Minorities Hope to Boost Ranks as New-Car Dealers
Clarence Price is a rarity among Acura dealers: He’s black.
Of 260 U.S. dealerships selling the luxury brand of Honda Motor Co., Price’s Bakersfield lot is one of just six owned by African Americans -- a circumstance found throughout the industry, according to a recently released report.
Only three African American owners are counted among the 623 U.S. dealers for Mitsubishi Motors Corp., the Washington-based National Assn. of Minority Automobile Dealers said in its report. Only two Latino owners are among the 341 U.S. dealerships for Volvo, a brand of Ford Motor Co., the group found.
Overall, the association reported, just 5% of new-auto dealerships are minority-owned.
By comparison, minorities own about 15% of all U.S. businesses, according to the Census Bureau. Minority ownership is even higher in some sectors -- McDonald’s Corp., for example, says that up to 30% of its franchises are owned by minority group members.
Although individual domestic and import auto brands have made strides in recent years in diversifying their dealership bodies, nationwide progress has been slow, critics charge. With minorities buying an estimated 15% of new cars and trucks, the dealers group urged auto manufacturers this year to set a goal of having 15% of its dealerships in minority hands.
“This is a call to arms,” said Sheila Vaden-Williams, who heads the association. “As the minority population grows larger, we cannot continue to be satisfied with a 5% or 6% representation. This is a business imperative.”
But increasing the ranks of minority owners will be a challenge, according to industry experts. Buying a dealership isn’t cheap -- even small ones can cost $1 million or more. At the same time, industry consolidation means that fewer dealerships are for sale, and bidding wars often ensue for dealerships that come on the market.
“With the advent of public companies and mega-dealerships, that has had a dramatic effect on minority dealership ownership because of the costs,” said William E. Shack Jr., one of the original members of the minority dealers group.
Before the advent of large public dealer groups, “you would pay two times earnings for a dealership,” said Shack, who owns a Honda franchise in Henderson, Nev. “They came in and started paying four or five times earnings. The ability to raise working capital to fund these large operations, for many minorities, is limited.”
Today, a domestic franchise earning about $1 million a year could sell for as much as $4 million, said Todd Berko, managing director of New Jersey-based Bel Air Partners, which helps place values on dealerships as part of its mergers-and-acquisition work. A luxury import dealer earning that same million could sell for $5 million, he said. But prices can go higher, depending on the name brand and dealer location.
By comparison, McDonald’s says its new restaurants typically cost $455,000 to $768,000.
Most major auto manufacturers -- including the Detroit-area Big Three of Ford, General Motors Corp. and DaimlerChrysler’s Chrysler Group -- already sponsor programs in which they lend up to 90% of a dealership’s cost to qualified candidates.
Still, even with such programs -- some of which involve training as well as financial support -- blacks and others have failed to gain much ground, minority advocates say. The industry needs to be more aggressive, they maintain, in helping secure available dealerships for minorities.
Gary Cowger, president of General Motors North America, said that increasing the number of minority dealers beyond the company’s roster of about 380 -- the most of any manufacturer and about 5% of the total dealership body -- “obviously is a focus for us.”
“As with our suppliers and with our dealers and our employee base, we feel that the makeup should try to mirror the population,” Cowger said. “During the ‘80s and ‘90s, our dealer body dropped dramatically, but the absolute numbers and percentage of minority dealers went up.”
GM is not alone in its downsizing. Nationwide, the number of franchise new-car dealerships has been declining for decades; it stands today at about 22,000, a loss of more than 17% compared with January 1981, said Paul Taylor, chief economist with the National Automobile Dealers Assn. He pointed out that smaller dealerships are being shuttered largely in rural areas but also in some urban settings.
BMW of Germany, for example, is opening no new dealerships, a spokeswoman said.
That reduces the number of options for all would-be dealers, several auto executives noted.
For entrepreneurs who do accumulate enough cash to get into the game, regardless of ethnicity, the payoff often is substantial.
“They’re tough businesses to run,” Berko said. “But if you do it right, with the right franchise, in the right location, you can own a yacht. If you know how to do it, the opportunity to make money in the auto industry is probably one of the highest I’ve ever seen.”
More than 80% of all U.S. dealerships are profitable, with the average dealer in 2001 seeing more than $337,000 in profit, economist Taylor said. But he said that’s partly because, with such a capital-intensive business, unprofitable dealers don’t last long.
Even successful minority dealers say getting a foothold in the business can be tough.
The 54-year-old Price -- who played defensive end for Indiana University in the 1968 Rose Bowl -- just celebrated his first anniversary as the owner of Superior Acura in Bakersfield. This year, Price estimates, he will see more than $20 million in sales -- enough for a “respectable profit.”
He began his journey to dealer ownership in the late 1980s, when he was accepted into the minority dealer development program run by GM. In all, he worked for the world’s largest automaker for 14 years, including stints in the factory and as a sales manager for the former AC Spark Plug division.
Though he successfully completed the roughly 18-month program -- an 11-by-14-inch certificate adorns his office wall -- his efforts never led to a GM dealership.
Price said there were serious discussions about only one dealership, in Olympia, Wash. After checking it out, he said, he was concerned about the profit potential and passed on the deal.
GM declined to comment on how the program ran in the 1980s. But several dealers noted that the company’s minority dealer program has been improved through the years.
Biding his time and squirreling away cash, Price worked for a decade as a district sales manager for American Honda Motor Co. Along the way, he said, he established friendships with some of the most successful Honda dealers in Southern California, soaking up their secrets to success.
In the last five years, as Honda stepped up its dealer development efforts, Price checked out several possibilities but did not settle on a deal until Superior Acura came up for sale.
Honda -- about 3.6% of whose dealers are minorities -- will lend as much as 85% of a dealership’s purchase price to qualified candidates who can come up with the balance.
Price said he used his personal savings to acquire 26% ownership in the Acura dealership, with Honda kicking in the rest.
But for many minorities, “access to capital is a big issue,” said Marjorie Staten, executive director of the General Motors Minority Dealers Assn. “We find that does become a wall for many minorities.”
To help poke a hole in that wall, the GM minority dealers group is working with a consortium of minority athletes to create an investment fund to support dealer development, Staten said, adding that the fund will officially launch next month.
The initial goal is to raise more than $10 million. Details are still being worked out, Staten said, but the money would be used at first to help existing dealers with needs such as expansion and real estate purchases. Eventually, she said, as the fund grows, backers hope to help bankroll dealership purchases.
Vaden-Williams of the national minority dealers association said the group was in talks with Ford -- which, at 7%, has one of the highest proportions of minority dealers -- to develop a plan to increase its tally to 15%. The Ford plan could serve as a blueprint for other manufacturers, she said.
Some minority dealers fear that without a hard deadline -- which the minority dealers association has not established -- the 15% goal may never be achieved.
Others, such as Benjamin “Ed” Fitzpatrick, who has been in the auto business for 34 years, believe that just having an aim in sight makes it easier to get there.
“I think 15% is a realistic goal,” said Fitzpatrick, an African American who owns Valley BMW and Valley Lexus in Modesto. “We’ve never had a goal before, and now it’s up to all sides to find a way to get there.”
