Minority Dealers Concerned Their Gains Will Erode
Tuesday, April 28, 2009
Since the 1970s, General Motors has led the way in providing opportunities for minorities to own car dealerships. The automaker pioneered special training programs and put money behind candidates for new dealerships.
Now, after almost four decades of slow but steady progress, minority dealers are increasingly worried that the latest wave of GM cuts could erode any gains. As part of its latest restructuring, GM yesterday said it planned to slash about 2,600, or 40 percent, of its 6,200 dealerships. GM currently has about 240 minority dealers.
GM officials have yet to list which dealers could face closure. GM spokeswoman Susan Garontakos said decisions will be based on individual dealer performance but said the company remains committed to expanding the number of minority-owned dealerships. The criteria include sales, customer satisfaction ratings, capitalization, profitability, location and the quality and size of the store. Minority dealers say those criteria could prove fatal for their operations.
"Quite frankly, this is going to be really hard on minority dealers," said Dzung Nguyen, a GM dealer in Goshen, Ind. "The automobile business is a very capital-intensive business. We have not had the wealth. We don't have enough of the fat because we are fairly new."
For Nguyen, buying a large, dominant GM dealership was out of the question when he became a dealer a decade ago. He said he had to settle for the store needed by the Indiana town of 30,000 people. Nguyen has said he's been cutting expenses, but he said his dealership may never be as profitable as rival big-city GM dealerships.
Others also expressed worry about GM's criteria for keeping dealers.
"I've got two of the largest volume Chevrolet stores on either side of me," said Mike Johnson, owner of Michael Chevrolet in New Baltimore, Mich. "In terms of raw numbers, we don't compete with the larger, well-established white dealers. GM is going to be looking for the dealers who dominate their market territories."
GM dealers see other bad signs. They point to GM's decision to kill the Pontiac brand. Nearly a third of GM's minority dealers sell Pontiacs, according to the National Association of Minority Automobile Dealers.
The number of minority dealerships industry-wide has slipped to about 1,200 from a peak of 2,000 in 2002 and 2003, according to NAMAD. Johnson said he was particularly concerned about the staggering decline of black-owned dealerships at GM.
"In 1990, GM had over 100 African American dealers. Today we are down to 40," he said. "We are absolutely certain that a large portion of us are going to get wiped out."
Even during good times, minority dealers struggled. Their problems have centered around insufficient capital and being placed in poor locations by the companies. The recession has brought on plummeting sales and tight credit markets, exacerbating the dealers' troubles.
Peggy Cockerham, the African American owner of Franklin Pontiac-Buick-GMC outside Nashville, said minorities are having increasing difficulty finding capital to keep their businesses afloat through rocky economic periods.
"Minority dealers don't have the second-generation and third-generation dollars they can pull from," Cockerham said. "After all this is done, the opportunities will remain with the same group of old-line wealthy dealers. Unless we are very careful -- unless we get manufacture support -- we will eliminate our minority dealers."
Johnson and other dealers say they are troubled by cutbacks in staffing levels of GM corporate initiatives that support minority dealer development. Dealers say the department has been "basically dismantled" by the cutbacks at GM.
"Right now, because they are in crisis mode, they don't care," Johnson said. "We used to have a system of support. Now we are truly on our own."