Dealers Try to Keep Up With the Joneses
Monday, September 19, 2005
A lot was changing for car dealerships in the Washington area even before gas prices started their meteoric rise in the past year.
In the 1970s, for example, before thousand-dollar discounts and online price quotes, people would walk into John Darvish's car dealership and pay close to the sticker price. Today, they come in armed with pages of research and multiple price quotes from other dealers.
"They don't need us anymore," said Jamie Darvish, son of John Darvish and vice president of his family's company, Darcars Automotive Group of Silver Spring. "They can check 10 other dealers, and it's the same car everywhere. And they don't even have to leave the house."
Now these super-educated customers, who sometimes know more about a car's features than the salesperson, are posing another challenge to those in the business of selling cars: keeping up with rapidly changing consumer tastes.
Washington area drivers had been slowly shunning domestic automobiles in favor of imports for years, and that trend was only accelerating until this summer, when the Big Three automakers offered steep employee-pricing discounts that sent buyers flocking to domestic vehicles. But those incentives are petering out, and now that gas prices are soaring, drivers are not only moving away from domestic cars, but they're also rejecting bigger sport-utility vehicles in favor of smaller, more fuel-efficient cars.
"Over the Labor Day weekend, I saw the biggest shift that I have seen in recent times from trucks to cars," said Vincent A. Sheehy, president of Sheehy Auto Stores, which has dealerships in Virginia and Maryland. "We are sold out now of Nissan Sentras, Ford Focuses, Chevy Aveos. All the small cars have suddenly become a hot item on our lots, and these are vehicles that six months ago might've been a little more of a struggle to move."
Some local dealers have been left grappling with inventory problems, as they try to get the right mix of vehicles on their new- and used-car lots. But executives say it's just another in a string of changes they have had to make in recent years.
At local dealers that once focused on making as much money as possible on each car, for example, the focus today is on volume and making money from other aspects of the business, such as used cars, service and body shops.
"Most of the dealers you'll find in D.C. are oriented the same way -- particularly the big dealers who are looking to grow," Sheehy said.
About 30 years ago, car dealers kept a 22 percent profit margin between the sticker price and the invoice price of a full-size vehicle, said Art Spinella, president of CNW Marketing Research Inc., a market-research firm in Bandon, Ore. Most customers would pay the sticker price, he said, and only 17 percent of car buyers would try to negotiate a price lower than the manufacturer's suggestion.
Today, dealers' profit margin has shrunk to 7 percent, he said.
As consumers have become more informed, they are demanding prices closer to the number on the dealer's invoice. And with more models offered, the competition between brands, and even within brands, is increasing.