‘Insulated’ Local Auto Market Drives Ahead: Dealers confident, expanding
Some say sales are up from a year ago, while others are backing up their confidence by spending millions of dollars to upgrade facilities and acquire additional dealerships.
“We just completed a large, million-dollar upgrade to our body shop and service area, and expanded the parts department to accommodate the growth we’re seeing,” said Tom Gordon, general manager of Fox Grand Traverse.
Total revenues in July were up 16.3 percent from the same month a year ago at the dealership, which sells new BMW, Ford, Lincoln and Mercedes-Benz brands, as well as used cars.
“We’ve never been this optimistic,” said Gordon, who became general manager of Fox Grand Traverse in April after serving in the same capacity at Williams Chevrolet.
Serra Traverse City recently completed a 37,000 square-foot, two-story service and parts building to support its Audi, Cadillac, Nissan, Subaru, Toyota, Volkswagen and Volvo brands, and used vehicles.
New Audi and Volkswagen showrooms at its main campus on Garfield Road are under construction and slated to be completed by January. A new Toyota showroom on the campus is expected to open in about a year, according to Serra General Sales Manager Mike McFarlan. The dealer group also is planning to renovate its Nissan and Volvo showrooms.
“We don’t get too concerned about what happens nationally,” McFarlan said. “We’re somewhat insulated in Traverse City. We don’t experience the peaks and valleys as much as the rest of the state and country.”
McFarlan cited Traverse City’s status as a “destination city” for tourism, its strong health care industry and well-heeled retirees moving into the area as contributing to economic stability.
“They’ve made their money and they’re OK,” he said.
The Bill Marsh Automotive Group, which owns new and used car dealerships in Traverse City, Kalkaska and Saginaw, acquired Gaylord Ford in May, but that was the tip of the iceberg.
This year, the group consolidated most of its operations onto Garfield Road, moving its Hyundai dealership from its U.S. 31 South location and building a new Price Point Used Car Super Center next door. The group also built a J.D. Byrider used car dealership on Barlow Ave. and renovated their Bill Marsh Ford Kalkaska dealership.
“As long as the core economic drivers and consumer confidence remain strong, we’ll be in good shape,” said Bill Marsh Jr., the group’s co-owner.
Most economic indicators suggest vehicle sales will remain robust, but at slightly lower levels than in the past two years. Through the end of August, sales of passenger cars and light trucks were down 2.7 percent from the same period a year ago, according to technical information supplier Autodata Corp.
LMC Automotive, a forecasting service in Troy, estimates 17 million new cars and trucks will be sold this year, down from 17.5 million vehicles in 2016.
Analysts point to strong job growth, confident consumers and low interest rates as major factors in keeping auto sales running at a healthy, albeit slower, pace. But they say there are some potential headwinds that threaten to send the highly cyclical auto business into a tailspin, such as tensions with North Korea, rising consumer debt and a cooling of pent up demand for cars and trucks.
“There’s a lot of dry tinder around, but nothing’s ignited it yet to tip the economy over,” said David Andrea, executive vice president of research at the Center for Automotive Research in Ann Arbor.
As sales flatten, Andrea said dealers will be challenged to manage their businesses carefully to maintain profitability and respond to a market that’s rapidly shifting from cars to sport utilities, crossovers and other light trucks.
Light trucks accounted for 62 percent of new U.S. vehicle sales in August, up from 58 percent in August of last year.
“Out of every 10 people who come into our showrooms, eight are looking for a SUV,” Marsh said.
That’s mostly good news for dealers in Traverse City, where SUVs of all sizes are coveted for navigating snowy roads and hauling recreational equipment.
“The market for small and midsize SUVs has always been strong in northern Michigan,” said Paul Chauvette, sales manager at Williams Chevrolet.
But dealers are challenged to sell sedans sitting on their lots and to get adequate supplies of SUVs from manufacturers to sell.
Korean automaker Hyundai, which prospered before the SUV boom with its popular passenger cars, is struggling to catch up with competitors in the expanding light truck market.
“Hyundai is having trouble overcoming the production disparity between cars and trucks,” said Marsh, a Hyundai dealer.
Marsh said he’s selling as many of the recently redesigned Jeep Compass SUVs as he can get. Buick sport utilities also are popular with vehicle shoppers, he said.
In a rapidly changing market, dealers are using technology to learn what shoppers are looking for and responding with the right vehicles, especially in the hot used car market.
Fox Grand Traverse uses software that tracks vehicle searches by potential customers on their home computers and other digital devices.
“We can tell what people at home are looking at,” Gordon said. “With that data — if you have the right people, and we do — you can interpret the results and balance your inventory with consumer demand. You’re actually stocking vehicles in real time and at the right prices.”
A record 10 million used vehicles were sold nationwide in the second quarter of this year, according to Edmunds.com, an online vehicle information and shopping service. The average used car price in that quarter was $19,227, a record for any second quarter.
Edmunds attributed growing sales of used cars to the flood of leased vehicles coming back into the market. New vehicle leasing has become increasingly popular in recent years, in part because of lower monthly payments.
The average monthly payment on a purchased new vehicle in August was $507, according to Edmunds. Leasing can in some cases cut that payment by hundreds of dollars.
Marsh said leasing accounts for about 50 percent of new vehicle transactions at his dealerships. He expects that to continue unless automakers pull back on attractive lease terms to boost profitability.
“We love leasing when you make it attractive,” Marsh said. “It puts people on a planned trade cycle every two to three years.”
Getting More Automotive Business Up North Requires Nimble Thinking
Local economic development officials are working to lure more auto industry investment to Grand Traverse County.
But can a county known more for beaches, wineries and a growing foodie culture attract new auto suppliers and expand opportunities for existing suppliers here?
Yes, says veteran industry expert David Andrea. But it will take a deft response to the financial, technological and market changes happening in the auto business.
Freight costs from the area to downstate suppliers and an adequately trained workforce are two items of concern.
“Those are the kinds of things we have to start thinking about,” said Andrea, executive vice president of the Center for Automotive Research in Ann Arbor.
New entrants into the auto business and new technologies, such as services that provide over-the-air vehicle software updates, could help local suppliers capture additional business, he said.
French automaker PSA Group, formerly PSA Peugeot Citroën, recently purchased General Motors’ European operations, which could present new business opportunities for the kind of small, specialized suppliers that exist in the Grand Traverse region.
“They’ll be looking for new relationships. New supply chains will have to be built,” said Andrea, a former chief economist at the Original Equipment Suppliers Association in Troy.
Warren Call, chairman of the Grand Traverse County Economic Development Corporation (EDC), said his organization is promoting the area as an attractive location for niche suppliers.
“What it comes down to is we have a great base of existing manufacturers,” he said. “They tend to be small and specialized and involved in advanced manufacturing.”
Call acknowledged that Grand Traverse County would likely not become a huge manufacturing hub.
“We’re never going to have a 1,000-employee body assembly plant here,” Call said. “But we could attract more suppliers that employ 20 to 100 people.”
The EDC for the first time sponsored a booth at last August’s Center for Automotive Research’s Management Briefing Seminars, which annually attract about 1,000 auto industry executives to Traverse City. It also held a reception at the conference for about 200 conference attendees and local business leaders.
Following the conference, the EDC was contacted by two out of state suppliers interested in knowing more about the area’s demographics, transportation infrastructure and labor supply, said Jean Derenzy, the
EDC’s deputy director. Derenzy said the seminars are an invaluable resource for local economic developers trying to attract auto investment here.
“We have to make sure we continue to be good host,” she said. “We can’t take for granted that this conference will always be here.”