Great article by Terry Box including a quote from Car Pro, Jerry Reynolds.
Published: 14 August 2013 09:18 PM
Dirt really ought to be flying at area new-car dealerships this summer.
After 40 months of strong sales capped by sizzling 15.9 percent growth last year, dealers should be remodeling or expanding, using healthy profits to pay for capital improvements.
Some in the industry expect car sales to return to pre-recession levels by 2015 and remain high through at least 2016.
Nonetheless, many dealers — while optimistic — want more proof that the good times will continue to roll.
“I don’t believe I would spend $30 million on a new dealership today,” said Jerry Reynolds, founder and host of the Car Pro Show on WBAP-AM and FM and former managing partner of Prestige
Ford in Garland. “Dealers have long memories, and what happened in the recession of ’08 is still strong.”
Lurking on the horizon are higher interest rates, rising taxes and other possible budget deficit-related problems.
Though several dealers are building large facilities, including the enormous 170,000-square-foot Park Place Lexus store in Plano, overall capital investments seem restrained.
That probably reflects lingering dealer concerns about the economy.
“There is some new construction, and we’ve seen lots of remodels over the last couple of years,” said Lee Chapman, president of the Dallas-Fort Worth Metropolitan New Car Dealers Association. “But
you would think when times are good, you’d see more activity. There are still a lot of unknowns out there.”
Even the boom carries uncertainties.
As annual sales approach 16 million in the U.S., the downsized auto industry must rely on overtime, three shifts and other means to meet demand.
“I still think there is a huge backlog of people who need new vehicles,” said Karl Brauer, senior analyst at Kelley Blue Book’s kbb.com. “The question going forward is, can automakers build enough
vehicles to meet demand?”
During the deep recession of 2008, automakers desperate to cut costs closed factories and laid off workers, reducing their production capacity.
Now, with an improving economy and sales rising, many factories can barely keep up with demand.
The result could be even tighter supplies of vehicles in the months ahead and higher prices, both of which could slow sales growth.
“Everyone knew the new Ford Fusion would do well,” Brauer said. “But we are still having massive shortages of the car on the East and West coasts because Ford is not accustomed to having high
demand for its vehicles there simultaneously.”
The green light
Still, most dealers see a robust future for the industry, and some are betting heavily on it.
Dallas luxury dealer Ken Schnitzer is completing Park Place Lexus in Plano, which may be the largest Lexus store in the U.S.
But Schnitzer, chairman and founder of Park Place Dealerships, is also remodeling his Mercedes-Benz and Porsche dealerships on Lemmon Avenue in Dallas.
Meanwhile, Ford dealer Sam Pack just started work on an 83,000-square-foot facility to replace Five Star Ford in Carrollton, and Pat Lobb recently opened a Chrysler-Jeep-Dodge-Ram store in Frisco.
Both dealers say large, well-appointed facilities spur sales growth.
Pack, who owns four Ford dealerships in the area, said he understands dealer reluctance to invest heavily in new facilities, especially with the growth in Internet business.
“Some dealers will argue we don’t need as big a facility,” said Pack, who also owns Five Star Ford stores in North Richland Hills, Plano and Lewisville. “But even with the Internet, we still need
a facility to accommodate customers, and I think that needs to be a pretty big, nice facility.”
That business model may already be changing.
“As Internet retailing grows, smaller showrooms on less-traveled, lower-cost real estate will become the norm,” said George Hoffer, a business professor at the University of Richmond who follows
the auto industry. “The Web is the world’s window to your dealership, not the heavily traveled suburban automotive row.”
Pack’s four dealerships carry $85 million worth of inventory to give customers more choices, and he says he would buy even more cars and trucks if he could get them.
“Customers want choices,” Pack said. “They want to see how a car looks in different colors.”
Within weeks of opening his 50,000-square-foot Chrysler-Dodge-Jeep-Ram store in Frisco, he bought four additional acres for expansion.
They will supplement the original 7-acre site for his store off State Highway 121, said Lobb, who also owns the area’s top-selling Toyota dealership in McKinney.
“I promise you I have not forgotten 2008,” he said. “But I think consumers still want selection and want to see cars in different colors. They want to be able to pick what they want.”
Dealer Clay Cooley made his big investment four months ago, buying the former Q dealerships in Irving, a complex that includes Chevrolet, Chrysler, Dodge, Jeep, Ram and Fiat franchises.
Cooley said the collection — located on both sides of State Highway 183 — is just about the right size.
“Everyone I’m talking to thinks the industry has a good three- or four-year run in front of it,” he said. “We’re ready.”