WASHINGTON - Import dealers meeting here last week were warned that medium-sized metropolitan areas like Las Vegas and Chattanooga, Tenn., are prime targets for the chains that are rapidly buying up dealerships - even more so than major markets like New York and Atlanta.
The shifting retail landscape was a hot topic, although not the only one, at the American International Automobile Dealers Association convention.
Robert Thomas, president of Nissan Motor Corp. U.S.A., said smaller markets are a 'mother lode.
'Many of those markets are quite healthy, profitable markets already. I just think it's going to be where we're going to see the next focus of activity,' Thomas said.
Vince Foster, a partner at Arthur Andersen LLP in Houston, advises companies that are considering going public. In an interview after his presentation at the AIADA convention, he said would-be public groups have discussed with him the concept of starting out exclusively in secondary markets, as a way to avoid being a small fish in a big pond.
'That way they don't have to compete, at least immediately, with the better-capitalized, better financed superstores, or even the bigger megadealers. Investors want to know what your strategy is for competing with Republic Industries or United Auto Group,' he said.
'Cross-Continent Auto Retailers Inc., for instance, is based in Amarillo, Texas, and has concentrated on dealerships in 'under-dealered' markets like Las Vegas, Foster said.
United Auto Group has dealerships in major markets, like Atlanta, and smaller ones, like Chattanooga.
This year's convention had more of an outside-the-Beltway focus on the industry at large, compared with previous years when political and legislative issues dominated.
The 1997 meeting was AIADA's 20th annual automotive congress. As with other industry groups, the issue of dealer consolidation was on the front burner.
Until lately, publicly owned groups such as United and Republic have taken center stage.
But several speakers at the convention also talked about other forms of consolidation, such as Ford Motor Co.'s plan to consolidate dealerships in Indianapolis, and possibly additional markets.
Yale Gieszl, executive vice president of Toyota Motor Sales U.S.A. Inc., said Ford's Indianapolis plan is doomed.
'If it ever gets off the ground, I don't think it will be successful,' he said. Successful dealers have an entrepreneurial spirit and put their own capital at risk. Consequently, they pay attention to the details that 'tend to get lost in a big organization,' he said.
Other publicly traded companies, which may or may not be related to the auto business, may also acquire dealerships, said Foster, who gave a presentation titled, 'Competing for Capital,' along with Sean Schickedanz, vice president of Montgomery Securities in San Francisco. (See story above.) For instance, Fidelity Holdings Inc. of Kew Gardens, N.Y., a telecommunications company traded on the NASDAQ exchange, is seeking factory permission to buy the Long Island-based Major Automotive Group. The co-founder and chairman of Fidelity, Bruce Bendell, also is president and dealer operator of Major Automotive. The group has Chevrolet, Dodge, Chrysler, Plymouth, Jeep, Eagle, Subaru and Nissan franchises.
Gieszl said he prefers to think of the recent changes, significant though they may be, as evolutionary rather than revolutionary. He predicted that 'dealers like we have now' will be in business for years to come.
Nissan's Thomas said, 'We will all find a way to protect the retail distribution system.' But he said economies will have to be found to preserve profit margins, including 'consolidations that we may not have even thought of yet.'
In addition to dealership consolidation, other major themes at the convention included:
Competition is fiercer than ever, but the economy at large should continue in good shape, according to several speakers. Consultant and author Harry Dent Jr. was the most bullish. He predicted 'the greatest boom in history,' with the Dow Jones Industrial Average at 18,000 around 2009, when the peak of the baby boom reaches peak spending years.
In the nearer term, Schickedanz of Montgomery Securities said he expects the present 'slow-growth scenario' to continue.
The AIADA congress was not devoid of lobbying. Charles Smith, AIADA chairman, asked dealers to stress three topics with their representatives:
1. The 'death tax,' also known as the estate tax, which runs higher than 50 percent for businesses over a certain size.
2. Airbags. While dealers have long-standing concerns about airbag litigation, they are especially on edge now about possible additional legal liability over airbag deactivation. The National Highway Traffic Safety Administration is working on a rule to spell out the conditions under which bags can be deactivated.
3. The capital gains tax. Smith got a big laugh from the audience when he said, 'Rumor has it, some of you are considering selling your dealerships.' That could create a huge capital gains liability.