Utah Auto Dealers Fighting an Uphill Battle
March 10th, 2009
Utah's Bizarre Three-Way Grudge Match Between the Motor Vehicle Industry, the Recession, and the Ad Council
by Jacob Hodgen
There has been no shortage of coverage on the auto industry lately, and for good reason. American factories build approximately 10 million cars every year and sell over half of them inside the United States. The revenue and jobs this industry sustains are an excellent barometer of the country's financial health. When they do poorly, millions of Americans suffer. Though several Detroit automakers swallowed their pride and successfully begged the government for 17.4 billion dollars in loans, if people stop buying cars, the influx of cash will not help them in the long run.
This is a serious problem in Utah, and many local auto dealerships are dropping dead due to a lack of consumer confidence. The dealerships that survive are suffering and are being forced to radically reconsider their business strategies to stay afloat.
Additionally, a peculiar new ad campaign throws a curve ball into the mix that nobody saw coming: it urges Utahns to stop spending money. Its timing is strange and seems to be in direct opposition to what most economic leaders say will fix the badly broken economy. Who will survive this three-way grudge match?
Let's get ready to rumble.
In the black and blue trunks, weighing in at 10 trillion dollars of national debt, and hailing from every town across the country, we have The Recession. The much-despised villain, Mr. R. wants only one thing: to take your job, foreclose on your house, and crush your soul and self-respect into dust. With unemployment at a 25-year high and the Dow at a 12-year low, the state of American economics isn't getting any less miserable. KSL claims it's the worst recession we have had in Utah in over 50 years. Right now, this juggernaut seems unstoppable in the ring and has its opponents quaking in their boots.
In the red, white, and blue trunks, we have Utah auto dealerships. The crowd favorite, this contestant has had a rough year and is currently just trying to keep its head above water in the face of poor sales. It seems the small dealerships are faring the worst, and those that haven't crumbled yet are getting desperate fast. Those that are still selling cars are doing so through sheer willpower and creativity.
Alex from University Hyundai tells me that they have managed to keep sales up through an extensive array of rebates and promotions. The "Assurance program" is particularly creative and relevant to today's potential buyers. While most warranties cover things like engine and transmission failure, the Assurance program extends coverage to things like involuntary unemployment and bankruptcy. If these should happen within a year of your purchase, you can drive the vehicle back, drop it off, and they will cancel your monthly payments and drop your debt without any penalties on your credit rating. This is just the sort of thing customers want to hear, but it comes at a price for the dealer. "The cost of the sales is our profit margins, which aren't very good any more."
Devin, who works for the Jerry Seiner dealership, tells me that people are buying more practical vehicles now. He says that trucks and SUV's are still selling fairly well, and that people are buying H3's instead of H2's. He claims that brand recognition is especially important. Not just for the brands of cars, but for the dealerships themselves. "People know us, and they know about out excellent customer service, so business for us has been pretty good."
Motorcycle sales seem to be a mixed bag. Fox from the BMW dealership in North Salt Lake says that bike sales had nearly doubled for them, because people see them as a cheaper alternative to cars. However, a representative from Escape Motorsports, which sells both street and dirt bikes, has been having less luck. "Business is way down. People just aren't buying anything." He tells me that he puts his hopes on spring weather, which traditionally brings with it a boost of spending.
In short, the problem for Utah's auto dealers is seemingly not a lack of money available to spend. Loans still flow freely, and though poor credit may slow the process of getting a house, you can still get a car no problem with no money down. The root of their troubles is a lack of confidence: people are scared and aren't buying. BYU economist Robert Crawford, claims that, "That behavior, while prudent in the long-run perspective, is in fact making things worse."
To try and solve this problem, the Salt Lake Chamber of Commerce has formed the "Can Do Coalition" that aims to restore consumer confidence and get Utahns spending cash. Members of the coalition urge locals not to hoard their money out of fear, "You can, in today's economy, buy more with your money than at any time in recent history. There are some incredible values out there." Cars are one thing they specifically urge people not to wait on purchasing, "If you need a new car now, or you can anticipate that you'll need a new car in the next few years, this is the time to get the most value for your money."
This brings us to our final combatant.
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In the tight, faded, green trunks is our ectomorphic underdog: the joint efforts of the American Institute of Certified Public Accountants (AICPA) and The Advertising Council. A mysterious dark-horse, no one knows for sure whose side this new guy is on. You may have seen him represented as a smooth-talking swine in the current "Feed the Pig" media campaign. On billboards and TV in Utah, the ads encourage people to save their money and avoid unnecessary spending. Now it's hard to criticize their intentions. Saving money is smart, responsible, and highly under practiced. At least, that's what common sense would tell you. But under the current circumstances, some might wonder if this strategy can only come at the expense of local industries. If everyone saves their money, how are you supposed to keep your job selling widgets to people who, like you, aren't buying things?
I couldn't help but chuckle awkwardly as I drove past a small car dealership this weekend that had not one, but two adjacent billboards from the Feed the Pig campaign. These particular signs warned against the dangers of buying take-out food--something I am sure the restaurant next door is none too pleased with.
Who is winning the match, you ask?
Open your wallet and you tell me.
