Impact of Automotive
Dealers is Taken
By David Zaslawsky
Photography by Robert Fouts
Veteran automotive dealer Forrest McConnell III feels that his fellow dealers are a misunderstood group and perhaps an underappreciated group as well.
He said that some “very powerful people in Washington don’t appreciate the business risks that small businesses take. I think some of the things they do are well-intentioned, but they’re not practical.”
McConnell, who is president of the McConnell Honda/Acura dealership in Montgomery, knows firsthand those powerful people in Washington, because for two years he was in leadership positions in the National Automobile Dealers Association (NADA). He was vice chairman in 2013 and chairman in 2014. He said the association, founded in 1917, is one of the most powerful in the country and even operates several businesses. The association is “incredibly well funded,” McConnell said. It has 325 employees.
He not only testified at congressional hearings in Washington, but he traveled the globe, including China and Brazil. By the way, the Chinese government owns the association’s car dealerships.
“Dealers are some of the last true entrepreneurs,”
said McConnell, who began his automotive career while attending the University of Alabama. He started a rental car company and had three employees working about 100 miles away. He managed the enterprise by phone – a dial phone.
McConnell, who was on the road for 43 weeks last year, said that dealers nationwide employ 1 million people and generate 16 percent of all the sales tax in the country.
“We’re in every small town,” he said. “We’re in towns in South Dakota that you never knew existed.” He mentioned a Chevrolet dealership in Elba, a small town in Coffee County. Dothan Mayor Mike Schmitz is a Mercedes-Benz dealer and Montgomery Mayor Todd Strange was a partner in the Blount-Strange Automotive Group, which had Ford, Chrysler and Cadillac franchises. The company was sold to Sonic Automotive. “I lost him as a competitor, but I got him as my mayor,” McConnell said.
McConnell said that the dealers “are the backbone of the economy.” They are one of the larger if not largest employer in some of those small towns. Dealers as a group are “very generous” with charitable donations, McConnell said.
The association, which advocates on behalf of the dealers, was embroiled in a dispute with the Consumer Financial Protection Bureau, which according to McConnell, was trying to restrict interest rates on car loans. “The problem we have is they want to take away the customer’s right to get a discount on an auto loan,” McConnell said. He said that 80 percent of car buyers finance a vehicle at the dealership because it usually “is a lot less expensive,” he said. Dealers have access to a wide net of financial institutions.
Other issues facing dealers are complying with a wide swath of regulations and tax issues. There are at times some issues with manufacturers as well. “As franchisees we invest millions in the facility and land to represent the manufacturer,” said McConnell, who spent about $1.5 million in renovating the Honda dealership a couple of years ago to enlarge both the customer waiting area and the showroom; install new flooring and fixtures; and upgrade everything, including the restrooms. He said that his Honda dealership, which he operates with his younger brother William, was the first in the Southeast to have the newer look.
The McConnell Honda/Acura dealership, which generates about $75 million a year, sells about 210 vehicles annually, including 140 new ones. More than 40 percent of his 76 employees have been with the dealership for at least 10 years.
He stressed that dealers are not employed by the manufacturers. “We pay for all the staff and we buy inventories – not on consignment. We’re like a grocery store with a very small margin. It’s a good deal for manufacturers and a good deal for consumers.”
The primary concern of dealers is manufacturers showing favoritism. McConnell also pointed out that the dealers are “face-to-face” with customers, unlike manufacturers. When dealers see a problem with a vehicle, they try to get the manufacturer to take care of it and some manufacturers are more receptive than others, McConnell said. “If the customer is not happy, we’re the ones that have to talk to him,” McConnell said.
When asked if the franchise model is threatened by a manufacturer such as Tesla Motors that sells directly to customers, McConnell said the dealer network creates price competition “among ourselves for the customer. If the manufacturer sold direct, there would be zero price competition among dealers. It would be full sticker price for every car.”
He said that dealers and consumers share the benefit of servicing a vehicle under warranty. The consumer doesn’t pay and the dealer is reimbursed. “The manufacturer looks at a warranty as an expense to them,” McConnell said. Dealers are also reimbursed for recall work and there were 64 million recalls last year and another 34 million in 2013.
He did say the industry is safe going forward if billionaire investor Warren Buffett’s purchase of a large automotive dealership is any indication. “I would say probably the smartest guy in America would tell you that dealerships are (not going away),” said McConnell, who met Buffett earlier this year. “He (Buffett) is definitely a long-term investor and I’m talking long, long, long term.”
It all began with Hupmobiles
By David Zaslawsky
The McConnell family has been in the car business nearly 100 years – OK, 96 years to be exact – but it was an accident how they came to Montgomery.
First, the grandfather and grand-uncle of Forrest McConnell III, who is president of the McConnell Honda/Acura dealership, looked at opening a dealership in Atlanta. The two had saved about $3,000 from selling cars in Atlanta, but couldn’t afford to buy a dealership, Forrest McConnell said.
Then questioning the pair’s market research – at least tongue-in-cheek – they drove south and hoped to open a dealership in Macon, Ga. “They couldn’t find an adequate facility there,” Forrest McConnell said. “They said, ‘Let’s head west.’ ”
Driving west took the two to downtown Montgomery and they rented the site of a former gas station. The year was 1919. At the time, they sold Hupmobile and Scripps-Booth vehicles, the latter being upscale cars.
“They actually made it through the Depression, which is pretty unbelievable,” Forrest McConnell said. They were still in business through World War II. The two became a DeSoto distributor for Alabama and the Florida Panhandle, “which meant not a whole lot,” Forrest McConnell said. “It would have been better to be a Chevrolet distributor than it was with DeSoto.”
The family has had a number of dealerships through the years. It was his father who acquired the Honda dealership in 1973. “We’re pretty good at picking losers until we got Honda,” Forrest McConnell said. The timing could not have been better. The Honda dealership received cars in November and about 60 days later came the gas embargo. The domestic automakers lacked fuel-efficient vehicles at the time, unlike Honda.