Another facet car dealerships contend with are the cost-cutting measures taken by automakers. One obvious example is the elimination of dealerships. Alaniz believes that GM's decision on whether to keep a dealership open or close it relies on customer service and customer sales satisfaction. He explained that every customer who buys a GM vehicle gets a satisfaction questionnaire from the company, as does every customer that comes in to use the service department for warranty work. GM uses these questionnaires to grade the dealership.
"I think it will be the satisfaction surveys that will hold the most weight when GM decides what dealerships to close," said Alaniz. "So I am telling my employees to focus on service and sales satisfaction."
The dealerships themselves are looking to cut costs. Alaniz has cut his advertising budget by one-third and has concentrated on targeting his ads on a particular demographic. As he's determined that his customer base is approximately 60 percent Hispanic, he's advertising on Spanish television. He is also targeting customers with higher credit scores.
Alaniz also offers some minor incentives to draw potential customers from outside his immediate area.
"We're located 50 miles from Corpus Cristi and 90 miles from San Antonio," said Alaniz. "Customers from there sometimes call to inquire about our vehicles and we invite them to come down and we give them a free dinner at Chili's."
He forecasts that the dust will clear during the first quarter of 2009.
Fernando Varela, All-Star Ford-Mercury, Palantine, Texas
Fernando Varela's All-Star Ford-Mercury opened in 1994. He has 40 employees. He said that he has not yet had to lay anyone off but he has been forced to re-adjust payment plans. He said that his best years were from 20'04 -20'07.
"2007 may have been one of my best years," he said. "We sold more than 1,000 units." More recently, he said that sales for November and December of 2008 were down about 10 percent to 15 percent. He blames the decline in sales on the weather and on the recent impact of the bad economy on his region of Texas. Varela indicated that he is experiencing a better January due to a strategy that focuses on used vehicles.
As a Ford dealer he uses Ford Credit to secure most -- about 65 percent -- of the loans he gets for his customers. He is also using a national bank -- Wells Fargo -- some local banks and credit unions. He noted that the credit unions have been very aggressive and is offering "cheap money" at 4 percent to 5 percent. "The more alternatives the better," he said.
Varela said that two dealerships about 30 miles east and west of him have gone out of business. But he is not too concerned that Ford will close him down.
"My dealership is one of the strongest in the area and I have been taking on the additional customer base that was served by those two dealerships."
He expects to see more dealerships merge this year if business does not pick up, but he also noted that dealership closures are happening mostly in the huge markets like Dallas, Houston, and Los Angeles. "There you will find a dealer every two miles. Here and in other rural areas the dealerships are more than 30 miles away from one another."
Ford has been offering incentives in the manner of cash back on some models.
"A customer could get $3,000 to $4,000 cash back according to what model truck and get an interest on the loan of 4 percent to 5 percent," said Varela. Unlike Alaniz's experience with GM, Ford reimburses Varela for the incentives quickly.
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