Some Minn. car dealers expect more closingsby William Wilcoxen, Minnesota Public Radio
The closing of six Denny Hecker auto dealerships in the Twin Cities area late last week has cast a pall over the region's surviving dealers. Some industry observers expect more closings. Others, though, say the doom and gloom is overdone and that conditions are not so bad.
St. Paul, Minn. — In announcing its closings Friday night, the Denny Hecker Auto Group called the decision the result of a perfect storm of economic bad news.
The head of the Minnesota Auto Dealers Association, Scott Lambert, said the storm clouds are not budging. His forecast is for more bad news.
"I know there's more out there, and I expect more announcements of other store closings throughout the state soon," Lambert said.
Nationwide, new car sales dropped from an annual rate of 16 million in October 2007 to less than 11 million this year. That's due, in part, to would-be buyers staying away from showrooms.
In a Minnesota Public Radio poll conducted late last month, about 31 percent of respondents said they had postponed purchasing a new car.
Bruce Hansen of Duluth is part of the trend. His two cars are long in the tooth and high in mileage. He'd like a new car, but the old ones still run and so he plans to keep driving them.
"I'm retired so I have a pension," Hansen said. "But my kids, who knows how long they'll have their jobs? Families have to help each other, y'know. So it's better not to make major expenditures until things look more secure."
Decisions like Hansen's, multiplied millions of times over, have produced the economic pain that's ravaged many dealerships. Employment in Minnesota's Motor Vehicle and Parts retail sector has fallen more than the national average. The sector in Minnesota has lost 2,000 jobs in the last year.
But not all dealers are struggling. In fact, some report strong sales. Jim Leonard, who owns Fury Dodge Chrysler dealerships in Lake Elmo and South St. Paul, said sales are up over last year. He credits a buyer's market.
"Rebates are about the largest we've seen in the industry," Leonard said. "Used car prices are exceptional right now. Interest rates, the prime rate's down very, very low, a historical number. And those with good credit can get phenomenal financing right now."
Other dealers report sales have been up and down. Or, more precisely, down and up. Jim Jose, president of Madelia Ford in southeastern Minnesota, said sales have recently rebounded.
"It slowed up there for awhile in October and the first of November," Jose said. "But now that we're in the tail end of November, we're selling stuff every day, and seeing more customers coming around and some pent-up demand. People were just kind of on hold."
Dealers are hopeful that the new year will bring a change of fortunes. Bruce Hansen, the would-be customer who's holding on to his cars in Duluth, said he'll be monitoring the economic conditions after Barack Obama assumes the presidency in January.
Some dealers say for those who do want to buy, car loans are not hard to get, provided the customer has a good credit history. Jim Leonard said he deals with 16 lenders, all of whom are still regularly contacting him looking to make loans to qualified buyers.
"Some banks are stronger one month than the other month," Leonard said. "And when one bank backs off, another one tends to pick up. That's the way it's always been. It's not any different this year than it was last year or the year before."
Scott Lambert of the dealers association said there's another kind of credit crunch plaguing dealerships.
"There's also a big problem with credit on the other side of the stores," Lambert said. "Not consumer credit, but credit the dealers need to get to buy the inventory to stock their showrooms. All of the banks that used to finance that -- GMAC, Chrysler Credit, Ford Credit -- they're all caught up in the same banking problems that the Wall Street banks are in. And they're making the terms more difficult or even inaccessible for the dealers."
Lambert said the future of Minnesota's car sales industry will be affected by whether Congress decides to provide aid to the nation's Big Three automakers in the next few weeks. He said it's not that dealers should expect any such money would trickle into their pockets.
"What it means is that the dealers still have challenges, but at least they'll have options," Lambert said. "If the other option is for the factories to close, then there's really no option left for the dealers. If there's no factory, there's no cars."
Lambert said the number of auto dealers in Minnesota began shrinking long before the current economic problems. He said over the past five years, the state has lost 60 dealerships.
- All Things Considered, 11/24/2008, 6:19 p.m.