The November 14 issue of Automotive News carried a cover headline reading “Fewer Dealers by 2000,” and a feature article detailing the ongoing process of GM and Chrysler programs designed to reduce the number of dealership points by the years 2000. The downsizing occurring in most business sectors includes the automotive industry. In a future where lean, mean, and more efficient is the rule of thumb, only the strongest survive.
In 1993, Dealer Business magazine ranked S&K Chevrolet/GEO number 161 out of 24,000 dealerships nationwide in new car sales and number one in used car sales in the state of Illinois. These figures will confirm that S&K Chevrolet/GEO, with a new and used car inventory that would put many Chicago dealerships to shame, is one of the survivors.
Bill Kallister and Tom Smith purchased a small but growing Peoria-based Chevrolet dealership from owner Ed Houser 25 years ago. Over the years, S&K has seen many changes in keeping with industry trends, while the management skills of Tom and Bill have propelled S&K to one of the nation’s top dealerships.
S&K expanded with the purchase of Huber Pontiac/Subaru in Springfield in 1991, and the acquisition of Southeastern Illinois-based Bud Mitchell Chevrolet/Oldsmobile/GEO in November of this year.
The development of S&K Rental, a full service care rental agency, typifies the S&K approach to business in the next century. Originally established in response to the customers’ needs, the rental facility at the S&K dealership on North Knoxville Ave. in Peoria has been joined by a downtown location at Hamilton and Jefferson and a facility at the Greater Peoria Regional Airport through the recent purchase of the Dollar Rent-A-Car facility.
What is your assessment of the U.S. auto market at present?
Tom: Probably the biggest complaint at the moment is that production is just too slow. Everyone is having a hard time getting products.
Overall, we’re building a better product – a superior product. Everything is more competitive and I’d say the manufacturers are coming out with better cars for the consumer.
Bill: I’d agree with Tom. Today’s market is excellent. The only downside is that there’s so much demand for all models that it’s an ongoing struggle to keep inventory. But that’s where being a larger volume dealer helps. We now have three GM dealerships: Chevrolet/GEO here in Peoria, Pontiac/GMC/Subaru in Springfield, and just last month we purchased our third dealership, a Chevrolet/Oldsmobile/GEO dealership near Effingham. Because of that, we’re better situated than most dealerships to have the inventory our customers are looking for.
The auto industry has been in somewhat of a boom in the 90s. How long can we expect this to last?
Tom: The experts are forecasting that it will last for another two or three years. There are a lot of people out there who have been waiting to replace their vehicle but are at a point now where they just can’t wait any longer. Their cars are wearing out. We’re seeing cars come in with far more miles than we used to see.
The election will play a big part in how long this will last, because the overall economic conditions and consumer confidence have to be there before people will make these larger purchases.
Bill: I’d probably disagree with the first part of your question. There hasn’t really been a boom in the 90s. It’s only been in the last year or year and a half that we’ve really seen significant movement. Before that, most car dealerships were losing money in their new car departments.
Last year’s NADA survey of dealerships indicated that the average care dealer lost $223 for each new car sold. And as a result, some dealerships have had to make some adjustments internally to streamline their operations and identify and meet customer needs better. It’s probably been a good thing for the consumer and over the long run, it will be better for the industry.
We’re fairly optimistic that this will last for another couple of year while, as Tom said, customers continue to replace their older vehicles.
With Japanese cares being manufactured in the U.S. and, for example, the GEO Prism being a Toyota, what is a “foreign made car” today?
Tom: That’s been a big issue for a number of years, especially for Chevrolet. And, a lot of the foreign manufacturers are now putting up U.S. assembly plants to get around that issue. But, I think if buyers are concerned about “buying American” they need to look at where the profits go after the sales.
Bill: I’d like to comment on that. You know, there are almost no 100 percent domestic cars anymore. Virtually ever vehicle has components of foreign manufacturers. But the larger issue is, where do the dollars go after the sale? If you’re really concerned about investing in this country, you need to look at where the tax dollars are going after the sale. If it’s a foreign-owned manufacturer, the profits probably aren’t doing a lot to benefit the U.S. economy.
How does the Peoria auto market differ from the auto market in other cities? Is it unique in any way?
Bill: Peoria is very different from markets of similar size. Peoria is very competitive. For example, Springfield, which serves approximately the same number of people as Peoria, has one Chevrolet dealership while Peoria has eight. That’s probably because Peoria is such an old market. By that I mean we’ve grown slowly to encompass Washington, Morton, Chillicothe, etc.
A market like Phoenix, for instance, grew up almost overnight. As a result, the dealerships were put in place to serve the population instead of the population growing up around the dealership.
I doubt if there’s another market in the U.S. that’s like Peoria. We’re really more like a large metropolitan area. The fact that there is more competition is good for the consumers. It gives them a greater ability to shop for the best price.
The alleged “quality” difference between Japanese models and American models was a big issue throughout the decade of the ‘80s. Where does it stand today?
Tom: I’d say that gap has closed a whole bunch. This country is building a better care today.
Probably the most noticeable difference is that American manufacturers today will hold a product until they’re certain it’s ready for market. It didn’t used to be that way; they’d rush to get a product in the market and then worry about how well it worked.
Today a manufacturer can’t afford to have an inferior products our there for even one day, and they’ll hold it until they’re 100 percent certain it’s right.
Bill: Yes, I’d say there is very little difference today between the quality of Japanese and American made cares. At one time it was a legitimate concern, but today it’s really a non-issue.
Local dealers don’t seem to push leasing as heavily in their advertising as is the case in Chicago or L.A., for example. Why is that?
Tom: Leasing hasn’t caught on here like it has in the larger markets. And there is definitely a place for leasing. If a customer wasn’t a new car every three years, for business or whatever, a lease will make a lot of sense. Leasing is simply another option for financing. It works for some and not for others, and the dealership should be able to work with their customers on a case by case basis to determine what’s best.
Unfortunately, not all dealerships or their people are knowledgeable about leasing. We have made an effort to ensure that our people understand and offer leasing as an option to the customer. We feel it’s important to give our customers as many choices as possible, then they can decide what’s best for their situation.
Bill: As with most things, the larger markets will lead the way with change. And leasing is really manufacturer-driven. Because leasing is an important option for the consumer and encourages brand loyalty for the manufacturer, I see leasing growing in the smaller markets as well. It’s just a matter of time.
What trends do you see in the U.S. auto market in the coming years?
Tom: I think we’ll be coming out with a more attractive product because the technology is getting better all the time. The cars will be more sophisticated and better built. And there will be fewer dealerships. The days of the little country dealers are gone.
Bill: I believe we’ll see this issue of “one-price” selling being addressed in the future. You know, if there were truly a “one-price” selling environment across the board, I think the dealers would be a happier bunch. Unfortunately, what we’ve got now isn’t one price selling.
As we speak, the Federal Trade Commission is investigating one-price dealerships and the issue of one-price selling. The problem is most one-price facilities still negotiate. There are just too many variables. And the bottom like is that dealerships that aren’t one-price can still give their customers a better deal.
I don’t know whether the industry will go to one-price or not; but there are certain elements of one-price that hint at price-fixing and I just don’t’ think that is where the future is.
What is your philosophy on volume and margins in the auto business, based on your experience over the years?
Tom: It’s pretty simply math really. The bigger the volume, the lower the price. If you’re only going to sell one car, you have to make all your profit on that single car. But if you’re selling 10 or 20 cars, you can spread the difference across all the sales and sell each item for less.
Bill: Volume does make that difference, absolutely. But the same is true in any retail operation. Why can Wal-Mart sell items cheaper than Ace Hardware, for example? It’s volume. The same is true for cars. Volume offers consumers two advantages: they get a better selection and they can generally get a better price.
How has the auto-selling business changed over the years since you first started?
Tom: Well, I’ve been at this a long time, so I’ve seen a lot of changes. I started in 1942. I came from a very large family and we needed the money so I finished seventh grade and took my first job as a janitor with Earl Johnson Chevrolet. I worked at every job from grease rack to the body shop before I moved into sales and later went into partnership with Bill.
I guess the biggest difference is the way we sell. I mean, it used to be that when customers wanted to buy a car, they’d visit the dealership and look over the models we had and then they’d special order what they wanted. Today, very few customers are willing to wait for their vehicles. They want same-day delivery. As a result, we’ve made a concerted effort to be the leading volume dealer in order to better meet the consumers’ needs.
Bill: I agree completely. The most dramatic difference is the way customers shop. Today they want to buy from inventory.
There’s less brand loyalty and less dealership loyalty. At S&K we have had to respond by making certain we have the inventory the customers want, when they want it. We’ve always been very strong on service. And I think that’s made a difference in our growth. Even though there’s less loyalty, we’ve been able to retain more of our customers and get more referrals because we were sensitive to customer service.
More than anything else, what has been the secret to your company’s success?
Tom: Quality service and a quality sales staff. When it comes right down to it, we’ve always understood that the customer was our boss and we’ve always conducted our business with the understanding that we were working for him.
Bill: More than anything else, our success has been the result of a true concern for customer satisfaction. Automobile dealers through the years have had a poor image. I guess now we’re ranked somewhere above lawyers and politicians, but all in all the public hasn’t had a good feeling for the auto industry. So we’ve had a lot to overcome.
I’d agree with Tom; we’ve always taken the approach that the customer comes first. I guess what it really comes down to is our business is more about making satisfied customers and less about selling cars. It’s an approach that’s worked pretty well for the past 25 years and we’re planning on sticking with it! IBI