As U.S. auto sales sputter back after plunging to a three-decade low earlier this year, local car dealers say that they are surviving with increased car repairs and used-car sales.
The Cash for Clunkers program and decreased competition, the result of about 60 car dealers closing their doors the past two years, also have been key.
While domestic sales edged up slightly in November, experts are predicting only a slight bump up in new car sales next year, to between 11 million and 11.5 million vehicles, about a third less than the 16 million to 17 million the U.S. averaged the past decade.
“Car dealers are struggling with the downturn in car sales,” said E. Clayton “Chip” Gengras, owner of the Gengras dealerships in Hartford and East Hartford. “I think what we’ve all learned how to do is to survive in this marketplace.”
The prognosis for Connecticut’s dealerships would have been much grimmer but for the summer’s Cash for Clunkers program, said James T. Fleming, president of the Connecticut Automotive Retailers Association.
“Cash for Clunkers did a lot to save the 13,000 jobs that [Connecticut] dealers represent at the present time. It provided a cash infusion when credit was really tight.” Half of those who turned in their old vehicles under the program had never bought a new car before, Fleming noted.
Now that credit is easing, “I think the bleeding has stopped,” he said. “I think dealers going forward are quite capable of dealing with the reduced number of [new car] sales that we’ve seen nationwide.”
Except for some GM dealerships that will be winding down because of the company’s trip through bankruptcy, those dealers now in business in the state are going to be able to stay in business, Fleming said.
Fewer Dealers
During the past two years, about 20 percent of the car dealers closed down in the state, Fleming said. In January 2008, the auto association counted 325 members; now the number is about 265.
The bulk of the closings occurred among the domestic brands as Ford, GM and Chrysler took advantage of the economic downturn to slash their bloated numbers of dealerships.
So while the economy has decreased the number of consumers in the market to buy a new car, there also are fewer new car dealers.
The wave of closings of domestic dealerships has benefited the surviving dealers in two ways. They have more new car sales as well as the opportunity to sell the cars at a higher price, said George Magliano, an analyst at IHS Global Insight, an international economic and financial services company.
“The whole idea of closing the dealerships is No. 1, from a manufacturer’s point of view, they want to get better pricing power,” Magliano said. “They realized that the dealer network was too big and dealers in the same location were basically competing against one another. This is why they wanted to weed them out. The other thing, too, was … each dealer would be able to sell more new cars.”
The decrease in auto dealers has also helped domestic auto dealers to work through the backlog of unsold cars on their lots that existed earlier in the year, which forced manufacturers to offer cut-rate deals to entice new car buyers.
Reduced Inventory
For their part, manufacturers, who were caught with high production levels when the market collapsed last year have been cutting back on their assembly lines and reducing the numbers of new cars they allocate to each dealer.
“I think that [car makers] clearly decided to be more conservative with how many cars and trucks they manufacture because it costs them money to stock them and inventory them, too,” said Jeffrey Hoffman, co-chairman of the Hoffman Group, which has 10 dealerships in East Hartford, Simsbury and New London, most of them selling foreign cars. “Which I think is generally good for the industry because we don’t have to pay extra on extra inventory sitting on our lots.”
With fewer Chevrolet dealers in Connecticut, Gengras Chevrolet in East Hartford has seen new car sales go up about 10 percent year to date, Gengras said. His Chevrolet service business has boomed — up 50 percent over last year, because it is handling all GM models, including Saturns and orphaned Pontiacs.
Service, Used Cars
Many local car dealers have offset a decline in new car sales with increased used car sales and a bump in their service and parts business, especially as more customers decide to keep their older cars longer.
The mushrooming demand for service and parts has turned out to be perfectly timed for the Hoffman auto group, which years ago had begun a major expansion, much of it in those growth areas, said Hoffman.
“We’ve taken the tack of increasing capacity where business will increase,” he said. Service, parts and body- shop businesses all have increased by double digits over last year for the group, he said.
Repair shops, too, are benefiting from the burgeoning demand for service, as more people decide to forgo buying a new car, instead keeping their older car longer.
“It’s a help to us because people [in the past] would either buy a new car every two years or three years or get a lease for three years,” said John DeSimone of Modern Tire of West Hartford Inc. “Repairs don’t really kick in until about 40,000 or 50,000 miles.”
An Associated Press report was included in this article.
