Financial anxiety spurs abrupt decline in dealership business

Warren Waugh, who has eight luxury-brand stores in the Boston area, has seen showroom foot traffic decrease and business development center phones go mostly silent since the coronavirus pandemic began. He noted that rush-hour last week in typically traffic-snarled Boston had "little or no traffic."

"People are truly taking the warnings to heart and staying home," he said.

Waugh's Lyon-Waugh Auto Group stopped using foot traffic as a metric about a year ago and instead monitors the overall activity of its business center. But Waugh said its activities have been "really, really shockingly low," and that overall business is down on average about 40 percent.

J.D. Power illustrated how abrupt the business decline has been for dealers in the wake of the pandemic, which caused several state governments to close schools and some businesses while urging its residents to self-quarantine. J.D. Power predicted a 1.7 percent decline in the daily selling rate for March, and the week ending March 8 was about as expected. But then, over the next four days, sales trailed the projected pace by 8 percent. Then, on March 13 and March 14, the deficit grew to 20 percent, and by March 15, it was 36 percent below the baseline projection.

J.D. Power is forecasting March sales will drop as much as 41 percent from a year ago. The company initially predicted U.S. sales of 16.8 million this year, but its new forecast is between 14 million and 16 million.

For Jason Courter's stores in the Seattle area, which has been among the hardest-hit parts of the country, foot traffic was off by about half last week.

On the bright side, "people coming in the door are buyers," Courter said last week.

But business is down sharply at Courter's Honda of Bellevue and Honda of Kirkland stores outside Seattle. As a result, he cut executive pay, reduced personnel hours and laid off some staff — though he hoped to reinstate those employees when things pick back up.

For Aaron Koehn, owner of Ed Koehn Automotive Group near Grand Rapids, Mich., the issue is not selling vehicles — it's getting those customers to actually sign the purchase papers. Some customers who agreed to buy a vehicle are now getting cold feet because of potential wage and retirement fund losses. Since March 13, the coronavirus has cost the group four sales.
One man knew that his retirement savings had taken a hit and was no longer able to commit to the purchase of a new Chevrolet Equinox, Koehn said.
"He hadn't signed anything yet, but he still felt terrible because he had made a commitment to us," Koehn said.
Another customer, who had nearly completed a deal, backed out because his hotel job went from full time to part time because of the pandemic. A new car was no longer in his budget. Koehn said customers are scared of their current financial state and unsure how they will come out of the situation.

"We're all feeling this together, so it's hard not to have some compassion," he said.

And in East Texas, where Fernando Varela has three Ford dealerships and one Chevrolet-Buick-GMC-Cadillac store, business was humming along until Wednesday, March 18. That's when "traffic just stopped," Varela said.

At that point, Texas had not forced any retail closures, as other states had, and Varela said people were out and about.

Varela said that as a business owner, he is now wrestling with what to do next. He had not laid off anyone and he planned to keep operations going as much as possible.

Varela also is chairman of the National Association of Minority Automobile Dealers and said he's concerned about how the group's 1,200 members — many of whom are first-generation auto dealers — will be able to weather an increasingly harsh financial storm.

His group penned a letter to President Donald Trump asking for his help in arranging relief on mortgage payments and floorplan loans.

There's been an outpouring of relief programs from automakers, building on a legacy of crisis outreach that goes back to General Motors' Keep America Rolling campaign after 9/11. GM pitched 0 percent financing in an uplifting campaign as the country recovered from the attacks.

In that same spirit, automakers have instituted unprecedented and sweeping plans for the current crisis — including payment deferrals, financial incentives and loan payment relief to keep the industry rolling and customers flocking to dealerships.

"I think we're a pretty compassionate industry," Brad Korner, general manager of Cox Automotive rates and incentives, told Automotive News. "Look at what people's needs are and what the OEMs and dealers are doing and what they contribute along the way."

Jessica Caldwell, executive director of insights at Edmunds, said deferral programs can generate goodwill among consumers. She sees a sales bounce once life gets back to normal. "It probably is a good idea to think about capitalizing on some of the deferred demand that's going to happen once the dust settles and we're all coming out of our caves," Caldwell said.

"Historically, automakers have been called upon in the past, like 9/11, to jump-start American economic activity," she added.

John Malishenko, COO of Germain Auto Group, with stores in Michigan, Florida and Ohio, said last week things got progressively worse with each passing day. At this rate, he said the group could see a drop in sales of about 40 to 50 percent for the month.

For Koehn, he said there is no example of how to do business during a time such as this but that his stores are doing their best to support both customers and employees.

"We all feel that there is some anxiety and we are all trying to earn a living, too," he said. "It hurts, but we're just doing the best we can. Every day and every hour is a new challenge."

Hannah Lutz, Melissa Burden and Whitney McDonald contributed to this report.