The problems that drove the big three auto manufacturers to visit Washington D.C. last week asking for an economic bailout, is creating a trickle down effect on local car dealers.
Prompted by The Lincoln County News, two local businessmen discussed their businesses and their reactions to changes on the state and national level over the past year.
Kevin Thompson, General Manager at Harold C. Ralph Chevrolet in Waldoboro, has worked for Chevy dealerships for the past 37 years. Thompson said he has worked at the dealership in Waldoboro for the last 16 years. Before that he spent 21 years at Shepard Motors Chevrolet in Rockland.
Thompson said he has seen a reduction in sales over the past few months. He estimated a reduction of 30 to 40 percent in new vehicle sales just during the past two months. Used sales are down as well, although not as much.
“The biggest effect on our business is the lobster prices being down,” he said. “Most of our customers are fisherman. Our sales are off because of problems in that industry.”
He explained that Ralph Chevrolet has not yet reduced its inventory, but is moving towards stocking smaller, more fuel-efficient vehicles. With gas prices decreasing, Thompson feels tastes are shifting back toward the large trucks and SUVs.
Thompson confirmed his customers have experienced some difficulty obtaining credit to purchase vehicles, adding approximately 25 percent of consumers have been turned away when seeking credit.
He doesn’t feel a bailout will help American auto manufacturers. “They’re going to have to go bankrupt and regroup,” Thompson said. “I don’t think we can keep bailing all these companies out.”
Randy Miller has been working in Chrysler dealerships for the past 35 years. He is the president of Newcastle Chrysler located on Rt. 1 in Newcastle, and the Newcastle Chrysler Dodge Jeep Annex, on Old Bath Rd. in West Bath.
According to Miller, Chrysler is owned by Cerebus, a private company, so the company doesn’t have to answer to investors. Chrysler itself is broken down into two divisions. Chrysler LLC, which covers the manufacturing part of the business, and Chrysler Financial, which covers the lending part of the business.
Chrysler Financial lends money to the dealerships, which allows them to purchase vehicles, according to Miller. They also lend to some consumers and businesses buying cars at their dealerships.
Miller said the source of some of the financial problems for Chrysler began when they borrowed a large amount to prop up their financial division. The money owed on those loans is not available to be loaned to consumers, so they are facing some reduced profits from that decision as well.
According to Miller, the loan was obtained at a much higher interest rate than previously paid, so it cost the company much more. Those costs are being passed on to dealers.
“Chrysler has altered the restrictions on the time period I am allowed to keep vehicles on the lot,” Miller said. “That’s an advantage to the consumer, because I don’t want a bunch of aged vehicles on my lot.”
At Newcastle Chrysler, Miller said sales on new vehicles have been steadily down throughout 2008, with October being the worst month so far.
New car sales at Newcastle Chrysler are down nearly 20 percent over last year, according to Miller. “Ordinarily we would have 70 to 80 new cars in stock, right now we have 35,” he said. “Now we’ve ordered 26 more to replace the ones we’ve sold. Financially it’s the right thing to do.”
As consumers responded to inflation in fuel and food prices over the summer, the used vehicle sales at both dealerships have increased by 25 percent. Large fuel inefficient trucks and sports utility vehicles (SUVs) still face sales challenges around the country.
“The major crunch came in March and April, when the values of low fuel mileage vehicles, like trucks and SUVs, dropped so much,” said Miller. “Consumers wouldn’t buy without a great deal, so we sold those vehicles at tremendous losses. It was the perfect economic storm in the auto industry.”
Miller is a dealer counsel representative for Dodge in Maine, and he has received a lot of feedback that many dealers are experiencing similar issues. Miller asserts the focus now is on smaller vehicles with good fuel mileage. His lot is full of Jeep Patriots and Compasses, Dodge Calibers and Avengers, and Chrysler Sebrings, all of which get around 30 mpg.
Changes in other industries are affecting Miller’s business as well. “With lobster prices down, an integral part of our community is not buying trucks,” he said.
Due to problems within the financial industry, customers have come in concerned about whether they would be approved to finance a vehicle. Miller explained the number of people approved for loans is reduced by about 15 percent over last year.
Three banks that used to offer car loans, Wachovia, NorthEast Bank, and Bangor Savings Bank, have since stopped offering financing for Newcastle Chrysler customers.
“We’re still getting our customers financed, we’re just having to use different sources such as local banks and credit unions,” Miller said.
Due to poor sales numbers and economic conditions, Miller had to lay off one mechanic and one auto detailer. “They were doing a good job, and I hired them to be part of my business,” he said. “There is nothing worse than laying those people off.”
In the office Miller reduced hours, and didn’t rehire for positions lost to attrition. Hours in all departments are being carefully monitored.
The job cuts are not due to reductions in profits in those departments, according to Miller. “Parts and service are very busy,” he said. “I think people are keeping their vehicles in better shape because they are planning on keeping them longer.”
He explained there is a possibility of more cuts depending on what happens in the economy, but layoffs are his last resort. He is committed to making the changes necessary to provide for his workers and keep the business going strong.
Miller and his wife are now driving used, more fuel-efficient, demo cars. Even the company Christmas party, which last year was a top-notch affair at Bintliff’s Bar & Grille in Wiscasset is being held at the Newcastle dealership this year.
He feels GM, Ford, and Chrysler need to reorganize and work their way through bankruptcy, instead of relying on a government cash bailout. “I don’t see any way this money they’re asking for can be anything more than a temporary fix,” Miller said. “They need a huge reduction in overhead expenses, including white and blue collar workers.”
The retirement, health, and pay benefits for American car companies are greater than those for foreign auto companies, according to Miller. He feels that puts American car companies further at a disadvantage.
These additional costs are added directly on to the price of the cars, which further reduce competitiveness with foreign auto manufacturers, according to Miller.
“No disrespect to the workers in the plants, but to save solvency reduces benefits,” said Miller. “They can declare bankruptcy. It’s just reorganization, which will have no effect on the consumer except they will be dealing with a more efficient company.”
He praised American automakers for coming a long way in recent years, regarding warranties offered, quality improvements, hybrid technology development, and four wheel drive options available on vehicles with good fuel mileage.
“The good news is all profits from an American car stay in the U.S.,” Miller said. “If you buy a foreign car where do those profits go?”
Some customers have expressed concern lately that Newcastle Chrysler may close after seeing the inventory reductions and layoffs. Miller was quick to assure them.
“We are committed to this community that supports us,” he said. “I am not going out of business. I will use all of my personal savings and retirement if needed. Forty families depend on me, that’s a lot of people.”
