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Car Dealerships Speeding Towards a New Normal

We continue to bump along the bottom,” said LaVelle McCoy, president and CEO of McCoy Motors in Flagstaff. “Fortunately,” he added, “I don’t see it getting any worse.”

Whether it gets any better, however, depends on many factors. What is certain is that McCoy isn’t alone for this ride. Car dealerships in Arizona and elsewhere are confronting the “new normal.” The first quarter of 2010 saw a worldwide significant decline in car sales due to the credit crunch and a global economic crisis that (if reports are believed) snuck up on even the savviest of financial experts. In early 2009, new car purchases declined, manufacturers reduced their production, and inventories at car dealerships shrank consider- ably. Incentives like the Cash for Clunkers program failed to provide an anticipated (and much needed) remedy.

“I don’t see that it helped,” said McCoy. In fact, he added, “It came at a horrendous cost for American taxpayers.”

While the short-lived trade-in program may have provided some benefit on an individual level, McCoy is quick to pointout that most people opted for “imported brands with perceived higher gas mile- age.” So, McCoy concludes, “not much benefit for me or for American cars.”

“It was a quick injection,” said Frank Cuellar, general manager of Cake Chevrolet in Winslow. Then, inventory “tightened up,” as manufacturers cut back on

production.

Charles McLaws, manager of Payless Car Sales, has a harsher view. “Cash for Clunkers really destroyed my business. It was the stupidest thing in the whole world.” McLaws has been selling used cars in Winslow for the past three years. “The first two years were good,” he said. “The last 14 months have been a

struggle.” McCoy echoes that sentiment, “It’s been an interesting 18 months in the car business.”

New and used car sales were at record highs in 2006-07, followed by sharp de- creases in 2008, coinciding with gas pump prices into the $4.00 range in Winslow and other parts of the country. Car sales went into a nosedive that continued into 2009. There are some indications, however, that car sales for 2010 are on the rise.

“If 2009 was the jet fighter,” said Cuellar, “then right now, we’re on the passenger jet.”

Recently, he has seen an upturn, particularly in light trucks, currently 70-75 percent increased 40 percent in both new and used car sales from May of last year.

There isn’t just the economy to worry about, however. The percentage of the population worldwide living in cities has increased steadily in the 21st century. Walkable cities connected by light rail will reduce our need for cars. Rising fuel prices may convince more people to use alternate forms of transportation, while the success of electric vehicles is by no means certain. Some of these trends will not be immediately evident in Northern Arizona, but economic pressures on car manufacturers will eventually affect dealerships as well.

For now, though, there is hope in the fact that even in bad times, people still need transportation and cars and trucks still need to be repaired. Service personnel at McCoy Motors “haven’t really experienced a recession,” McCoy says. Likewise, Cake Chevrolet does a brisk business in repairs: 75 percent of its revenue is service revenue, as com- pared to 25 percent car sales over the past several years.

The outlook for new car sales will depend on the number of “need” buyers, according to McCoy. “For the time being [at least], our communities are designed for cars, so everyone needs transportation,” he said. “Pent up demand will drive up sales,” but “maybe not back where they used to be. What was normal in the past doesn’t exist.”

If that’s the case, however, McCoy is prepared to turn elsewhere. “I’m on a continuous improvement track,” he said, “I continually look for opportunities.”

He is poised to introduce a new “offshore” car brand in the coming year, but he is also considering other types of businesses.  “Hopefully related to autos,” he says, “but it doesn’t have to be.” FBN

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