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Automobile Industry Revs Up For 2010

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It's clear that 2009 was a tough year for the American automobile industry.

With companies laying off tens of thousands of workers, a nationwide credit freeze and a devastating 18 percent plunge in car sales, this has been the worst year in recent memory for the automotive industry. But as 2009 comes to a close, there are positive signs 2010 should be better than 2009, though challenges still lie ahead, including credit availability and continuing high unemployment.

It's hardly surprising that even the most optimistic dealers aren't expecting a full recovery to take hold until at least the second half of 2010. "It's going to be better than 2009," said Mike Shaw, owner of Mike Shaw Automotive in Denver, which sells Chevy and Saab vehicles. "It's not going to be Boomtown USA again. But it's probably going to pick up about 10 percent. Those who have survived and made it are going to sell more cars."

In its annual auto industry issue, HispanicBusiness Magazine interviews the owners of some of the nation's top Hispanic-owned auto dealerships, as well as some industry experts, to get their views on what it will take to kickstart the industry. Dealership owners say there is revolutionary change occurring in the industry and survival depends on adapting to a new business model. In one example of the shift, manufacturers are responding to the crisis not by freezing production, but unveiling new products. Credit markets are also loosening up to a degree, and the economy is showing signs of improvement.

Hot New Models

Th is year's new models include the long-awaited 2010 Buick LaCrosse, which General Motors hopes will both compete with luxury sedans and attract younger drivers to Buick. Also generating buzz is Chevy's 2010 Equinox, a crossover SUV that has improved fuel efficiency by 25 percent. And, flying in the face of current fuel-efficiency fashion, Ford in late 2008 unveiled its 2010 F150, the widest and most off -road worthy of the 150 series.

Some end-of-the-year results have been encouraging. In October, for instance, GM sales grew 4.7 percent — the company's fi rst monthly gain in two years. And Ford, which has enjoyed some consumer goodwill for neglecting to accept a bailout from the federal government, bumped up 3 percent. Chrysler, however, continued to struggle, reporting a 30 percent loss that month.

Nissan Motors Co. sales were up 5.6 percent in October, while Hyundai Motor Co., propelled by the popularity of the new fuel-efficient Elentra model, reported an impressive 49 percent jump. Toyota and Honda sales, for all practical purposes, were more or less fl at. In any case, regardless of the recent hopeful signs, the American auto industry is among the most challenged sectors of the recession.

After all, from 2007 to 2009, General Motors went from completing its 77th consecutive year of leading the world in auto sales to becoming majority-owned by taxpayers in the U.S. and Canada. Th us far, the most noteworthy bright spot for 2009 happened in July and August, when President Obama's cash-for-clunkers program allowed consumers to land huge rebates on new vehicles for trading in their gas-guzzlers. "It's the only true stimulus I've seen so far from the government," said Mario Murgado, CEO of Miami Automotive Inc., which sells vehicles made by General Motors and Honda.

Credit Markets

But the benefits of the cash boom were quickly off set. Following August's 7.3 percent boost in auto sales was a disappointing 10.4 percent drop in September, though sales stabilized in October. Dealers say a true recovery will require more substantial improvements on two major fronts: unemployment and credit.

"The first thing that needs to be corrected is for people to have a job and an income," said Chrysler Jeep dealer Dino Velazquez, lamenting how the nation's unemployment rate is at 10 percent. "Then they can buy the things they need."

But Anthony Batarse, owner of Lloyd A. Wise Inc., an automobile dealer that sells Nissan, Honda, Chrysler and other brands, expects a turnaround.

Under a new business model, the automobile industry will be even stronger than before, he declares. The Nissan Sentra and the Nissan Altima are among his top sellers and he expects that trend to continue in 2010.

"The smart dealers will survive because they will be able to cut expenses and adapt to the environment," said Mr. Batarse, adding that he has boosted television advertising spending on local television.

Also showing signs of improvement is GM's Chevy nameplate.

Sales of the 2010 Equinox have been so brisk the company recently added a third shift to its plant in Canada, as demand has outstripped supply. "We basically cannot build them fast enough," Klause-Peter Martin, head of Chevrolet Communications, told HispanicBusiness Magazine.

The company, he said, also has high hopes for the still unveiled 2011 Chevy Cruze, which will boast 40 miles per gallon on the highway. "All of our products rank in the top of their segments in fuel economy," he said. "We can prove that – it's not just P.R. or marketing talk." The Hispanic community, he said, still has an affinity for trucks and SUVs, but is also looking for vehicles with better gas mileage.

Making up 15 percent of the U.S. population, Hispanics have accounted for half of the nation's population growth since 2000, according to the HispanTelligence, the research arm of HispanicBusiness Magazine.

Hispanic Market Share

It thus behooves the industry to examine the market closely. Earlier this year, an extensive analysis by R.L. Polk & Co., a provider of automotive information, shed a little light on the matter.

The study found that Hispanic auto purchasers tend to be slightly less brand-loyal than other Americans. In surveys, Hispanics cite gas mileage, style and price as the top three factors driving their purchasing decisions. Th is seems to explain a recent trend: Over the past year, Hispanic consumers have slowly moved away from domestic vehicles in favor of Asian-made brands.

In 2008, Toyota, Honda and Nissan were the three top-selling brands of the Hispanic market, competing with Chevrolet, which had previously been No. 2, according to the report.

Silvestre Gonzales – whose Southern California dealership sells Chevys, Chryslers and Jeeps – says, as a rule, many Hispanic customers go for vehicles costing $15,000 or less.

"As cars get more expensive, it becomes less and less affordable for the average Hispanic buyer," he said. Because of the price, Toyota Prius has not been a big seller in the Hispanic market, he said. But the Jeep Compass – a small SUV that gets 18-22 miles per gallon – is "very reachable."

Dealerships are reinvesting in the Hispanic community, targeting a market that has not been fully tapped. Ramon Alvarez, CEO of Alvarez Lincoln Mercury Jaguar in Riverside, California – just east of Los Angeles – says about 50 percent of his customers are Hispanic.

Seeking New Markets

"I go after (the Hispanic market) with a vengeance," said Mr. Alvarez, who is also the vice-chairman for the Lincoln Mercury Dealers Association. In mid-September, he said, Lincoln Mercury sponsored three events celebrating Mexican Independence Day in the Los Angeles area. Auto dealers are also getting hip to Internet marketing.

"These days, people are researching our products before they come in," Mr. Alvarez said. "We have to make sure our Web site is current – the inventory of new and used vehicles needs to be updated constantly." In 2007, the auto sector was the leading source of revenue for Hispanic media outlets, spending more than $715 million, according to Advertising Age.

But last year, the revenue plunged by more than 20 percent, to $571 million, and the auto industry found itself surpassed on this measure by not one, but two other industries: telecommunications and retail. The $571 million spent in the Hispanic media market represents just a fraction of the auto-industry's overall spending in American media outlets: In 2008, the grand total was $13 billion.

But that amount, too, has declined sharply, from $15 billion in 2007, according to TNS Media Intelligence.

Meanwhile, much like the Big Three in Detroit, the little dealers across the country are struggling just to hang on.

Since 2002, the number of dealers across the country has fallen to about 19,000 from 22,000. Most pronounced is the decline of minority-owned dealerships, which has plummeted by roughly 43 percent since 2002 to 1,200, according to the National Association of Minority Automobile Dealers.

Some dealers, like Shaw, have been forced to make deep cuts. Since the recession began, he's laid off half of his staff and now has about 250 employees.

He believes that in order to survive dealers must undergo an entire shift in the way they do business.

Operating Efficiently

Dealerships, he said, will have to operate efficiently, and cut costs wisely. As he reaches out to the Hispanic market, he has noticed a slight change in interest.

"The Hispanics are still buying domestic cars, but they are buying other cars too," Mr. Shaw said.

"A long time ago there was a real preponderance of Hispanics being loyal to Chevy and Ford, but now they are becoming just like the mainline consumers. They have become very savvy consumers.

For more coverage on the automotive industry, please see HispanicBusiness' Auto Channel

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