State Follows Trend in Fewer Auto Dealerships

When Lindell Trimble retired and sold his Hot Springs dealerships to Orr Automotive Group of Texarkana recently, it was a continuation of dealership consolidation that began in earnest in the 1980s.

As a result, Arkansas Business' annual list of largest auto dealerships is growing shorter and shorter.

Falling off the list of largest auto dealerships since last year were No. 16 Lindell Trimble Motors Inc. (sold to Orr), No. 20 Jones Toyota-Volvo Inc. (Toyota sold to United Auto Group's Landers and Volvo sold to Premier Auto Plaza), and No. 24 Long Ford Inc. (sold to Landers).

"There were 434 dealerships [in the state] 10 years ago," said Dennis Jungmeyer, president of the Arkansas Automobile Dealers Association. "Now there are around 285."

And there may be fewer than 200 owners among that group of 285 dealerships, according to H. Ford Trotter III, this year's chairman of the auto dealers' trade organization.

Trotter, for example, has a Ford-Mercury-Lincoln dealership in Pine Bluff, and he recently acquired a Toyota dealership near The Pines mall when owner Tom Choates decided to retire. While that counts as two dealerships, they have the same owner.

Jungmeyer recalled that when he was younger, there were four dealerships in Chicot County. Now there are none. New dealerships, however, have opened up in northwest Arkansas, he said.

"It's going to change a lot more in the next 10 years," Jungmeyer said, as small dealerships face more cost-of-operation pressure.

Despite all the consolidation and the high profile of a half-dozen large auto groups, the big boys still own only 8-9 percent of all dealerships. The big advantage for the megadealers is economy of scale, both Jungmeyer and Trotter said. Industry analysts say those economies of scale can enhance margins by 20 -25 percent.

By clustering several dealerships close together, the large groups can save substantial sums by eliminating redundant functions, reducing advertising costs and standardizing employee benefits. In addition, Jungmeyer said, the larger groups have added buying power for parts, paint and oil.

Some groups combine parts departments and share some operations with other dealerships in the group. All of that, along with added product availability and the incentive programs that come with higher sales volume, makes it hard for small dealerships to keep up.

"People aren't as loyal to dealerships as they used to be," Jungmeyer said. "Not that many years ago, auto dealers sponsored ball teams and band trips. They were very community-oriented. We sat next to them in church. People felt a loyalty to do business with them.

"Maybe it's a generational thing, but that loyalty is eroding. People think nothing of driving 60 miles or so to buy a car," Jungmeyer said.

Trotter agreed that small, rural towns are likely to see their dealerships closed and not replaced as the generations change hands.

"It's just not that big a deal" now to drive to another town to buy a car, he said.

Yet, it's still a business focused on dealerships, and that model is expected to continue.

"Shopping for a car on the Internet has been neither a boon nor a detriment" to the dealerships, Jungmeyer said. "People have got to get behind the wheel and get the feel of a car," he said.

One factor leading to consolidation is that the children of car dealers aren't necessarily interested in continuing to work in the business, although that's not the case for Trotter. A third-generation Ford dealer, Trotter is running the company founded by his aptly named grandfather, Henry Ford Trotter, and later run by his father, Henry Ford Trotter Jr.

But the biggest factor in persuading independent dealers to cash out was sky-high offers of six or seven times the earnings, Trotter said.

Jungmeyer agreed that there was a "take the money and run" mentality for a while.

But those days are over, according to Trotter. The going rate for a dealership now is three to four times earnings, he said.

Some large companies are still scooping up small dealerships, led mostly by publicly traded companies that have greater access to capital and use it more aggressively than private dealers, who would have to take on huge personal risk to match the public firms.

Publicly traded United Auto Group, headed by Roger Penske, is the nation's second-largest auto dealer, with revenue of more than $4 billion in 1999. With its Landers holdings, it's the largest dealership owner in Arkansas. The company recently added Long Ford of Jacksonville to its stable and picked up a Toyota dealership with the breakup of Jones Toyota-Volvo of Little Rock.

United Auto, under the Landers label, has a Buick-Pontiac-GMC dealership in Benton, a Chrysler-Plymouth-Dodge-Jeep dealership in Benton, a Ford dealership in Little Rock, a Toyota dealership in Little Rock, the Jacksonville dealership, and Landers United Auto Mart for its used vehicles.

Operations such as Landers or Asbury Automotive Arkansas, which does business as McLarty Cos. under the North Point label, expand in given locations to achieve economies of scale that please investors, Trotter said.

Asbury owns North Point Ford Lincoln Mercury in North Little Rock, North Point Toyota in North Little Rock, BMW of Little Rock in North Little, Rock, North Point Mazda Volkswagen in North Little Rock, and North Point Volvo Nissan Lincoln Mercury in Little Rock.

Manufacturers an Enemy?

Auto manufacturers still say there are too many dealerships. A National Automobile Dealers Association report shows that there were 22,500 U.S. dealerships at the end of 1999 — down about 150 from 1998.

GM has encouraged consolidation in many areas. Chenal Parkway Buick GMC Inc. in west Little Rock recently acquired the Pontiac franchise from the North Point Automotive Group, according to general manager John Cox, because GM wanted it to be added to Chenal Parkway's Buick and GMC truck franchises.

For a while, it looked as if auto manufacturers like Ford and General Motors were also going to get into the retail business to cut costs and maximize profits, Trotter said. But they appear to be backing off and pulling out.

"They couldn't make it worthwhile," Trotter said.

The manufacturers are still trying to figure a way around the dealers by going directly to the customers through the Internet, according to industry analysts. Web sites will allow a customer to special-order a car, the manufacturer will build it, and the dealership will become essentially a delivery and service point.

That may not be all bad for the dealers. Most of any dealership's profits come not from new-car sales but from parts and service over the years, the higher margins on used-car sales, and commissions on financing and insurance.

"People would be shocked to realize how little profit there is on new cars," Jungmeyer said. "It's very slim."

Still, auto dealers have rung up a string of profits dating to just after the Gulf War. The auto market is very sensitive to interest rates, Trotter said, and with the low interest rates of the past few years, dealers have lived well.

Industry experts are predicting a record year for new-car sales, although sales in Arkansas seem flat to just slightly down, Trotter said.

In-State Battle

Just as they are nationally, Asbury, of Stamford, Conn., and New York-based United Auto Group are battling for the No. 2 position in auto sales in Arkansas. Both posted revenue nationally of just over $4 billion, but both lag far behind industry leader AutoNation, formerly Republic Industries. Both are growing through a strategy of internal growth and acquisitions.

So far this year, Asbury has made seven acquisitions that will add $850 million a year to the company's revenue, based on current sales figures. It now owns 120 dealerships across the nation. In contrast, AutoNation owns more than 400 dealerships and recorded more than $20 billion in revenue.

Asbury, the only privately held company among the leaders, focuses on buying proven megadealer operators in high-growth, high-profit markets. It's goal is to be No. 1 in every market where it does business.

Last year, the company headed by Thomas F. "Mack" McLarty III of Little Rock was Arkansas' second-largest dealership owner. McLarty Automotive Group, part of McLarty Cos., operated six dealerships in Arkansas and 11 total when the Texas and Missouri dealerships were counted. McLarty's dealerships turned in $545 million in revenue last year. That's all included in the Asbury lineup, where McLarty, also a third-generation car dealer, sits as vice chairman. Asbury has majority ownership of McLarty's dealerships.

United Auto's Landers operations in Arkansas posted $580 million in revenue last year.

Frank Fletcher Auto Stores remains the largest car dealership group in the state that is owned and operated by an Arkansan. Fletcher's dealerships chalked up $300 million in revenue last year.

Fletcher owns Fletcher Chevrolet-Oldsmobile of Springdale, Fletcher Chrysler of North Little Rock, Fletcher Chrysler-Dodge of Rogers, Fletcher Dodge of Sherwood, Fletcher-Tate Ford of Little Rock, Fletcher Honda of Bentonville, Fletcher Dodge of Jonesboro and Fletcher Car Plaza, a used-car supermarket at Sherwood.

New to this year's list is Orr Automotive Group. The Texarkana dealership's first venture into the Arkansas side of the state line came with the purchase of Lindell Trimble's dealerships. Through August of this year, the company has rung up $108 million in revenue. Brothers and partners Keith and Gregg Orr have eight dealerships that offer 16 makes of cars — Acura, BMW, Infiniti, Honda, Mitsubishi, Chevrolet, Dodge, Chrysler, Pontiac, Buick, Oldsmobile, Jeep, Ford-Mercury, Plymouth, Toyota and Cadillac.

Officers of Dealers Group

As leader of the auto dealers association, Trotter said he regretted voting for term limits for legislators. Looking to the coming session, he said, "it has made our lobbying efforts a nightmare."

The association's lobbying effort now consists mostly of trying to educate legislators on issues of concern to auto dealers, he said.

Besides Trotter, other officers elected last month to lead the Arkansas Automobile Dealers Association were vice chairwoman Barbara Graham, with Kent Chevrolet-Oldsmobile-Cadillac Inc. of Mountain Home; treasurer Ted Smith, with Smith Ford of Conway; Region One vice chairman Ronnie Ramsey, with Ramsey Motor Co. of Harrison; and Region 5 vice chairman Paul Riser, with North Point Ford-Lincoln-Mercury.