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A GREENER SHADE OF SHALE

Fracking boom sends gushers of cash to rural dealers

welcome

 
MARIETTA, Ohio —
For decades now, the residents in this Ohio River community of 14,000 have known what it’s like to be poor.
 
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LARRY P. VELLEQUETTE,

Reporter

Until 2013, according to the U.S. census, median household income here trailed the nation’s average of $51,939 by more than one-third.
Yet for more than a year, gushers of cash have rained down on Marietta, swelling the local economy as farmers and landowners leased the mineral rights to their property for one-time payments of $4,000 an acre or more. More money — much more, in the form of residual payments — is expected in the coming decades.
An ongoing explosion of domestic energy production — primarily from a highly controversial extraction process commonly called fracking — is transforming rural communities across North America.
 

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In Marietta, hotels are full. Restaurants are booming. The city’s median household income shot up more than 20 percent in one year to a 2013 estimate of $40,286, according to the U.S. Census Bureau.
At Marietta’s auto dealerships, the increase in business has been immediate and dramatic.
“Three months ago, we couldn’t get them financed on a $5,000 car,” Marietta dealer Jim Cobb says of one of his recent Chrysler-Jeep-Dodge-Ram customers.


“Suddenly, they come in and buy a $60,000 truck and pay you cash for it.”
Before long, according to government estimates, these same changes will come to vast swaths of the continental United States and Canada. Appalachia, the Great Lakes basin, the mid-Atlantic, the Gulf Coast, the central plains, Texas — all are home to shale deposits thought to contain extractable oil and natural gas.
It is a boom — with all the good and bad the term entails — that also has hit West Virginia, Colorado, North Dakota and elsewhere. And while fracking’s short- and long-term environmental impact on vital resources such as groundwater remain under intense debate, its economic impact is changing the fortunes of auto dealers as well as their customers.
“It’s kind of a heartwarming scene when you’ve got somebody that’s never bought a new vehicle in their life, and all of a sudden they’ve got a million dollars,” says Jeff Summers, who holds the Buick-GMC franchises in Marietta. “It’s kind of nice to be able to deliver them a brand-new truck, and that’s the first new vehicle that they’ve ever owned.”
 
Excerpts from separate interviews with two auto dealers about the first signs of an economic upswing. Photos and interview by Larry Vellequette. Click on the image to hear their stories.

WHAT RECESSION?
 
Central Pennsylvania dealer Blaise Alex-ander knows exactly what’s coming to Marietta and other towns where vast amounts of energy are extracted from subterranean shale deposits through fracking.
Alexander says he can predict what the boom will do for — and to — local auto dealers.
Five years ago, amid the worst national economic collapse in 70 years, as hundreds of dealerships across the country closed and whole brands died, Alexander’s string of dealerships boomed.
The ubiquitous white pickups of energy exploration companies were crisscrossing the region at the time, signing lease agreements with landowners and preparing to lay pipelines and drill for oil and natural gas.
“We didn’t have a recession. If anything, our economy went up, because of the oil and gas,” Alexander said.
Though he started out with Chevrolet in 1980, Alexander now owns 13 rooftops with 16 franchises, collectively the Blaise Alexander Family Dealerships — most within about an hour’s drive of Williamsport, Pa. He holds franchises for Detroit 3 brands, as well as Hyundai, Kia, Mazda, Nissan, Subaru, Toyota and Volvo.
Much of Alexander’s business comes from the 116,000 residents of Pennsylvania’s Lycoming County, a rural county that is slightly larger than Rhode Island. Last year, Alexander said he sold 19,000 new and used vehicles across his family of dealerships, and sold another 10,000 at wholesale. In 2014, on a same-store basis, sales are up more than 20 percent over their 2009 levels.
“From 2009 to this year,” Alexander says, “they are the five best years I have ever had in this business.”
 

DISAPPEARING TECHS
REFLECTIONS
Excerpts from our interview with Blaise Alexander.

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"When the dust settles, it's still good."
 
On reaching out to energy companies.
 
Alexander's reaction to mechanics leaving.
Energy exploration companies began arriving in Lycoming County in the late 2000s to explore and develop the gas-rich Marcellus Shale formation in the geology below. The companies signed lease agreements with local landowners that, in 2007 and 2008, ranged from $750 to about $2,000 an acre, Alexander said.
Drilling hadn’t yet begun, but the Alexander dealerships already were seeing the first trickle of impact. It wasn’t all good, especially in service.
“We lost half our guys within a six-week period. It was tough,” said Beau Keyte, service manager at Alexander’s new flagship 57,000-square-foot Chevrolet-Buick store in Muncy, Pa. In all, 10 technicians — including four diesel mechanics — from the Chevy store alone were lured away by energy companies.
Eight returned within about two years, Keyte said, but two did not.
The timing couldn’t have been worse to lose technicians. The energy companies — and the businesses that support them — brought loads of new service work to the dealership, extending wait times and straining the service department.
“These companies came in and just tried to find anybody for anything. The heavy truck [technicians] were in the biggest demand, but really, it was just general labor,” Keyte said.
Alexander’s Chevy store, like other dealerships and independent service shops, extended hours and recruited more technicians to handle additional service orders.
All the while, demand for skilled technicians tightened.
“We were already pretty well maxed out before those companies came in. There’s a lot of local garages that boomed and increased, and they were trying to take our guys as well,” Keyte said. “You just have to be prepared.”
 
WHITE PICKUPS
 
While Alexander’s Chevy store ultimately absorbed the body blow in service, the sales floor was another matter.
There, the issue wasn’t a lack of staffing, it was keeping up with bustling demand. Specifically, demand spiked for one particular kind of pickup, said Alexander Chevy’s truck manager, Tom Miles: white, heavy-duty gasoline-powered 4x4 crew cabs.
“As soon as the gas companies moved in and started either hiring people or subcontracting [work], it was just immediate,” said Miles.
Before the energy companies arrived, the dealership sold about a half dozen dually heavy-duty pickups a month, on average. Now, it sells between 25 and 30 every month.
The secret though, Miles and Alexander found, was that when their new customers needed a pickup, they needed it today. That meant it had to be in stock and ready to go on short notice, with more in the pipeline.
“These guys want to take it home and go to work,” Alexander said. “You’ve got to stock them.”


The time constraints grew so tight that Miles said he began installing a spray-in bedliner in each heavy-duty pickup he ordered because his customers couldn’t afford to wait to have one installed.
The added pickup sales came primarily from businesses either coming in to assist the drilling companies — water haulers, equipment maintenance companies and others — or new businesses jumping into that work, Miles said.
As for their price sensitivity? “Price is proportionally related to how bad they need it,” Miles explained. He said that with Internet price comparisons available, the dealership couldn’t overcharge, even if it wanted to, but the commercial customers did recognize the value of immediately fulfilling their need.
While heavy-duty pickup sales grew from new commercial clients, light-duty pickup sales rose as area residents took good-paying jobs in their newfound industry and felt financially comfortable enough to buy a new pickup.
Miles said he also watched energy exploration companies switch tactics, moving away from buying fleets of pickups for their employees to “giving them a $700 monthly vehicle allowance and a gas card.” That, too, pushed light-duty retail sales higher.
 

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Heavy-duty pickups, mostly white, turn over quickly at Blaise Alexander's Chevrolet store in Muncy, Pa.
RISING TIDE
 
As energy exploration began to alter the region economically, Alexander watched as some of his 13 rooftops performed better than others, either because of their products or their locations.
“The biggest shot was at Chevy and Ford, and a little bit of [Ram]. That was the biggest, because of the pickups,” Alexander said. “The funny part was that it didn’t help the ones to the south that much or to the west in State College. Just the ones that were local, that were real close by.”
As he watched Lycoming County’s economy change, Alexander noticed a particular order to how his newly enriched local customers opted to spend their money.
“They made small improvements to their house first, maybe a new roof or a porch. Then they bought some machinery, tractors and things. And then they bought the truck,” Alexander said, or a new Cadillac or Buick for their wives.
In his finance and insurance offices, Alexander said, the number of cash deals rose, but not much. “Those old farmers, they normally paid cash anyway. They normally didn’t borrow,” Alexander said.
On his used-car lots, Alexander began to stock more 4x4 pickups and SUVs and made arrangements to get rid of trade-in pickups that were particularly beaten up.
 
ONE REGRET
 
For all the substantial benefits that his businesses gained when the energy companies arrived, Alexander said he had just one big regret.
“I wish I would have been more aggressive. I think I left a lot on the table,” he said, sitting in his office above a new Nissan store, a quarter mile up the road from his new Chevrolet-Buick dealership.
“I didn’t understand it at first. I wasn’t sure what it was going to be about,” Alexander said.
Had he known what was going to happen, Alexander said, he would have hired people to visit the drilling sites every week or two with a box of doughnuts in one hand and box of hot coffee in the other.
Or pizza. Just to meet people and press the flesh. It is advice that he would give to any dealer about to go through what his dealerships have experienced during the last five years.
“You spend $200 or $300 on pizzas, and the next thing you know, you’ve got a company just bringing all of their vehicles to you,” Alexander said.
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A recently drilled well in Lycoming County, Pa., awaits a tie-in to pipelines.
MOVED ON
 
Much of the drilling is done now in Lycoming County. A few crews continue to lay pipelines to tie the wells that were drilled into the nation’s pipeline system. Hotels in Williamsport, including those that were recently built, have vacancies again, and local restaurants aren’t nearly as crowded as they were when the drilling was in full swing.
At Alexander’s dealerships, business is still up across the board, but the frenetic pace that reigned during drilling has tempered to something more like normal.
The drilling crews have moved west to exploit shale plays in Ohio, western Pennsylvania and West Virginia. But the stream of money they tapped into in Lycoming County continues to flow.
The cycle will be the same in Marietta and elsewhere where newfound energy reserves are tapped, Alexander said, and auto dealers have to be prepared to take advantage of the opportunity.
Back in Marietta, the tide is just starting to rise at the four local dealerships.
All four of Marietta’s franchised dealerships are just down the road from the marshaling yards where pipeline companies are staging their supplies.
The local Ford and Chevrolet stores have stocked up on pickups, as has Cobb at C&C Dodge-Chrysler-Jeep-Ram-Toyota-Scion. Sales are already up, and they’re likely to go up more.
Confident in what’s coming, Cobb plans to expand his service department this year to 20 bays from 16. He’s trying to hire more mechanics now.
“The service business is booming because we’re getting a lot of these rigs coming out of Texas and Oklahoma,” Cobb said, standing against a large white Ram heavy duty with Texas plates behind his service department. “It’s been a shot in the arm for us.”
As co-owners of Summers Buick-GMC, Jeff Summers and his brother, Scott, have seen the first glimpses of what is coming to their small dealership, and they’ve begun to consider how best to respond.
“We’re kind of on the edge where we know it’s coming, but do we stock a bunch of heavy-duty pickups on the bet? Or do we sit back and kind of wait?” Jeff Summers said.
Their dealership averages about 40 new and used sales a month, split about evenly, so an inventory mistake can weigh heavily on the bottom line.
“Sometimes, it’s just a sit-back-and-wait-and-see attitude,” said Summers, “and hopefully, you won’t be left on the outside looking in.”
 

You can reach Larry P. Vellequette at lvellequette@crain.com

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