Once, foreign companies were content just to make the cars Americans drive. But not anymore. Nowadays, foreigners are looking to sell a few cars as well.
As a result, U.S. car dealerships, longtime breeding grounds for this country’s small business entrepreneurs, are becoming the focus of a new wave of foreign investment.
Nowhere is this new phenomenon more visible than in California, where a British firm now owns half of a large dealer group that has, ironically, been awarded the first Los Angeles dealership for General Motors’ ultimate import-fighting car line--Saturn, due out in 1990. The deal represents the first time a publicly owned foreign company has gained a stake in car dealerships in the United States.
A Hong Kong trading company, meanwhile, owns three Honda dealerships in Southern California.
In years past, the big auto makers held a tight grip on their dealership networks, with a strong preference for small, local dealers deeply loyal to a single car line. Often these profitable dealerships would pass from father to son.
But, more recently, auto companies have found themselves acceding to the demands of a new class of “megadealers"--wealthy investors who form large chains of dealerships. Now, foreign owners are joining those American megadealers, and, in the process, are changing the face of automotive retailing.
Still, few statistics are available on just how large this trend of foreign investment in dealerships has become, and there is little agreement on how much impact it may have on the car market.
But industry observers agree that foreign ownership is on the rise. Flush with cash and looking to the United States for a place to spend it, investors from around the world are being tempted by the $5-billion retail auto market.
“It’s a trend that has accelerated over the past two or three years,” said Allan Wilbur, a spokesman for the National Automobile Dealers Assn. And, he observes, “it’s happening on the West Coast probably more rapidly than on the East.”
“It’s just kind of beginning now,” said Don Keithley, an analyst at J. D. Power & Associates, an automotive market research firm in Agoura Hills. “But there’s a lot of interest.”
Added Al Kleinke, a marketing executive for Ford: “There are a few selling Fords. When I say a few, I mean maybe a half dozen. But that’s an increase.”
As more foreign investors penetrate the market for car franchises, the big auto manufacturers, which once resisted foreign investments in their franchises, are now becoming more open to the idea.
Perhaps the best example of how car dealerships have been opened to foreign applicants came in August, when Ford and six other car makers gave their approval to a $13-million-plus investment by a British company to buy into a dealer group in Southern California.
Lex Service, a British auto retailing group, paid about $13.5 million for a 50% stake in the Irvine-based Campbell Automotive Group. Campbell owns eight dealerships in Southern California, including Campbell Ford in Garden Grove, Campbell Mazda in Costa Mesa and two Campbell Nissan outlets, one in Huntington Beach and Buena Park.
But other large foreign investors--including the ubiquitous Japanese--are starting to follow.
Already, Keithley said, at least two Japanese firms own dealerships in California, including one in San Diego. Another dealership, in Emeryville in Northern California, is owned by Nissho-iwai, a Tokyo-based trading company. The Emeryville dealer, Weatherford Motors, is one of the largest BMW franchises in the nation.
Now, the Japanese company that owns the biggest Nissan dealership in Tokyo, Tokyo Nissan Auto Sales, has announced that it, too, is looking for American dealerships to buy.
Meanwhile, a Hong Kong trading company has become a major player in Southern California as well. Dah Chong Hong Trading Corp. owns Gardena Honda in Gardena, the largest Honda dealership in the nation, and Honda of Oxnard and Tustin Acura.
More British firms may also be coming, following Lex’s lead. “Certainly there are many (British) companies that would like to gain access to the U.S. car market,” said David Leibling, a spokesman for Lex.
Lex, like other foreign investors, has been attracted to the retail auto market here for a simple reason--big dollars in the biggest car market in the world.
“We’re looking for expansion opportunities,” Leibling said. “We recognize there are likely to be limits in the U.K. We consider the United States to be a very important market.” Still, U.S. car manufacturers, which have some power over who controls their franchises, are quick to point out that Lex’s successful deal with the Campbell Group, as well as the growing interest in dealerships on the part other foreign investors, should not be mistaken for an open invitation to any potential foreign dealership applicants.
“We’ve said we would consider (foreign) corporate ownership, if it’s the right situation,” said Mustafa Mohatare, director of trade analysis at General Motors. But, he added, “most of the American and foreign (auto makers) have a strong preference for American ownership.”
Kleinke of Ford says auto makers like local owners because “our experience tells us, the closer you can bring the dealer to the customer, the closer we can achieve customer satisfaction. It’s easier for an individual to be close to the customer than a foreign company.”
Kleinke adds that Ford relaxed its policy for Lex because of the structure of the London concern’s agreement with Campbell, an agreement in which “Ford reserves the right to approve any changes they make.
Cause for Concern
“We had Lex investigated very thoroughly,” he adds. “They had been looking at the U.S. for about two years.”
Still, the increased interest by foreigners in U.S. dealerships has some American dealers worried. “With the investment in these dealerships, it’s becoming harder for small people to buy them,” said Steve Ellis, sales manager of Bill Murphy Buick in Culver City. “Unfortunately, these foreigners have a lot of money. I’m not real thrilled about it.”
I think the manufacturers are more concerned about the capital behind these foreign investors” than with what country they are from, he said.
Other dealers complain that American dealer traditions may go by the boards as foreigners become a greater factor in car retailing.
Said Eddie Schettkoe, sales manager of A. E. Nugent Chevrolet in Los Angeles: “Some of these (foreign-owned) dealers are open on Christmas Day, and I think that stinks.”