The deal on wheels

Basic necessities of life: food, clothing, shelter — and a car. Whether it’s a classy Benz, a sure-footed Subaru, a rugged Jeep or a tried-and-true Chevy, Americans seem to need their vehicles as much as they need their jobs and families. That’s why we convened four local auto sellers for our quarterly Business Round Table.

Rarely a shy group, dealers representing family-owned companies that are among the oldest in town talked frankly about vehicle innovations, industry trends, the state of business, competing in the local market and what’s ahead.

What’s really cool

November kicked off months of car shows around the world, where automakers tout innovations of 2008 models, perhaps announce corporate plans and unveil futuristic concepts, such as General Motors Corp.’s fuel cell - powered Equinox and the Volvo ReCharge, a plug-in hybrid with individual electric wheel motors. Those and others were introduced this week at the Los Angeles Auto Show, which runs through today. What are local dealers excited about?

Elizabeth Daniels: The hybrid Tahoe, one of the first of the large SUV-types to come out in a hybrid version. Typically in Colorado, we’re not going to give up our large vehicles because we hunt and we fish and we fourwheel. It’s a winner that really fits Colorado. We have a lot of people asking about it. That’s what always tells you something good is going to happen.

Ben Faricy: For Jeep, the fourdoor Wrangler continues to be hotter than any car we’ve had in a long time. On the Chrysler side, there’s a totally redesigned minivan, Chrysler Town and Country. One of the neat features it has is that the middle two buckets swivel around and face the back bench seat, so it encourages sibling interaction.

Bob Fenton: Our spread goes from Kia to Mercedes-Benz, and the neat thing is there are so many good choices — quality across the board and good gas mileage. The Ford lineup is the best showroom we’ve ever had, hands down. We went through a product drought for a few years - I think a lot of the domestics did.

The car driving a ton of traffic is the all-new Mercedes-Benz C Class. We normally think of that as a very small niche market. But the car is priced in the low $30,000s, which makes it very affordable, so it’s drawing interest.

Going green

With crude oil prices hitting record highs, gas and diesel prices topping $3 a gallon once again and the nation’s move toward environmental consciousness, manufacturers have been scrambling to bring to market vehicles that run on alternative fuels. The green trend is changing the industry.

Fenton: The largest-growing segments are the small SUVs: the Escape, Liberty, the Edge. There’s a tremendous market shift to the compact and the hybrid market — they’ve grown 70 percent this year. The midsize SUV, the traditional one, has crashed — it’s dropped by 26 percent this year.

We see the middle suffering. There are a lot of people buying little cars, and the big Expedition is actually increasing in sales, but the middle has softened.

Daniels: E85 is now becoming a choice — people aren’t just choosing to buy a car for today or for a threeyear finance, they’re choosing it based on what gas mileage it gets and being a green person. Some people clearly want to drive an E85 vehicle because they want to flip back and forth between gas and E85 when they need to — it’s something in their hearts.

The local market

Colorado Springs has 38 franchised new-car dealers, and like other industry sectors, the businesses have been impacted by the nation’s housing slump and credit crunch, fickle gas prices and depressed consumer confidence.

Revenue from sales of new and used vehicles hit a record $603 million in 2004, according to the city sales tax division. Sales dropped to $526.6 million in 2005 and remained flat last year. Through October, sales this year are down 0.75 percent from last year.

Faricy: Business is up for us in new, used, parts and service. Part of it is new product, part of it is local growth in the northeast. But all is not blooming. There’s national macro stuff, with oil at nearly 100 bucks a barrel, and there’s local stuff with home building and subprime. It’s affecting Colorado Springs, so we’re cautiously optimistic.

Daniels: We’re just flat this year. 2004 was a good year. We didn’t talk gas, we didn’t talk interest (rates), we didn’t talk flat home sales, we didn’t talk unemployment.

Fenton: Consumer confidence has really been challenged. We have 10 franchises in Colorado Springs, and it’s hard to use a blanket statement for every one. Saturn has had phenomenal growth, but they’ve enriched the franchise to the point that it’s selling better. Hyundai also has been a good franchise, but some of our smaller franchises have struggled with market share.

Gunnar Heuberger: For us, business is up, and it’s our marketing strategy, with some aggressive things Subaru’s helped us with to obtain market share, like advertising funds being available more for regional and local dealer advertising. We’ve had calculated, steady growth.

Fenton: The war had a tremendous impact here when soldiers found out they had go back a second time, and that erodes consumer confidence and erodes them purchasing. The impact seems to be slowing down.

There’s hot spots. Florida for years never had a bad year, California for years never had a bad year. Right now, they’re in the bucket. Las Vegas and Arizona have been meccas for car sales, they’re struggling now, and we’re starting to climb. We feel good that consumer confidence is coming back. We see people wanting a new car.

Faricy: If gas was $2.25 a gallon today, you’d see confidence come back in a big way.

Fenton: When gas hits $3 a gallon, customers aren’t sure what to buy — they don’t want econoboxes, but at three bucks they hesitate and say, “Maybe I have to buy an econobox.”

Daniels: I never thought people would look at gas prices because we’re a very greedy group, from my generation down. We have our stuff and we’re not going to suffer and clip coupons and do all that. And I ate crow when I said no one will ever talk about fuel efficiency or the cost of gas.

The competition

There are 260 new vehicle models on the market, and there’s competition from old-time dealers and new dealers moving into town.

Daniels: Competition has always been fierce. There’s a lot of players now, and the more choices the fiercer the competition is because we all have big overheads to pay.

Heuberger: But it’s friendly fierce. We’re all friends, we see each other, we’ll go to dinner.

Faricy: What fosters more competition is the amount of information that’s out there for the consumer.

Fenton: Other than San Jose, this is considered the second-most Internet-savvy market in the U.S. Hyundai’s taken their national Internet marketing budget from 17 to 27 percent. Ford’s national Internet budget is 30 percent. It’s where people are going to get their information. People that walk into the showroom today are ready to buy. They’re not shopping. They used to shop seven or eight dealers. Now, they’re shopping something like 2.1 dealers.

Internet boom

What percentage of your total sales are done by Internet?

Fenton: 30 percent, depending on the franchise. Some are higher than that.

Heuberger: 30 to 40 percent. 92 percent of Subaru customers go to the Internet before they ever come to a store.

Fenton: Ford’s number is 85 percent of customers, and 70 percent go to a dealer’s Web site. We as an industry are slow to pick up on that.

It’s all about customer service

With news that two publicly owned companies, CarMax and a division of Lithia Motors, will open used-car superstores in town, family-owned dealers are fighting back. Phil Long Dealerships will open two used-car superstores in response. Dealers plan to win buyers by giving them what they say the nationalized giants cannot.

Fenton: They’ll be good competition — but welcome to the fight. The Springs has not been a very good market for consolidators because we have a great dealer body that’s closed the door. The dealers have been here a long time and taken good care of the customers. The consolidators don’t have that kind of advantage.

Heuberger: The large automotive groups don’t care about the community. We put the money back into local contributions, and they don’t take care of their customers and employees like we do. We care, we live here, we have to sleep here and be friends with everybody.

Faricy: Our two main managers have been with us approaching 15 years, and those guys see the same customers coming back, and they see them at soccer games and basketball games. If somebody has a bad experience at a dealership, it affects our reputation in the community. We have our name on the building. You’ve got to take care of that customer and be competitive on price.

Fenton: We just did a study, and 68 percent of our sales are purchased from repeat customers.

Daniels: It’s all about the people inside your business and your customers, end of story. I’m interested in how we morphed toward big box because we needed more selection and cheaper prices, and now we’re going back to neighborhoods and the simpler life where there’s quality. People would rather walk into Gunnar’s store and see Gunnar and have him ask about their kids.

Heuberger: It’s a tough business. It’s not easy to be in. Good people are hard to find, and it’s tough to get people trained and knowledgeable in our industry that can do the job.

The family connection

Why are car dealerships still a family-oriented business?

Faricy: It’s cheap labor.

Fenton: It’s a franchise system, and you own a franchise as a family.

Daniels: There’s a lot of struggle and growth from struggling, and the kids see that and they’re part of it. There’s a sense of pride. My grandmother’s custom home had little Chevrolet bow ties hand-painted around the hood of her stove. That was your life. If you came to a party at their house and you weren’t driving a Chevy, you could park on the street. We’re Chevy people, and I still have people that buy from us because they’re Chevy people.

Heuberger: It’s in your blood. When I was a boy I always liked cars, toy cars, building something, taking apart cars. But the family-run business is a 50/50 split — 50 percent of the kids have no interest in being in the car business. You’re looking at a group of people here where life is cars. I could never imagine doing anything else.

Fenton: I got the bug because my father sold Fords. I came to Phil Long 32 years ago; there’s nothing else I’d want to do and nowhere else I’d rather do it. I don’t think there’s any business our size that shows that true entrepreneur spirit like the car business.

The thinking from the consolidators is these are just little entrepreneurs and we can go in and dominate. But they underestimate the power of the relationship with the customer, with the employees and the owner base. They find they’re in for a much harder fight.

Geographic moves

The local automotive market seems to be decentralizing from its hub of Motor City, which was built in 1964, when dealers moved out of downtown Colorado Springs. Now, some dealers are building stores to the east, with Powers Auto Park and Chapel Hills Auto Mall, and southeast, where new Nissan and Toyota stores are planned.

Heuberger: Motor City has a selection second to none in the U.S. There are 22 manufacturers — it’s a phenomenal draw. It’s still a solid area.

Fenton: I always thought Chapel Hills would be our biggest center, and it’s not. Last month our Ford stores in Chapel Hills and Motor City finished four cars apart in sales. Motor City was one of the first in the nation, and it’s kept alive and vibrant. Dealers have reinvested in their facilities and brought in new facilities. There’s room for all of us. This market’s gotten bigger.

Faricy: When we first opened in Powers Auto Park there was this attitude: “I’ll look at your car but I’ve got to go down to Motor City, that’s just where it is.” Now with three franchises in Powers and a couple more coming, you have some selection, and you don’t have that drive down to Motor City.

Impact of media

Automakers regularly make national headlines. Sometimes it’s good news about sales and performance ratings, other times it’s bad news about layoffs, profit losses and recalls. How do developments in big industry affect local dealerships?

Heuberger: The consumer could care less. It doesn’t swing them one way or the other.

Daniels: When General Motors was on the front page time after time a couple of years ago, I had people coming in saying they were worried about buying because they wondered if the manufacturer would be around to support the warranty. And I was like, “What? You’ve got to be kidding me.”

I feel differently than Gunnar. Interest rates, gas prices and PR from the manufacturer have impacted me, not significantly but noticeably, in the last couple of years. People are watching; the media has a huge impact on where people are going to go.

Fenton: I agree with Gunnar. I can’t say there’s an impact — in the end they’re buying a product they need and want. I’ve had franchises that have gotten great press, and I’ve got some that have been in the tank for a long time.

The road ahead

Chinese automakers are coming to America. Indian automakers are on their way. The Japanese and Koreans are expanding. The Russians might be next. What’s ahead for your industry?

Fenton: There was a meeting last week in Denver with the Chinese automakers trying to come into this market to see what dealers have interest. There’s also an Indian automaker, Mahindra & Mahindra, coming to the States, and we’ve been granted three franchises. It’s about a year out. Their appeal is their vehicles are rugged, built like a tank. The diesel four-by-four truck gets 45 to 60 miles a gallon, so we think it will be good for the Rocky Mountain region.

Heuberger: Manufacturers have ramped up to produce diesel — it’s really hot. It costs about the same price as gasoline now, but look at it this way: Would you rather buy one gallon of fuel to go 25 miles or 50? There’s a good market for cars that get 50 miles to the gallon. You’re also going to see small cars dominate.

ABOUT THE DEALERS

Elizabeth Daniels: Fourth generation of ownership of Daniels Chevyland. The dealership started in 1929, when Cady L. Daniels bought the Chevrolet franchise in Colorado Springs. It weathered the stock market crash, the Depression, and World Wars I and II. The dealership was one of the last downtown holdouts, moving eight years ago to a 10-acre site off South Eighth Street, atop Motor City. Daniels now is the largest Chevy dealer and the only commercial dealer in southern Colorado. Daniels employs 100.

Ben Faricy: Third generation of ownership of The Faricy Boys Chrysler Jeep. His grandfather Owen started Owen Faricy Motor Co. in 1942 in Pueblo. Today, Ben and his brother Paul are training to take over the reins from their father, Mike. The dealership relocated in January 2003 from a 2-acre site in Motor City to 11 acres in Powers Auto Park, complete with a Jeep off-road track. The dealership is off East Woodmen Road near Powers Boulevard and has 70 employees.

Bob Fenton: Chief operating officer and partner, Phil Long Dealerships. Headquartered in Colorado Springs, the auto group began in 1945 as Doenges-Long Motors and now has 17 new-car dealerships. Ten are in Colorado Springs and include Audi, Kia, Hyundai, Ford, Mitsubishi, Mercedes-Benz, Saturn and Suzuki. Other dealerships are in Pueblo, Denver and Scottsdale, Ariz. With used-car stores and the Phil Long Expo Center, the dealership operates 21 businesses and last year ranked 77th out of the nation’s top 125 dealerships, based on new-vehicle sales. Phil Long has 1,100 employees, 850 of whom work in El Paso County. Fenton has been with Phil Long for 32 years.

Gunnar Heuberger: Second generation of ownership of Heuberger Motors, a Subaru and Volkswagen dealership in Motor City. His father, Peet, started the company in 1970 with a Volkswagen dealership, and Gunnar took over in 1986. He’s worked at the store in Motor City full time since 1979. The dealership is the top seller in the nation of new Subarus, attaining that status a year ago and retaining it today. It is also the largest-volume Volkswagen dealer in southern Colorado and is building a new Volkswagen location in Motor City. Heuberger has 106 employees.