As big retailers get even bigger, small dealers are at a crossroads

Mike Cowles left us in suspense when we last spoke with him 22 years ago.

On May 18, 1999, Automotive News dispatched a photographer to visit the Ford dealer in Sharon Springs, Kan. He was the focus of one of the 50 photographers we sent across the globe to chronicle a day in the life of the auto industry at the turn of the millennium.

When the special issue was published later that year, Cowles' image appeared on the same page as that of another 61-year-old leader, General Motors CEO Jack Smith. It was evidence of an oddity that is a hallmark of Automotive News: We cover the CEO of GM; we cover car dealers on Main Street.

The heading at the top of the page: "On May 18, 1999, some had the burdens of leadership."

Cowles' burden was survival. We showed him pushing an upright vacuum in his two-car showroom. He was trimming expenses by doing his own chores.

"Dealerships this size are a pretty fragile entity," he said then of the enterprise that had been feeding the family since 1935. "We're going to keep it as long as it's profitable, maybe a little longer too, depending on how proud we are."

I thought of that picture last month after a wave of news of historic proportions. In the span of 16 days, three of the biggest dealership groups in the U.S. announced deals to acquire a total of 124 new- and used-vehicle stores.

Granted, the dealerships being acquired were parts of pretty big groups themselves, many years removed from their mom-and-pop roots. But a flurry such as that does prompt one to reflect on the future of hardware stores, pharmacies, car dealerships and other small businesses that still carry the family name — Davids in a world of Goliaths.

That reflection led me to call Cowles Motor Co. I was surprised to find a listing. I was even more surprised when Mike Cowles himself, now 83, answered the phone. (The surname is pronounced "coals," he told me, though many rhyme it with "howls.")

Pride carried him a few more years. But by 2002, the dealership was gone. Costs for training and other expenses kept going up; sales kept going down. At the store's peak, in the 1970s, Cowles sold 125 new cars a year. By 2002, he was down to 25 and couldn't afford to stock his showroom.

"At some point I got the feeling this isn't going anywhere," he said. He felt the enthusiasm of his son, working in the parts department, slipping away, too. "The writing was on the wall."

Cowles hoped for a buyout offer from Ford Motor Co., and it came. First, $50,000 for giving up his Mercury franchise and its parts.

Then something "in the $100,000 range" for a similar deal from the Ford side of the business.

He sold used cars for a few years. Since then it's been parts and car repairs and a salvage operation and a U-Haul franchise, all run from the same building that housed his dealership at 205 Main St. He's also in his third term as a Wallace County commissioner.

The community and camaraderie of small-town dealers in northwest Kansas are gone, he says. The nearest new-vehicle dealership survivors are along the I-70 corridor, some 30 miles to the north, in towns such as Goodland and Burlington.

"As we lose these businesses we lose population," Cowles says. "I don't think it's good at all. None of our local businesses can compete with the big-box stores — and the Internet."

So if major metro areas help ensure survival for dealers and towns such as Sharon Springs, population 994, spell doom, where will the lines of geographic viability be drawn? Especially at a time when so many new-car dealers are at an age with retirement in sight.

Farid Ahmad, founder and CEO of Dealer Solutions Mergers and Acquisitions in Toronto, has done some math.

Of the more than 18,000 dealerships in the U.S., he counts about 4,000 big enough to be of interest to the big buyers, the kind that have been in the news lately.

But the potential acquisition targets don't end there. There are another 14,000 dealerships out there, and many of them are part of one- to three-store operations.

The buyers will be what Ahmad calls "hometown groups." Instead of having a coast-to-coast or multistate mindset, their expansion horizon might be only as far as the same city or county, generally within a two-hour drive from headquarters.

These dealers have the appetite and the wherewithal to grow. And for the foreseeable future, they'll have plenty of peers with plenty of reasons to sell.

This is a time of reckoning, after all. Any dealers who stick with the business will be under pressure to keep pace with the soaring costs of retail technology. They also have to invest for a new and uncertain era of selling and servicing electric vehicles.

Coming off a year of record profits, many of them reckon this is a good time to sell.

"Dealers love the car business," Ahmad says. "But they have very limited options for the future" — especially those without children or other relatives lined up to run the business.

Still, if Ahmad's scenario of burgeoning hometown groups is right, countless dealers might at least find a buyer for their business instead of being forced to wave a white flag of surrender and shut down, as Mike Cowles did two decades ago.