Hesterberg to carmakers: Be mindful of margins
 | Group 1 CEO Earl Hesterberg: "We need to be vigilant." Photo credit: JOE WILSSENS |
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DETROIT -- Automakers must continue to match supply to demand so that dealers' profit margins, still below pre-recession levels, don't narrow even more, Group 1 Automotive Inc. CEO Earl Hesterberg said.
"We need to be vigilant, but I wouldn't say we're in a crisis situation just yet," Hesterberg, 58, said at the Automotive News World Congress last week when asked whether manufacturers are flooding the market with excess vehicles.
Dealers' profits remain "fragile," so better support from automakers, lower interest rates from lenders and a lessening of government regulations are needed for dealers to prosper, said Hesterberg, head of the fourth-largest dealership group in the United States.
Automakers "have generally not grasped the importance of this fact or have not taken action to address it," he said. "Brands with stronger dealer grosses have stronger dealer networks and elicit more dealer resources in terms of better personnel, more advertising and increased facility investments."
Among the factors he said have chipped away at dealers' profit margins are government regulations, a shift in mix to smaller cars with smaller profit margins, and the increasing impact of the Internet, which gives customers more insight into pricing than in the past.
Hesterberg said the government needs to consider more carefully the impact its laws have on dealership operations and costs. He also said lenders should offer low retail interest rates to dealers even if those dealers don't finance their vehicle inventory with that bank. Financing for a dealership's vehicle inventory is called floorplanning.
Hesterberg warned that as the Japanese brands attempt to recapture market share lost after the March 11 earthquake and tsunami in Japan disrupted vehicle supplies, there is a "potential for oversupply" of their vehicles.
"Any return to an oversupply condition," he said, "will put more pressure on dealer new-vehicle profitability."
Company: Group 1 Automotive Inc.
Main point: Automotive manufacturers, lenders and government leaders need to make it easier for auto dealers to make money because dealer profits remain fragile.
Quote: "Any return to an oversupply condition will put more pressure on dealer new-vehicle profitability."
You can reach Jamie LaReau at jlareau@crain.com. -- Follow Jamie on 
