Tough times strike dealershipsWritten by Josh Mitchell
Scott Rodes’ first job in the automobile industry was 30 years ago washing and selling cars for his grandfather in Sylva.
Rodes was in high school, and the car business was much easier then.
Now the owner of a GM dealership in Sylva, Rodes is losing sleep about the future of the American automobile industry. He and other dealers in Western North Carolina hope Congress bails out the Big Three automakers with $34 billion to save the industry.
If the bailout fails, Chrysler, GM and Ford may fall into bankruptcy, possibly dooming Rodes’ dealership and millions of other jobs connected to the industry. No one is going to want to purchase a vehicle from a bankrupt company that can’t cover a warranty or provide service, Rodes said.
“I don’t feel we’ll be here very long (if the bailout fails),” Rodes said. “We’re definitely under a lot of stress.”
Times are hard
Business at area dealerships is down from 15 to 60 percent and workers, from sales to service employees, are being laid off, dealers say.
Rodes said this is the worst condition he’s seen the industry in. New car sales at Rodes’ dealership are down 40 to 50 percent, he said.
Bob Crawford, co-owner of Smoky Mountain Chevrolet in Franklin, has been in the vehicle business 40 years and agreed this is the worst it’s been. Crawford’s first job in the automobile business was cleaning the bathrooms and the showroom on the weekends at a dealership in Sylva where his father was the service manager.
Today business is down 60 percent and several employees have been laid off, Crawford said.
Business at the Chrysler/Jeep/Dodge dealership in Franklin is down 30 percent, and if Congress doesn’t pass the bailout, things are going to worsen, said General Manager Gary Tallent.
Consumers are scared to purchase big-ticket items like vehicles now because they are worried about their job security, Tallent said.
Unlike many dealers in Western North Carolina, Tallent has not had to lay off any employees.
“Everybody’s got a family, so we try to hang on to them as long as we can,” Tallent said.
Things may turn around when president-elect Barack Obama takes office, he said.
Luckily salesmen always hope for the best.
“In general a salesman is an optimist,” Rodes said. “He thinks today is going to be the day. There are still customers out there.”
To weather the problems Rodes said he is reducing his new vehicle inventory, watching his expenses and depending on his service department and used car sales.
“If we get the bailout money hopefully things will start picking up,” he said. “If we don’t, I don’t know what to expect. I hope service holds until sales pick up.”
Rodes and several dealers say the service side of their business has increased because people are maintaining their older cars rather than trading them in for a new one. (see related article.)
Rodes said he laid off a finance manger and an oil change employee. However, he said he hired a mechanic.
To deal with the hard times, Anton Pontiac Chevrolet/Buick closed its Canton location and moved everything to its Waynesville dealership. Scott Shepherd, manager there, said it is the worst he’s seen the industry in 30 years.
Consolidating the dealerships made sense because only one service manager is needed now, and the Waynesville location is next to the new Super Wal-Mart.
About six employees have been laid off to deal with the downturn, Shepherd said. Overall business is down about 15 percent, he said.
One big problem with the auto business in Western North Carolina is that there are too many dealerships, Crawford said.
“When there are that many it’s difficult for any to be profitable,” he said.
He noted that part of GM’s plan if it gets the bailout is to close hundreds of dealerships.
“It could affect any of us,” he said.
Crawford is dealing with the difficult times by “hunkering down and living as simply as we can.”
The difficulty getting a car loan nowadays is exacerbating the problem. Lending standards have tightened with the credit crisis.
“Some lenders went out of the auto loan business,” Rodes said. “GMAC has really restricted car loans.”
However, it is not impossible to get an auto loan, although higher credit scores and more down payment is required, Rodes said.
Crawford said there is no problem getting car loan these days: “90 percent can still get a loan,” he said.
Senior loan officer at WNC Community Credit Union Patty Sutton said her organization is still making car loans but is being a little more cautions with the economy.
Thoughts on the bailout
The American automobile can still have bright future, Tallent said, adding that he still has a lot of pride in the industry.
“I believe there’s a terrible misconception about the quality of the vehicles,” he said. “If I thought we made crap I wouldn’t have spent the biggest part of my adult life in this job.”
Even with all the problems facing the industry Crawford still holds much pride in the American automobile and says he will put it up against any foreign car.
“I think the product is the best it’s ever been,” Crawford said.
Crawford hopes the bailout passes but said for it to be effective, Congress and the auto industry must solve the root causes of the problems.
“Neither side is looking at the long term consequences or fixes,” he said. “They need to look at the root, fundamental causes of the problems.”
The bailout won’t work unless the government makes the playing field between foreign cars and domestic cars even, Crawford said.
Crawford doubts the bailout will pass.
“I don’t think the auto business is perceived as being that important to elected representatives. I don’t see them supporting anything that deals with infrastructure and job creation. Most of what they’ve done is stop-gap measures with catastrophic failures.”
Another reason he doesn’t think Congress will pass it is that, “Everything in society is ‘I and I don’t care about you,”’ he said.
But some, like Benjamin Daniels of Sylva, are fed up with the U.S. auto industry and oppose the bailout.
“It seems to be rewarding the wrong kind of behavior,” Daniels said.
The bailout would spend billions of taxpayer dollars and might not even fix the problems, Daniels said. But the fact that so many jobs will be lost if the auto companies go bankrupt makes it hard for Daniels to oppose the bailout, he said.
“If the bailout fails a lot will lose their jobs, and I don’t know what to say about that,” he said.
Daniels is simply disgusted with the industry.
“When all three CEOs showed up (at Capitol Hill) in their own three individual private jets, I lost a lot of sympathy,” he said. “I think a lot of them need to be fired.”
Cullowhee resident Tim Singleton said he reluctantly supports the bailout. It is not the government’s responsibility to bail out business, but with so many jobs on the line it needs to be done, he said.
Some of the blame for the problem is on the auto companies for being slow to respond to changes in the industry such as developing hybrid cars.
But the American auto industry is beginning to catch up with foreign manufacturers and make more hybrids, Tallent said.
Crawford agreed that many probably view the American automobile industry as “slow, stupid and unresponsive to change.”
But he said Chevrolet is coming out with a half-ton hybrid pickup and hybrid Malibu soon.
GM has a hybrid Yukon that is in high demand and is also coming out with a hybrid pick-up in 2009, Rodes said.
Crawford said he is more concerned about the trickle-down effects of the auto industry going bankrupt such as parts manufacturers going out of business.
“It will work its way through the economy,” he said. “That concerns me more than my personal situation.”
The problems with the auto industry are already rippling through the economy. Towns and counties are losing out on sales taxes paid by car buyers. Newspapers and TV stations are hurting from a decrease in advertising. And auto parts manufacturers are laying off workers, including the Fletcher plant of Continental AG, a German company that makes auto parts.
The company, which has 10,000 employees in North America, laid of 10 percent of its workforce in June. It anticipates another 10 percent is coming next month, according to Kathryn Blackwell, spokeswoman for Continental AG.
The layoffs are a result of “the downturn in the industry,” she said
“This obviously is the sharpest downturn we’ve seen in decades,” she said.
The general state of the economy, mismanagement of the Big Three automakers and competition from foreign vehicles have led to the problems.
Another problem: it costs more to build an American vehicle because of high wages and pensions demanded by the United Auto Workers Union, said Shepherd, manager of Anton Pontiac/Chevrolet/Buick in Waynesville. In order for a bailout to be effective the union would need to give in a little so U.S. autos can be more competitive with the foreign market, Shepherd said.
Both the government and the auto industry are responsible for the situation, Crawford said.
The government did not protect the manufacturing industry from foreign competition, and the industry failed because “they all quit being car companies.”
“They gave into the unions when they should have held their ground. They became more concerned with the manufacturing process rather than developing new products,” Crawford said. “GM is not the smartest but they are the biggest. They lost sight of what they are — a car company.”
Will the bailout pass?
US. Rep Heath Shuler, D-N.C., voted against the $700 billion Wall Street bailout, but dealership managers are hoping he votes for the auto industry.
Tallent and Crawford asked Shuler to “please” vote for it.
There is a good chance Shuler will vote for the auto bailout even though he didn’t for the Wall Street one because he seems to favor blue-collar workers, Tallent said.
Shuler told The Smoky Mountain News on Monday (Dec. 8) that he is unsure if he will support the bailout. (see related article).
Tallent said he didn’t know whether the bailout would set a dangerous precedent with the government bailing out the private sector. Although, he said the government helped Chrysler in the 1980s and the company paid back every penny.
To let the American automakers just go out of business would be disappointing, he said. With American Henry Ford inventing the automobile, it “would be sad to see the domestic automakers go out,” Tallent said.
Western Carolina University Professor of Economics Dr. Bob Mulligan said he is against the bailout, and thinks it would be better if the American auto industry fell into bankruptcy.
Many economists think the bailout is a good idea, but he views it as “beyond idiotic.”
A bailout will only delay the auto companies’ financial problems by about 10 months, Mulligan said.
What the auto companies really need is structural change to survive, Mulligan said. The companies need to offer more products than gas guzzling SUVs, Mulligan said.
A bailout would simply give the companies billions of dollars to lose, he said.
Japanese automakers have been more successful than U.S. companies because they have a cost advantage of not being burdened by unions.
The Japanese companies pay a comparable wage but are not saddled with large pensions, Mulligan said. U.S. automakers are paying its workers for not working, he said.
Bankruptcy is the only solution for the U.S automakers because it would enable them to get out from under the labor unions and financially reorganize, Mulligan said.
But the car dealers in the region would say otherwise.
“I think it will work,” Tallent said. “Hopefully they’ve learned some lessons.”