The recession has pounded black-owned dealerships, halving their ranks and stalling Detroit's effort to build them up
Photo credit: CRAIG HARTLEY
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When Curley Lee got his first car dealership in November 1997, he dreamed of handing the business down to his children.
"We had family discussions about branching out, getting more stores, teaching my children the business, to secure a future not only for them but for my grandbabies," recalls the 53-year-old former professional basketball player.
Handing down a business to the next generation is common among auto dealers. But it is unlikely that Lee's children, who range in age from 8 to 32, will inherit a dealership.
With his store, Ford of Champaign (Ill.), hemorrhaging red ink as the economy tanked, Lee couldn't find financing. He voluntarily, if reluctantly, closed his dealership in June 2008.
Thousands of auto dealers were casualties of the economic crisis. But Lee is part of an especially vulnerable group: black dealers, whose businesses rose and fell with the domestic automakers.
Black dealers have taken a disproportionate hit -- "drastic" in the words of one minority dealer spokeswoman -- in the past three years. There are 261 black-owned dealerships in the United States today, half as many as three years ago. That's a much sharper drop than the 18 percent decline in dealerships overall.
Those numbers reflect a seismic shift in the tradition of black business in this country. Just as a UAW factory job provided middle-class security for black workers, owning an auto dealership traditionally has been a path to wealth for black businesspeople.
But the decades-old effort to build up black-owned stores has stalled.
Assessing the damage
Here's the new normal for black dealers:
• As of Jan. 1 there were 261 black-owned dealerships, a drop of 50 percent since Jan. 1, 2008, according to the National Association of Minority Automobile Dealers. By contrast, the U.S. industrywide total was 17,653, down 18 percent.
• During the recession, domestic automakers cut back or shelved minority dealer-development programs -- traditionally the biggest entry point for black dealers.
• For three years running, Black Enterprise magazine has scaled back its annual list of the 100 top black auto dealers. Faced with a shortage of dealership groups with revenues it deemed high enough to list, the magazine included only 75 groups in 2009; in 2010 and 2011 the list topped out at 60. The dealership at No. 60 on this year's list had revenues of $18.9 million. By comparison, No. 100 on the 2003 list reported revenues of $25.6 million.
Marjorie Staten, executive director of the General Motors Minority Dealers Association, says 36 GM stores are owned by about 30 black dealers today. That is down from 87 black-owned stores in early 2007 and 115 in 1999.
"Such a drastic drop is cause for concern," Staten says.
Dealers and observers cite two reasons for the industrywide decline in black dealerships. Black dealers' numbers were small to begin with. And access to capital, a problem now, was difficult even before the recession.
Charles Gallagher, a professor of sociology and urban studies at LaSalle University in Philadelphia, says he isn't surprised at the black dealership losses. Riding out recessions, he says, generally requires wealth that takes about three generations to acquire.
Citing studies conducted by Thomas Shapiro, a sociology professor at Brandeis University, Gallagher says black people have a history of higher unemployment and were largely shut out of wealth-building opportunities in the 1930s, 1940s and 1950s.
"For every 10 cents of wealth that blacks have, whites have $1" Gallagher says.
Another problem was black dealers' historical links to the Detroit 3.
Damon Lester, president of the National Association of Minority Automobile Dealers, says the impact of the recession was made worse because GM and Chrysler slashed their dealer networks during their 2009 bankruptcies.
The numbers were further reduced by brand closings. GM dropped the Pontiac, Saturn and Hummer brands and sold Saab. Ford sold Jaguar, Land Rover and Volvo and dropped Mercury.
"Some dealers terminated, some dealers sold their stores. And once we hit the economic meltdown of 2008, a lot of dealers were forced to sell," Lester says. "We got the biggest hit when GM and Chrysler filed bankruptcy."
Detroit 3 programs
Dealers say today's situation traces back to the way minority-dealer programs were set up and run.
On the heels of the civil rights movement of the 1960s, GM, Ford and the former Chrysler Corp. created programs to recruit and train black dealers and invest in black dealerships.
The three automakers' programs worked largely the same. Factories invested in stores with dealers who were supposed to use profits to buy out the factory's interest gradually.
The programs were applauded by minority dealers. But they weren't perfect.
When auto retail networks were being formed in the 1930s through the 1960s, black entrepreneurs were virtually excluded. When they were allowed into the retail ranks, the best locations were taken by white dealers who had more experience and more cash. Many black dealers felt they were put into marginal stores that had little chance for success.
And import-brand automakers in the early years did little to encourage minority dealers. That is changing today as black dealers win more import-brand franchises.
As first-generation entrepreneurs, black dealers often were undercapitalized, inexperienced and poorly prepared for the rigors and long hours required for success.
At the request of the Ford Motor Minority Dealers Association, the automaker commissioned a study of minority dealer programs by the Howard University School of Business in 2007. That study urged Ford to evaluate previously failed points thoroughly before offering them to new minority dealers, to tighten its candidate selection process and to require ongoing training.
It also said minority dealer candidates should be held more accountable for understanding their financial capabilities and seeking help when acquiring stores. But by the time Ford received the report in 2009, the depth of the recession, its dealer development program was inactive.
In 1997 and in 2006, GM hired Washington lawyer and diversity expert Weldon Latham to conduct major studies of its minority dealer network because of the poor performance of some stores, especially those owned by black dealers.
Mike Martin, president of the Ford Motor Minority Dealers Association, which represents mostly black dealers, says black dealers failed for many reasons, including poor store locations and poor management skills.
"Some of those dealerships were so challenging they may have been set up to fail, but there also were some very good points that didn't get handled well," says Martin, general manager of Vision Ford-Lincoln in Alamogordo, N.M., which is owned by his father, Wayne Martin. Mike Martin is also president of Lake Powell Ford, in Page, Ariz., which he purchased in 2003.
 | Curley Lee is very critical of Ford’s dealer development program, which was idled in 2009. Photo credit: CRAIG HARTLEY |
"Lack of cash'
Larry Brown, former owner of a Toyota, a Kia and two Ford dealerships, says "lack of cash is the No. 1 reason," black dealers go out of business.
"I mean having capital to operate, so you can be competitive in advertising, be competitive in hiring the best talent out there," says the 64-year-old, who says he sold the last of his stores in December 2009 without regret after the business deteriorated.
A.V. Fleming, executive director of the Ford Motor Minority Dealers Association, says financing was challenging for black dealers even before the recession. Their financial relationships were mostly with domestic captive-finance companies that put them in business.
When those companies pulled back on credit in late 2008 and into 2009, black dealers who needed capital "didn't have the relationships with other banks, and that made it very challenging," he says.
Others, such as Curley Lee, contend automakers' programs were seriously flawed.
Lee is very critical of Ford's dealer development program. Ford started that effort in 1950 to help white dealers, but it evolved into an umbrella program to assist minorities, too.
"It's modern day sharecropping," he says of the program Ford idled in 2009. At that time, Ford allowed dealers to buy the automaker's interest in their stores for $1 if they could prove that they would have adequate financing to operate.
Lee says his agreement with Ford named him the store's "president and general manager," not its dealer principal. His dealership's four-person board of directors was made up of himself and three Ford appointees who always voted in a bloc. That effectively put Ford in charge of his store, he asserts.
In 2006, Lee found a bank willing to loan him $2 million to buy out all Ford's interest in his store. But the automaker balked because he didn't own enough shares to be eligible to buy out Ford. Lee says he would have had to buy shares gradually up to the level Ford wanted before he would be allowed to buy the remainder.
Two years later, with the auto industry teetering on the verge of collapse and Lee's dealership losing money, Lee says Ford notified him that the program would no longer loan money to the store.
For seven days -- all the time he says Ford gave him -- Lee wrestled with the choice of finding financing on his own or accepting Ford's offer to return his initial investment.
He says it was just enough time to learn that the bank that had been willing to loan him money two years earlier had changed its mind.
"I called my then-wife and told her I was coming home," Lee recalls. "I couldn't just dry up on the vine."
Ford declined to comment on its business arrangement with Lee.
 | Peterson: GM wants 5 percent minority dealers. |
Reviving programs
The Detroit 3 say they are pumping life back into minority-dealer programs that were de-emphasized, if not abandoned, during the recession.
Of the Detroit 3, GM has the most substantial effort. Eric Peterson, GM vice president of diversity and director of industry dealer affairs, says GM is committed to increasing the number of minority GM dealers.
GM has revived its "senior oversight board" made up of top executives to monitor its minority dealer operations, Peterson says. The board was suspended while GM restructured during bankruptcy.
Peterson says GM's goal is to increase its current 194 minority-owned dealerships by at least "20, with a stretch of 35 by the end of 2011. We want to get back to 5 percent of our dealer network being minority dealers."
With about 4,500 dealerships, GM would need about 225 minority-owned dealerships to reach that goal.
Like GM, Chrysler says it wants to bolster its minority dealership numbers. Chrysler has a new, but small-scale, initiative under which minority dealers mentor and train managers who currently work in the dealers' stores.
Chrysler is hoping dealers and their trainees will become private-capital partners in a Chrysler store at the end of the 12- to 18-month program that started in April. Four of the first five trainees are black and one is white, says Marcus Foreman, Chrysler's manager of network diversity and dealer development.
Ford Motor Co. is less active. It has been working with its black and Hispanic dealer associations to form a single group to provide strategic input to the company regarding dealer issues and other areas such as education and multicultural marketing, spokeswoman Elizabeth Weigandt says.
New possibilities
Despite the shortcomings, real or perceived, the programs created by the Detroit 3 enabled many black dealers to achieve their American Dream.
That dream now also includes luxury and import brands.
For example, eight of the top 10 black-owned dealership groups listed on Black Enterprises' list count brands such as Mercedes-Benz, Lexus, Toyota, BMW and Nissan, among their holdings.
Minority-owned Toyota and Lexus dealerships increased by 30 percent, to 100, since 2001, says Toyota Motor Sales U.S.A.
At the end of the first quarter, 66 of Hyundai Motor America's dealerships were operated by ethnic minority dealers, down from 74 at the end of 2008.
New avenues to training and financing could be on the horizon for black entrepreneurs who traditionally have depended on automakers for that support.
For example, media mogul Robert Johnson, majority partner of RLJ-McLarty-Landers Automotive of Little Rock, Ark., says "high-net-worth" black individuals such as sports and entertainment stars could be a source of capital for current and experienced prospective dealers.
Johnson started buying dealerships after making a fortune as founder of Black Entertainment Television.
Jerry Dillard, president of the Chrysler Minority Dealers Association, says that partnerships and consolidations are options for cash-strapped dealers.
When he needed capital for his Park Dodge-Chrysler-Jeep, in Lexington Park, Md., as a result of the recession, he partnered with a white dealer, Jack Fitzgerald, owner of the multibrand Fitzgerald Auto Mall in Kensington, Md.
Dillard says he has known Fitzgerald 20 years and admires "his business acumen."
He says the last few years have been a struggle to survive, but things are looking up.
Dillard says his store has adopted Fitzgerald's "Fitzway" business practice, which includes one-price selling, and it expects sales in 2011 to increase 40 to 50 percent over last year.
He says it is clear that the dealers who are most successful are well-capitalized.
"I'm like other guys with one franchise," Dillard says.
"I was strapped and I needed some help."
| Hardest hit | |
| Black-owned stores suffered the sharpest decline in the recession compared with the overall dealership population and stores owned by all minority dealers, which include blacks, Hispanics, Asians and other groups. | |
| Total U.S. dealerships | |
| Jan. 1, 2008 | 21,461 |
| Jan. 1, 2011 | 17,653 |
| Down 18% | |
| Total minority-owned U.S. dealerships | |
| Jan. 1, 2008 | 1,325 |
| Jan. 1, 2011 | 921 |
| Down 30% | |
| Total black-owned U.S. dealerships | |
| Jan. 1, 2008 | 523 |
| Jan. 1, 2011 | 261 |
| Down 50% | |
| Source: Automotive News Dealership Census; National Association of Minority Automobile Dealers | |
You can reach Arlena Sawyers at asawyers@crain.com.
