers differently than the foreign companies with plants here. Still, they would have provoked discussion of the potential impact of the looming crisis and ideas about how to deal with it.”

"It wouldn't hurt either if Detroit executives sent out an appropriate message to Congress and the country by flying commercial and by taking immediate pay cuts," Irwin added.

McGreevy believes “the media has overlooked a fundamental fact that underscores the importance of the Big 3 to the automotive industry and the market it serves. The industry is down from a peak of 16 to 17-million unit sales per year to somewhere between 10 and 11-million. The Big 3 have about a 40-percent share of those sales. It is right to have concern for their corporate fate. There is no way to fill the gap in production their disappearance would create."

"I’m a realist,” McGreevy continued. ”I can’t discount the possibility of a Big 3 transformation. I just don’t see letting them create an economic vacuum by going out of business.”

With regard to the impact of the downturn in the economy has on New Hampshire’s Lakes Region, McGreevy said, “There is little appreciation of the impact a national downturn has on our statewide and local economy. According to some sources, as many as 7,000 New Hampshire direct dealer jobs could be at risk as a result of the decrease in retail auto sales.”

The AutoServ dealerships, whose product lines include Buick, Chevrolet, Chrysler, Dodge, Ford, GMC trucks, Jeep, KIA, Nissan, and Pontiac, has 172 full and part-time employees. Irwin Motors has 85 employees and 57 work for Cantin Chevrolet Cadillac.

Apart from the other Lakes Region auto dealerships, there are several manufacturing firms in the area also directly affected by the decline in motor vehicle sales. They include Freudenberg NOK, with area plants in Laconia, Northfield, and Bristol, and Cooper Products in Laconia. Freudenberg’s Laconia plant, located in the Lakes Business Park next to the Rts. 3/11 Bypass, is already scheduled to close by the end of the year.

How are the local dealers making it in these difficult financial times?

“We are fortunate to have a strong, loyal customer base,” Cantin said. “We have not had to cut back on help. We live and work in a good area, and we have a good location. Our foundation is on a strong footing. We subscribe to the Bill Belichick philosophy — we worry about what we can control.”

“While sales are always very important,” Cantin continued, “we have other components of our business that will help carry us through. Our service and collision centers, our truck operations, and an active parts department carry a large part of our overhead. They provide us with the diversification needed to weather these kinds of storms.”

Down the street, Irwin Motors is in the process of completing reconstruction on a totally new, contemporary look.

“Some might say we are doing this at exactly the wrong time,” Irwin commented. “The truth is, however, we have a wide variety of product alternatives; we have incentives. We also have excellent financing alternatives through the Ford Motor and Toyota credit operations. Our new, modernized facility simply underscores our strong position to serve and expand our customer base.”

According to McGreevy, being dependent upon the fate of one manufacturer might be justification for worry about the future. “Here at AutoServ, we are secure and thankful for our diversity. We have five locations and nine franchises. Because of the Gaudet family’s planning for the future there has been a sizable investment in staff, facilities and technology in all of their dealerships in order to be braced for whatever happens in the local economy. We are also committed to customer loyalty, particularly with our AutoServ for Life and other value added programs. For us, it is business as usual in a very challenging retail market.”

“It also should be said,” McGreevy continued, “that northern New England does not suffer from changes in the economy as much as other parts of the country. We don’t get the peaks of a boom or the low valleys of downturns in the economy the way other sections of the country do.”

“We realize people are hesitating and/or conserving. However, if they have any need or desire for a new or used vehicle, now is the time to get a good deal,” he concluded.

Looking to the future, the three local dealers agree on one thing — there needs to be major change in how the Big 3 operate.

Not surprisingly, they agree there should be a focus on what can be accomplished by cutting costs. More than delicate surgery may be required. With labor costs in the almost $80 per hour range the Big 3 just can’t compete with foreign manufacturers paying between $45 and $50 per hour at new plants in Kentucky, Tennessee, and other southern locations.

Irwin was very direct, “Labor needs to bend on this or the recovery process will stall.”

He also cautioned automotive suppliers to avoid being sanguine about their relationships with Detroit. “They have to remember the Wal-Mart principle of always shopping for a better deal. Wal-Mart decision-makers work in spartan surroundings, and they won’t hesitate to change suppliers if they believe they can get a better price.”

Irwin also believes there must be a stronger focus on product improvement, particularly in the areas of fuel source and efficiency. He suggests we are best positioned short-range in terms of supply and infrastructure to utilize natural gas as a fuel source.

“Living in this economy is like dancing with a gorilla,” Irwin concluded. “We can only stop dancing with the gorilla when the gorilla wants to stop dancing.” That’s Irwin’s way of saying there are big problems in the nation's automobile industry, all requiring big solutions.