OUR THOUGHTS ON:

Auto Emergency

Automobile

By Paul Matvey

Never in more than 30 years of working with clients in the auto industry have I seen events unfold as rapidly and dramatically as they have in the past 12 months.

In October, 2007, I attended the AICPA Auto Dealer Conference as I do every year. Forecasters predicted a softer year with a significant drop in new units sold, from the previous high of 17 million down to 15 million. Then came a rapid series of anxiety-building events that affected auto dealers, including the softening of real estate markets on the coasts; skyrocketing oil costs fueled by speculation; the build-up of inventories of trucks and SUV’s; increased interest in alternative fuels and hybrid vehicles; the burgeoning financial crisis leading to the collapse and/or sell off of financial institutions; the freeze of credit markets in the United States and around the world; the nationalization of banks in Europe; and the bailout of our financial institutions. Three weeks ago I attended the 2008 AICPA Auto Conference to hear that retail sales should fall to 13 million units. Today we expect new vehicle sales for the year to be just over 10 million units.

On Tuesday of this week, CEOs from the domestic Big 3 testified before a Senate committee asking for a $25 billion bridge loan, which would, in their words, “avert lay-offs and plant closings.” Yesterday the same group returned to Capitol Hill to plead to the House. Speculation is the reception will be lukewarm. Bailout-weary legislators appear to be skeptical. We have heard the rhetoric ranging from saving 3 million jobs to saving the U.S. economy from complete collapse. The future of the auto industry has never been more tentative.

As business advisers what have we suggested? Be nimble – adjust your strategic plan to accommodate the next week, month, 3 months, and 6 months. Focus internally, look at variable areas, reallocating attention and resources when possible. Pursue your financing sources and floorplan providers. Engage with alternative sources when possible. While I have no idea if 3 will survive or become 2, the reconstitution will be painful and take time. Just as some suggest that the domestic manufacturers must reinvent themselves to survive, I suggest that dealers should do the same, and that nothing should be sacred. In time, the industry will recover, and with a substantial amount of pent-up demand.

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