Local car dealers look to emerge from tough economic times with a downturn-tested, frugal disposition
Kain
Lexington, KY - All car dealers felt the effects of the deep recession in recent years. Many customers simply stopped buying new cars, and a couple of American carmakers, General Motors and Chrysler, filed for bankruptcy. Ford also had its troubles.
“It was a very trying time for us as a dealership. We have been in business for 50 years, and had it not been for our loyal customers, it would have been a really tough time,” said Bob Kain, general manager of Jack Kain Ford in Versailles, Ky.
“We really buckled down and cut expenses by more than 20 percent. We lowered our employee count from 47 to 40. We did everything to offset lost revenue, including cutting new car inventory in half,” said Kain.
Kain Ford also created several other avenues of revenue that it didn’t have before.
The most important new revenue stream was retailing cars that Kain would previously sell wholesale at local auctions. The dealership fondly calls them “Back Row Joes” — much cheaper used cars.
“Many people weren’t looking for new or late-model cars, just something to get them through. A $3,000 to $4,000 car was their car of choice, so we sold many of those and it helped a lot,” Kain recalled. He says the Back Row Joes will remain.
With new vehicle demand back up again, Kain doesn’t offer as much selection as before the recession, but it does have much more than during the slowdown.
“It made us become better managers. We can’t forget what can happen, and as a result, we’re sticklers about expenses. Before, we as dealers became very comfortable knowing that business was going to come in. When it was cut back, it was scary,” Kain concluded.
Another company, Toyota, was hit with a triple-whammy in recent years. First, there were lower Toyota car sales because the buying public was worried about the economic crisis. Next was the pedal entrapment/floor mat recall and another for an alleged accelerator pedal problem. Finally, the devastating Japanese tsunami crippled Japanese car manufacturers and affected car parts plants all over the world.
“It was very tough. The effects of the tsunami will linger for a long time, because it changed the business model that Toyota operated with and really made the company think,” said Clay Green, president of Green’s Toyota in Lexington.
Toyota re-examined how it dealt with far-flung parts suppliers, paying attention to where they were located and what kind of backup plans were needed to manage a potential crisis.
Pre-recession and post-recession business dealings are quite different for Green’s Toyota.
“I think we meet a lot more to make sure our execution is the best it can be,” said Green. “But we handle everyone the same as before the recession. Our ultimate goal is to treat everyone, whether customer or employee, with honesty, integrity and professionalism. We try to maintain that foundation through good times and bad.”
The recession is ending, but Toyota is again experiencing car shortages.
“March 2011 really took off, and April was a humungous month,” said Green. “But when people began to realize the devastating effects of the tsunami, we had a huge rush on inventories, which pretty much cleaned us out for the rest of the year.”
By January and February of 2012, Green’s Toyota began replenishing inventory to satisfactory levels.
“Now, sales have picked up so much that inventory is shrinking again, but in a good way,” said Green.
In the midst of the recession, 2009, Louie Gaver bought a minority share in the financially troubled Lexington dealership Sutherland Chevrolet.
“We went in and capitalized it and got inventory back up,” said Gaver. “But truly, we do business the same way Sutherland Chevrolet has done business since 1925. We’re not doing any special financing or that type stuff — just basic car dealing. We try to do it the right way. This is a local, ‘Mayberry-type’ dealership.”
Gaver said sales have picked up quite a bit since the recession wound down but are not yet what he wants them to be.
“Absolutely not, but that’s coming around the corner,” he predicted.
Gaver said Chevrolet is building better, more fuel-efficient vehicles. The transition started in 2007, not after the federal government bailout of General Motors, he said.
“They were already in the works well before any of that happened,” he said.
Another effect of the economic downturn has been a reduction in car leasing. When the economy went south, many drivers stopped leasing new vehicles. Those leases, as they expired, previously constituted a good percentage of the used vehicle inventory that dealers coveted — two- or three-year-old cars, trucks, vans and SUVs with mileage between 25,000 and 45,000. As the supply of those vehicles has dropped, Gaver said, the demand continues to be high.
Dealers believe that as vehicle leasing improves, more of them will be turned in and sold as used.
“You’ve got to have what people want,” Gaver concluded.