The slow, steady demise of the small-town dealership

When lifelong car enthusiast Bud Wells was 14, in 1951, he spent his free time peering into the windows of the dozen car dealerships in his hometown of Sterling, Colo., to admire the new cars.

"It was such a big deal," said Wells, a retired automotive reporter for The Denver Post and author of The Colorado Car Book. "Each fall, they'd have the openings to show off the new models. Some dealerships would paper their windows to keep the models out of sight."

Sterling, about a two-hour drive northeast of Denver with a population of about 14,500, had 12 franchised car dealerships selling some 20 brands in the 1950s and 1960s, he said. The owners and many employees lived and worked in town.

But today, it has just two stores selling nine brands. Both dealers live elsewhere.

Sterling reflects a national trend. In 1950, there were about 47,000 franchised car dealerships compared with 16,532 today, according to the National Automobile Dealers Association.

Part of that decline has come from small, rural dealerships closing or being absorbed by absentee owners. Industry observers blame factors including automakers' push for pricy facility improvements, a drought of successors or buyers for small stores and a shortage of lenders willing to finance small deals.

All of this points to more shrinkage in small towns, experts say.

"We're going to have continued closings and consolidation in these markets," said George Chaconas, a buy-sell adviser for Performance Brokerage Services in Irvine, Calif. "I wish it weren't true, because it's less business for us and less convenient for the customers."

The consolidation of single stores is troubling -- as Sheldon Sandler, managing partner of buy-sell advisory firm Bel Air Partners in Hopewell, N.J., learned firsthand in 2012.

"I made a speech to the National Automobile Dealers Association board of directors that we're a great business, but the mom-and-pop store won't compete as the larger stores gained more synergies," he said.

The response? According to Sandler, his audience nearly "booed me off the stage." 

Still, the dealership count in small markets has dwindled over the last 15 years. Some of that is due to the General Motors and Chrysler federal bankruptcy filings in 2009, when both companies terminated franchise agreements with hundreds of dealerships. But there are other reasons. 

One is a dearth of successors or buyers. 

In Nebraska, the rural store count has remained mostly flat compared to a decade ago, but there are fewer owners as the stores get rolled into dealership groups, said Loy Todd, president of the Nebraska New Car & Truck Dealers Association in Lincoln. 

"Sometimes, the next generation isn't interested in the profession," Todd said. "So a dealer in an adjoining area acquires the dealership and starts to end up with multiple stores." 

In other cases, the types of buyers who might have emerged in the past are not interested. For instance, a general manager in a mid- to large market might have saved up to buy a small store. But today, a general manager can make a comparable or better living running a store in a bigger market without the hassles of ownership. 

"The good GMs are making a very nice salary and bonuses running stores," Chaconas said. "If a guy is making $250,000 to $700,000 managing a store, why take the risk?"

The stores that survive often are owned by dealers who live 50 or more miles away and own other stores. Those dealers rely on managers to run the remote store. But if a buyer can't find good managers, often those small-town dealerships close.

"The hard part is finding good people," Chaconas said. "And a lot of these GMs don't want to live in these little communities."

Dealer Dave Wolf knows the hazards of absentee ownership.

Eleven years ago, Wolf bought Wolf Auto Center in Sterling. The store sells about 900 new and used cars a year representing Ford, Lincoln, Chrysler, Dodge, Jeep and Ram brands.

Wolf lives in Kimball, Neb., about an hour-and-a-half drive northwest of his store in Sterling. Because he owns three other dealerships in Nebraska, Wolf spent just a few hours a week at his Sterling store. His absence resulted in problems that required him to change some staff. Now, he spends nearly 40 hours a week there to rebuild that business.

"It neglects my other stores, but this is where I'm bleeding the worst, so I have to fix it," Wolf said. "These past two years have been the toughest in my life. But that's part of the territory and not being around as much as I should have been. I overloaded the trust."

But Wolf has gained economies of scale by buying the store in Sterling. He consolidated his group's accounting offices, for example.

Still, the small town makes it tricky to support the store on vehicle sales alone.

"It's the Walmart mentality -- people always think they can get a better deal driving somewhere else," Wolf said. "The service is the key to keeping it going."

Likewise, small-town dealer Vince Schrei-vogel credits customer service for his success.

Schreivogel owns Vince's GM Center in Burlington, Colo., his sole store. The town has a population of about 4,000 but serves a large, outlying agricultural area of 30,000 people.

It's a 200-mile drive to most other cities. As a result, the dealership sells about 700 new and used Chevrolet, Buick, GMC and Cadillac vehicles a year.

"When you picture a farmer with bib overalls, a pitch fork and a straw hat, well, these guys are building million-dollar homes and farming thousands of acres," Schreivogel said. "We just provide excellent service.

"If somebody 200 miles away calls and says, 'I need this done to my car,' we go pick it up and leave them something to drive. It spoils the customers, but they don't go anywhere else."

Schreivogel knows he is fortunate. In 1983, when he bought the store, all the small towns around Burlington had at least two car dealerships, he said. Those are gone.

"I'm the only one," Schreivogel said. "The mom-and-pop stores gave it up. Some of them retired, some decided they couldn't make it in the market."

Spring Valley, Minn., sits about 100 miles south of St. Paul with a population of about 2,400. In 1995, it had a Ford dealership, a Chrysler dealership and a GM dealership. Today, it has just a GM dealership that sells Chevrolet and Buick, said Scott Lambert, executive vice president of the Minnesota Automobile Dealers Association in St. Paul.

In 1995, Minnesota had about 550 dealerships. It currently has 365, Lambert said. In 2009 alone, the state lost 40 stores beyond those shuttered in GM and Chrysler's bankruptcy terminations, he said.

"It's about the facility requirements from the manufacturers," Lambert said. "[Dealers] can support sales and service, but they can't support these huge stores. The towns are fighting for their stores. I'm not sure I'm ready to say they're going the way of the dinosaur, but there are different economies of scale."

Tim Doran, president of the Ohio Automobile Dealers Association, sees a similar trend. In 1975, there were 1,960 dealerships in Ohio with 1,960 dealers (at the time, dealers were allowed to own one store only). Ohio now has 830 dealerships with 330 dealers. Most of the dealerships that closed were in rural markets, Doran said.

Some consolidation was the result of the 2009 recession forcing stores to close, but Doran blames much of it on "aggressive facility enhancement programs," which he says forced out stores in small markets.

Would-be buyers of small stores also can struggle to find lenders to finance a deal, said James Taylor, managing director of buy-sell advisory firm Presidio Group in San Francisco.

Taylor said many lenders prefer to finance a $50 million deal or higher.

"Maybe a local lender would have some interest in a deal lower than $5 million, but it's hard to get that financing," Taylor said.

Still, many small-town dealerships are so interwoven with their communities that residents will support the store and spare it from consolidation, said Forrest McConnell, owner of McConnell Honda and McConnell Acura in Montgomery, Ala., and the 2014 NADA chairman.

"Car dealerships are one of the few entrepreneurs left in those small towns," McConnell said. "They've become even more important, not less important."

But Bud Wells, for all his sentiment, is a realist. He expects to see more dealerships erased from the rural American landscape because of stagnant population and economies as well as competition from independent mechanic shops.

"I feel really bad to see all the dealerships shut down," Wells said. "They were the lifeblood of those communities for a long time."