Auto Dealers Get Creative to Dig Out of Sales Slump

By Beacon Staff

When a car salesman tells you now is the best time ever to buy a car, he’s not just doing his job. While the long-term effects of last week’s $17.4 billion auto industry bailout by the federal government remain to be seen, dealerships are still trying to move large stockpiles of 2008 cars off their lots after a lethargic year in sales.

In recent months, auto sales have been down nationwide by roughly 30 percent from last year, but some local dealers estimate that figure to be as high as 50 percent in the Flathead. One reason, they said, could be the generally more fiscally conservative habits of Montanans. Several Flathead dealers have been forced to lay off employees.

Dealerships across the board are slashing prices, selling one-year models for the price of two- or three-year models. Many dealers are getting creative, reaching into a bag of marketing tricks they had previously never considered. Kari Hyundai in Kalispell is offering a deal where people can buy one car and get another for $1. There are no strings attached, except that only certain models are available for the deal.

At Kari Dodge Chrysler Jeep, owner Jim Peterson has concocted a strategy called “Valley Bucks,” where customers who purchase a car are essentially given debit cards to spend at local businesses. Peterson said the campaign not only helps him move cars off his lot, it also encourages people to circulate money through the local economy. For example, the debit rewards are far greater for a community business than at Wal-Mart.

Such tactics might not necessarily mean profit, but for these dealers it’s about cutting losses and, more specifically, choosing where to take losses. Dealers pay interest on all cars sitting on their lots. If the cars sit there too long and are still around into the next calendar year, banks don’t recognize them as new cars, said Glen Croft of Kari Hyundai.

No longer considered “new,” even 2008 cars that have never been driven before lose their eligibility for financing and warranty perks. These cars become a burden over time. Therefore, because so few new cars were sold this year, dealers are busy trying to find ways to get them off the lots and bring in 2009 models. Used car sales have remained relatively stable.

While not every dealer has a marketing campaign such as “Valley Bucks” or “get the second car for a dollar,” they have all dramatically lowered prices. Peterson, Don Kaltschmidt of Don K Chevrolet in Whitefish and Greg Eisinger of Kalispell’s Eisinger Motors, who all have at least 30 years of experience in the auto dealership business, said they have never seen such huge price drops or dramatic incentive offerings.

The foremost reasons for the decline in auto sales cited by dealers is lack of consumer confidence and the economic slowdown, which often go hand in hand. When people are unsure of what the economy is going to do, they are far less willing to spend money on big investments like a house or car.

Many of the dealers blamed the mainstream media for helping perpetuate an atmosphere of fear. Uncertainty over the future of the three main domestic automakers hasn’t helped either. Then, of course, there’s the fact that people simply have less money right now.

“(People) need to be able to turn their TVs on and not get blasted with ‘the sky is falling,’” Eisinger said. “It causes people to pull back and wait and see, and they’re not even sure what they’re waiting for.”

In early December, Kaltschmidt traveled with another Montana auto dealer to Washington D.C. to take part in the bailout talks. Kaltschmidt said he spoke with the Montana delegation – Rep. Denny Rehberg, Sen. Jon Tester and Sen. Max Baucus – outlining the reasons that Montana auto dealers support the bailout. Kaltschmidt said dealerships are cornerstones of small communities, offering a solid job base and contributing greatly to organizations such as little league baseball. He also said dealerships, which “have good chunks of real estate,” are big property taxpayers.

Of the three, Baucus was the only one who expressed interest in supporting the bailout, but he was concerned about one provision in the bill, Kaltschmidt said. Baucus ultimately voted against the bailout, as did Rehberg and Tester.

There are more than 4,000 people statewide employed by car dealerships. More than 700 of those are in the Flathead Valley, according to Patrick Barkey, director of the University of Montana’s Bureau of Business and Economic Research. Despite the large number of people employed by dealerships, Barkey said dealers are more of a reflection, not a catalyst, of the local economy.

“Would the bankruptcy of a big dealer affect the Kalispell economy?” Barkey said. “I would say not very much.”

Peterson of Kari Dodge said the “Valley Bucks” campaign has been hugely successful. Following a November in which sales were down 30 percent from the same month last year, Peterson said December has been outpacing last December’s sales.

“It’s the most comment I’ve gotten,” Peterson said. “The phone was ringing off the hook after we broke that ad.”

But Eisinger was less optimistic about how well most incentive packages work. Though a creative marketing strategy often “sparks some interest in people,” Eisinger said when it’s all said and done, dealers really just have to endure these slow times.

“Those things haven’t moved the needle,” he said. “Those things, if they really worked, (dealers would) all be doing it. Believe me, dealers watch that.”

Barkey said, amid all of the uncertainty, people can bet on one thing: Car prices will rise again.

“If history’s any guide, there will be no lasting memory,” Barkey said. “It’s an economic cycle.”