SIC 5511

This classification is comprised of establishments involved in the retail sale of new automobiles and light trucks. These establishments are franchised retail outlets for domestic and foreign automobile manufacturers. Products include passenger cars, pickup trucks, and minivans. Many establishments also sell used vehicles, replacement parts, tires, batteries, and other automotive accessories. In addition, many operate service departments.

NAICS Code(s)

441110 (New Car Dealers)

Industry Snapshot

The number of new car dealerships has been declining steadily since the late 1980s. According to the National Automobile Dealers Association (NADA), as of January 1, 2002, there were 21,800 total new car and light truck dealerships in the United States. This number represented a decrease of 350 dealerships from the previous year. A number of factors, including weak economic conditions and industry consolidation, attributed to the brisk decline in 2001.

Despite a decline in the number of dealerships, new car dealers achieved healthy combined sales increases in the early 2000s. Sales increased 7 percent in 2000 and 6 percent in 2001, reaching a record $690 billion. The new car and truck sales category is one of the largest within the retail sector.

New auto sales for 2001 reached a total of 17.1 million units. That total included a little more than 8.4 million passenger cars and about 8.7 million light-duty trucks. Sales of light trucks outpaced cars for the first time in 2001, consistent with past predictions of industry analysts.

The total number of cars in operation continued to rise. According to the NADA, the total number of vehicles in use in 2001 was 216.7 million—approximately 128.7 million cars and 88 million trucks. Of these, more than 38 percent were more than 10 years old, almost 26 percent were between 3 and 6 years old, more than 22 percent were 7 to 10 years old, and almost 14 percent were less than 2 years old.

New car dealerships traditionally were comprised of three profit-making departments: new car sales, used car sales, and service and parts. According to the NADA, the average dealership profile in 2001 was: new-vehicle department sales were a little more than $18.8 million, used-vehicle department sales were at about $9.2 million, and parts and service totaled approximately $3.7 million. Total dealership sales increased throughout the 1990s and early 2000s.

Organization and Structure

Despite the large numbers of automobiles sold in the United States, auto manufacturers had relatively few customers. Manufacturers' customers consisted primarily of their franchised dealers. Dealerships purchased cars and light duty trucks from manufacturers, and in so doing they obtained ownership of the vehicles. The millions of people who made retail auto purchases were customers of the dealerships, not the manufacturers.

Because the car-buying public made purchases from franchised, individual dealers, manufacturers had no authority to establish fixed vehicle prices. Manufacturers were able only to suggest retail prices because price fixing was forbidden by law under statutes prohibiting the restraint of trade. Dealers, who were independent businesses, were legally free to negotiate selling prices with their customers.

Many new car dealerships were members of the National Automobile Dealers Association (NADA). NADA was formed in the post-Depression era to represent dealers' interests in coping with legislative issues and in negotiating areas of concern with manufacturers. In 1988 NADA members accounted for 79 percent of the nation's dealers. NADA membership steadily increased and by 1992 accounted for 83 percent of U.S. new car dealers, representing about 19,500 franchised new car and truck dealers. By late 2002 this number had fallen slightly to 19,400.

Another organization representing the interests of some automobile dealers was the American International Automobile Dealers Association (AIADA). In 2002 AIADA claimed membership of 10,000 American-owned businesses that sold and serviced automobiles with overseas nameplates. AIADA's mission was to represent its members' views on issues such as U.S. trade policy, domestic content requirements, taxes, fuel economy, and antipollution legislation. AIADA also undertook studies of the positive aspects of international automobile trade, focusing on its benefits to U.S. consumers, the national employment situation, and the economy.

Background and Development

Early in the twentieth century, carmakers became increasingly proficient at producing automobiles. Mass production techniques necessitated mass distribution, and that developed a system of selling cars through dealers who held exclusive franchises.

During the early decades of the 1900s, market conditions—driven by excess demand and limited supply—left dealers largely unprotected against territorial infringement and forced them to accept whatever conditions a manufacturer offered. Under a typical franchise agreement, a dealer was limited to the selling of a specific line of new cars, usually the products of one company. Dealers were required to accept vehicle quotas, and the quota limit was established by the manufacturer. Dealers were required to pay for cars upon delivery, and manufacturers held the right to cancel dealer franchises.

The preexisting availability of a widespread dealer network helped some of the major automakers become established during their early years. For example, before he entered the automotive industry, William C. Durant (who went on to become the founder of General Motors Corp.) sold carriages and wagons through a network of Durant-Dort dealerships. When Durant assumed control of Buick in 1904, the Durant-Dort dealerships began to sell Buick automobiles. In 1906 they sold 1,400 vehicles, and in 1907 they sold 8,800. Studebaker, another company with prior experience selling wagons and carriages, also entered the automotive industry with a pre established, widespread network of dealers. Other car manufacturers developed dealership networks by granting franchise rights to independent selling establishments. Most new car dealers also provided repair service for the vehicles they sold. Packard, in 1903, became the first company to offer factory training for repair personnel.

The Ford dealership network developed quickly in response to the popularity of the Model T. By 1914 the company boasted 7,000 dealers. In order to help owners keep their cars running, Henry Ford pressured his dealers to stock replacement parts. The practice became established as an industry standard that others followed.

The practice of making financing arrangements for new car purchases also began during the early decades of the twentieth century. The idea of financing was not unique to cars. Isaac Singer helped increase sales of sewing machines during the middle of the nineteenth century by offering financing. Studebaker embraced the concept in 1911, and General Motors established the General Motors Acceptance Corporation in 1919. Although Henry Ford held a personal bias against granting credit to customers, many Ford dealers offered the service.

By the middle of the 1920s, three out of four new car purchases were made on the installment plan. A typical agreement called for a down payment of one third and the remaining balance to be paid over a 12-month period. In 1925 auto dealers made an estimated $2.5 billion in loans to finance new car purchases. The repossession rate was 2.09 percent.

By the 1920s the practice of trading in an old car and using it as a down payment on a new one was also well established. By the end of the decade, approximately 80 percent of new car purchases involved trading in an old car. Profit on used cars was small, and dealers disliked used cars because they took customers away from the more profitable new car market.

Other changes also occurred within the auto market during the 1920s. While previous decades had seen demand exceed supply, the market became saturated, and the supply of new cars began to exceed demand for the first time. Ford, struggling with financial restructuring and facing a depressed market for its products during 1920 and 1921, raised money by shipping unwanted vehicles to its dealers, who were required to buy them or lose their franchises. Although the practice bankrupted some dealers, most were able to sell the extra vehicles, and the cash flow enabled Ford Motor Company to survive its crisis.

Ford dealers, however, continued to lose sales during the mid-1920s, as Americans shopped around for cars. Other manufacturers had instituted annual model changes featuring innovations and offering speed, comfort, and styling in addition to mere transportation—which had been the Model T's claim to fame. An estimated 70 percent of Ford dealers lost money in 1926 as a result of lagging Model T sales. Ford dealers asked Henry Ford to produce a new model, and in 1927 the company announced plans bringing the Model T era to a close. The Model A appeared for the 1928 selling season.

Enthusiastic interest in Ford's new model netted deposits on 125,000 units, sight unseen. When sample models were manufactured and displayed, the American public gathered to see them. In places where no actual model was available, people lined up to see photographs. According to one estimate, 25 million Americans, about 20 percent of the nation's population, saw a sample Model A at a dealership or special showing within a week of the model's introduction. After the Model A had been offered for two weeks, 400,000 orders had been taken.

Excitement within the industry proved short-lived. The Depression years devastated auto sales. Nationwide, General Motors' dealers sold 5,810 cars during the entire month of October 1932. The figure approximated the number sold on a single weekday during 1929. Some analysts blamed the industry's reliance on credit for the severe impact it felt during the early Depression years. People were simply unwilling to go into debt when the future was uncertain.

Depression era difficulties exacerbated weaknesses in the dealer franchise system. Manufacturers put increased pressure on dealers to sell cars and canceled franchises arbitrarily. As a result of such abuses, dealers formed the National Automobile Dealers Association (NADA). Although NADA initially wielded little power because a lack of unity prevented the organization from making immediate changes, it eventually evolved into the industry's largest trade association.

During World War II, automakers refocused their energy on providing products for the war effort. With few new cars available, dealers increased their participation in the used car market. Following the war, many people were ready to enter the new car market, and demand quickly outstripped supply.

In an effort to help reduce the possibility of runaway inflation throughout the economy, the Office of Price Administration issued an order that all car selling prices had to be held to their 1942 model year levels. At the same time, manufacturers were slow to return to prewar production levels because of problems surrounding the changeover and strained labor relations. Price ceilings combined with curtailed production led to a shortage of vehicles. Dealers took full list price and offered little on trade-ins. Some dealers were criticized for taking advantage of the shortage by offering cars only with extra, high-profit accessories, demanding prices over list, and accepting bribes to make delivery. The situation improved somewhat following the end of price regulations in 1946.

In the postwar years, NADA obtained legislative victories for dealers at the state and national levels. Two principle areas concerned territorial rights and manufacturers' ability to arbitrarily cancel franchises. Prior to World War II only five states protected franchise holders: Wisconsin, Iowa, North Dakota, Florida, and Mississippi. After the war the number increased to 20 states, but enforcement remained difficult. Although franchisee protection laws theoretically safeguarded dealers from arbitrary franchise cancellation and against the practice of being required to accept and pay for unordered shipments, some abuses continued. Territory preservation also remained difficult, as manufacturers established more and more retail outlets in their efforts to increase market share.

The federal government enacted the Dealers Day in Court Act of 1956 to further protect dealerships from detrimental manufacturer actions. Although the law banned coercion and intimidation, it permitted persuasion and urging. Some automotive historians speculated that the statute's principle effect was to urge manufacturers to restructure their relationships with their dealers and avoid future, possibly more demanding, legislation.

In addition to passing laws to protect dealers from manufacturers, Congress also passed laws to protect the car-buying public from dealers. The Monroney Act, for example, required dealers to attach stickers to new automobiles when they were offered for sale. The labels were required to state the suggested retail selling price, specify items considered standard equipment, and list available options along with their suggested prices.

By 1970 almost 31,000 new car dealerships were operating in the United States. Their numbers, already trimmed from the 47,000 in operation in 1950, began diminishing further. Domestic makes lost market share to imports, car sales slumped during economic downturns, and dealers slashed prices and profits on new car sales in order to move their inventories. Some dealers closed, and others merged. Industry-wide consolidation brought decreasing numbers and changing types of new car dealerships. In 1982 NADA reported 25,700 dealers remaining. They included 8,600 small dealers with annual new-unit sales of less than 150, and 3,500 high volume dealers with annual new unit sales in excess of 750. By 1993 the total number of dealerships had diminished further to 22,950. Of these, only 5,300 were small dealers, but the high volume category had grown to 5,700.

The changes within the industry also altered dealerships' revenue sources. Although total sales dollars from new vehicles remained the largest portion of receipts, the new vehicle department no longer represented the largest portion of profit. According to NADA statistics, in 1978 new vehicle departments had represented 74.7 percent of average dealership profit; used vehicle departments accounted for 23.7 percent; and service and parts departments 1.6 percent. By 1985 profit-making segments of dealerships had shifted. New vehicle departments still accounted for most profits, 78.5 percent, but growing service and parts departments were responsible for 14.5 percent. Used vehicle departments represented the smallest portion, 7 percent. By 1992, however, the picture had changed again. NADA statistics revealed that the service and parts department accounted for 66.5 percent of the average dealer's profits. The used vehicle department accounted for 32.5 percent, and the average dealer obtained only 1 percent of its annual profits from its new vehicle department. Most of that profit was attributed to aftermarket sales, such as financing, insurance, and extended service contracts rather than the actual sale of a new car.

During the first two years of the 1990s, auto dealerships faced recessionary conditions. In 1990 the average dealership profit, measured as a percent of sales, stood at only 1 percent, and one out of every four dealerships lost money. NADA reported that the average dealership's new vehicle department operated at a loss in 1990 and 1991 before returning to profitability in 1992. The profits were slim, however, equaling about $3 per new vehicle sold at retail. Although conditions began improving during the end of 1992 and in 1993, industry watchers predicted profit margins would remain low.

To cope with the severe financial conditions, dealerships began restructuring efforts to make more efficient use of capital and to increase employee productivity. One measure was the increased presence of multiple-franchise dealerships. According to NADA, by 1993 more than 30 percent of dealerships belonged to chains, and the average dealership had at least two franchises. Although the trend led some analysts to forecast an eventual end to the franchise system, NADA predicted its continuation and a slowing rate of dealer consolidations. At the same time, manufacturers such as Ford Motor Co. and General Motors Corp. launched efforts to shrink the number of dealerships, a move that would increase dealer profitability, allow more attention to service, and help boost brand images.

Megadealers and auto malls were two emerging forces in the industry. Megadealers were those who sold multiple kinds of automobiles either at one location or at several locations. Auto malls were large, single locations offering numerous types of cars. Two types of auto malls were "enclosed" and "open air." Enclosed auto malls were typically comprised of the different franchises owned by one megadealer. Open air malls were typically a gathering of independent dealers on adjoining lots. In 1992 there were 117 auto malls in the United States and 5 in Canada. One auto mall under construction in Nevada was planned to include 20 franchises. Some forecasters estimated that 350 auto malls would be operating in North America by 2005.

Auto manufacturers did not universally accept multiple franchises at a single location. For example, Mitsubishi enforced a policy against the practice. In 1993 five Mitsubishi dealers threatened suit against the manufacturer, claiming that they would go out of business unless they were permitted to combine with other franchises. Mitsubishi claimed that dual franchises produced fewer sales.

Another factor that helped auto dealers begin to recover from the conditions of the early 1990s was falling interest rates. In 1992 new car loans dropped below 10 percent, and the average loan length fell to 54 months, the shortest since 1987. Falling interest rates also helped dealers reduce floor plan interest expense, the interest they paid on money borrowed to finance cars in inventory.

In their own efforts to increase auto sales, car makers instituted programs that tied dealer sales incentives to Customer Satisfaction Indexes (CSI). NADA reported that dealership spending to increase customer satisfaction succeeded only in creating more demanding customers. In addition, the contests for sales incentives forced dealers to compete with other same brand dealers, thereby cutting profitability. NADA further claimed that a high CSI did not help dealers retain customers, and that 80 percent of the customers who had a loyalty to a particular make of car still shopped comparatively between dealers.

In addition to the diminished profits on new vehicle sales, auto dealers received reduced income on aftermarket items. As manufacturers offered longer warranties, fewer car purchasers opted for extended service contracts. As technology improved rust resistance, fewer buyers bought rust prevention packages. Antitheft systems, however, represented a growing aftermarket category. Systems included numbers etched into windows, starter interrupters, alarms, and radar tracking devices. Antitheft devices were especially popular among buyers using long-term financing. Under long-term financing agreements the amount outstanding during the early years of a loan was often greater than the vehicle's value. To protect car buyers from losses associated with the theft of such cars, manufacturers of antitheft systems often provided guarantees to reimburse owners for insurance shortfalls.

As new vehicle sales departments experienced falling profits and even losses, parts, service, and body departments became increasingly important. In 1992 parts and service profits accounted for almost 70 percent of total dealership profits, with profit margins of 5 to 6 percent—significantly higher than the 1 to 2 percent margins realized in vehicle sales. Because dealer service departments traditionally served vehicles less than five years old, dealers expected the sales slump of 1990 and 1991 to reduce the growth possibility within their service departments. Some losses, however, were expected to be offset by increases created through extended manufacturer warranty work and as a result of the increasingly complex electronic equipment and pollution abatement devices in cars.

To accommodate more customers and increase opportunities to provide service, many dealers were expanding their service hours. By 1992 almost half of all dealers offered hours beyond traditional workday hours. According to a NADA survey, 11.2 percent offered evening hours; 30 percent offered weekend hours; and 8.6 percent offered both evening and weekend hours. The average service department was open 51 hours per week. Some dealerships were also considering opening satellite service centers in residential areas, so car owners could have their autos serviced by qualified dealer technicians without sacrificing convenience. A few even initiated home pickup and delivery for vehicles in need of service.

Used car sales provided another growing source of income to new car dealers. In 1989 new car dealerships sold more used vehicles than new ones for the first time since World War II. Used vehicle profits increased 50 percent in 1992. In that year, new vehicle dealers sold 15.1 million used vehicles and only 12.8 million new ones. Net profit on an average used car was $236, compared with an average on a new car of $3. Approximately 65 percent of the used vehicles sold were obtained from trade-ins. The remaining came from sources such as street purchases and auctions. By 1996 used cars had become even more important; new vehicle dealers sold close to 20 million used cars in that year with an average net profit of around $259 versus $77 on each new vehicle sold.

One important category of used cars was the "nearly new" car. These cars, called "program cars," were sold by automakers to rental fleets with guaranteed buy-back provisions. As manufacturers increased subsidies to daily rental companies in an effort to increase sales, the length of time cars were kept shortened. As a result, manufacturers were buying back three-and four-month-old cars with low mileage. Program cars were sold to dealers at auctions, and dealers resold them to the car-buying public with warranties intact but at prices often thousands of dollars below new car list prices.

Although many dealers enjoyed the extra per-vehicle profits associated with program cars, they also complained that the practice undermined potential sales of new cars. As a result, auto manufacturers began to cut back on the number of program cars by requiring rental companies to hold cars longer. Program cars peaked at an annual volume of 1.3 million vehicles during the early 1990s and then began declining. In 1993 mileage on program cars was 10 to 12 percent higher than it had been in 1992. As the number of program cars declined, new car dealers turned to other sources to supplement the offerings on their used car lots. These included vehicles from auctions, wholesalers, repossessions, seizures, and lease returns.

Lease returns, in particular, had become a primary source of used cars by the mid-1990s, as leasing spread from the corporate to the consumer markets. Franchised new car dealers were particularly well positioned to take advantage of the boom in used car sales in spite of fierce competition from used car superstores. As NADA president, John Peterson, said at the association's 80th annual convention in February 1997, "There is still plenty of opportunity out there for us, because the future of the used car business is about supply. As franchised new car dealers, we have first access to trade-ins, first access to off-lease vehicles and first shot to buy smart at the auctions." A 1996 NADA report confirmed this view, noting that franchised new car dealers were taking in and selling a higher percentage of trade-in vehicles and earning higher gross margins on them than vehicles purchased from other sources. Nearly 50 percent of used car sales in the first nine months of 1996 involved a trade-in to the selling dealer, compared to 38 percent in 1982.

Industry watchers expected used vehicle departments to continue providing a significant contribution to dealership profits. Economic factors, such as slow growth, stagnating family income, and the everincreasing price of new vehicles, were expected to keep a larger segment of the population out of the new car market. In 1996, for example, the average selling price of a new vehicle was $22,000, compared to $11,600 for a used vehicle. In addition, used vehicle certification programs, manufacturer interest in protecting residual values, and a greater emphasis on brand loyalty combined with the increasing quality and reliability of cars, served to enhance the image of used cars and therefore made them more acceptable to former new car buyers in the used car market.

Another challenge facing automobile dealers was improving public perception and countering negative stereotypes based on past practices and abuses. NADA reported spending $1 million to develop a program aimed at helping dealers market themselves and their products, as well as to promote ethical and moral business practices. The program, launched at NADA's 1992 convention, provided sales training and certification in an effort to bring increased professionalism to the industry.

One area identified as a potential cause of negative impressions was the practice of bargaining over car prices. Because sales people traditionally sold cars on a commission basis, buyers sometimes felt they were being pressured to make purchases or given incorrect or misleading information. As a result, some dealers began switching to one-price selling during the early 1990s. Although one-price selling was not a new concept, its popularity flourished after it was embraced by General Motors's new Saturn division. Under one-price policies, dealers put a nonnegotiable price on a car and theoretically did not bargain. In practice, sticker prices fluctuated according to ever changing market conditions, and bargaining occurred over the value of trade-ins, accessories, and sometimes the actual vehicle price.

According to a report published by Automotive News, the number of dealers instituting one-price selling policies was increasing. In 1992 more than 1,600 dealers were "no-haggle" dealers, up 70.8 percent from 1991. Their numbers were expected to reach 2,265 in 1993. Sometimes in making the switch, dealerships replaced their commissioned sales people with salaried "sales consultants" or "greeters." Dealers adopting one-price selling policies expected to improve customer loyalty through building better human relationships.

Another trend observed during the early 1990s was toward short-term leasing. As Richard Strauss, former president of NADA, explained in Automotive News, "Retail leasing is changing the industry. Two-year leases are good for the manufacturers, dealers and the customers because they shorten the trade-in cycle. We have to find ways to make cars more affordable." Strauss pointed out that a 24-to 36-month lease returned customers to the dealership a lot quicker than 48- to 60-month financing plans. Off-lease cars also provided used cars for dealer owned used car lots.

In addition to the challenges of changing economic times, dealerships confronted changing environmental regulations. The Environmental Protection Agency (EPA) provided guidelines regarding toxic wastes, emissions of volatile organic chemicals (VOCs), and the handling of chlorofluorocarbons (CFCs). In 1992 new EPA rules were adopted to exempt dealers from future liability regarding subsequent off-site oil spills. The regulations came after some dealerships that had sent waste oil to other companies for disposal or recycling were charged for cleanup costs at toxic waste sites.

New EPA rules concerning the release of VOCs from auto paints were expected to limit the availability of paint colors, and increase labor and training costs. EPA rules about CFC recycling mandated technician certification to service air-conditioning units. The cost of industry compliance was estimated at $15 million. Other environmental regulations focused on proper disposal of gas, diesel fuel, antifreeze, degreasers, and brake fluids.

In the late 1990s, the auto industry experienced many consolidations by manufacturers (Daimler-Benz A. G. and Chrysler Corporation, November 1998 and Ford Motor Company's purchase of Volvo Car, March 1999) and by new car dealers. The decline in the number of franchised dealers to 22,076 in January 1999, indicated that the dealership base was transforming to larger, well-financed companies. These modern dealerships' goals were to reach high unit volume. Since they were multifranchised dealers, they tried to increase their opportunity for a sale by lumping together different franchises on one large property.

At the close of the twentieth century, the push to change the format for retailing automobiles was encouraged by U.S. manufacturers themselves. Ford Motor Company instituted Auto Collection , a retail venture, which they hoped to build into a national retail name. Their intentions included building multibrand superstores with large inventories, consolidating all Ford, Lincoln, Mercury, and Mazda stores in a market under a single ownership group, open satellite service centers with extended hours to compete with quick-oil-change shops, and switch dealerships to one-price selling. Typically, the transformation took place by dealers selling their stores to a new company and then Ford Motor and the dealers taking shares in the new venture. One dealer was then put in charge, and the others often took other positions in the company.

The Ford Retail Networks operating in the United States in early 1999 were in Tulsa, Oklahoma, and Oklahoma City, San Diego, Salt Lake City, and Rochester, New York. Ford enlisted Republic Industries, Inc. as an equity partner in the Rochester, New York, Auto Collection project. The retail network consisted of nine dealerships and was operated by Republic, but Ford Motor Company remained the majority shareholder.

In October 1999 General Motors announced its plan to enter the retail business. General Motors dealers thought that this was a declaration of war on independent dealers. The underlying factor behind GM's plan was to keep GM vehicles away from large dealer groups like AutoNation, Inc. GM feared their product would suffer when treated like a commodity by these superstores.

General Motors dealers felt that GM, after they analyzed the problem, came up with the wrong solution. GM looked to support from their dealers, emphasizing the threat by megadealers, but the dealers saw GM as the threat. The independent dealerships believed that factory stores would have an unfair advantage over them and threatened their existence.

The National Automobile Dealers Association (NADA) planned to lobby legislators to pass or tighten state laws that restricted automakers from selling their vehicles without a licensed dealer. Laws in 26 states restricted or banned automakers from owning retailers of their vehicles. In November 1999, after GM dealerships mobilized, General Motors halted their dealership plans.

Current Conditions

Through the third quarter of 2002, overall industry sales were stronger than they were at the same time in 2001. However, the industry's prosperity is not distributed equally across the board. As automotive dealers entered 2003, consolidation remained a key trend. According to Automotive News , the leading 100 U.S. dealerships sold more than 16 percent of all light vehicles in 2001. This is in stark contrast to 1996, when the top 100 accounted for only 9 percent of all sales. Even though overall sales fell slightly in 2001 (1.3 percent), Automotive News reported that the leading 100 U.S. dealerships achieved an increase of almost 3 percent.

To help offset the effects of a weak economy, auto manufacturers relied on a series of consumer incentives in 2001 to generate sales at franchised new car dealerships. These included cash-back offers and zero-percent financing. While such tactics are useful for increasing sales in the short-term, they are difficult to sustain long-term, since they cost automakers interest income. Some industry analysts noted that the success of these incentives was starting to wear off by late 2002.

Because of quality improvements in automotive manufacturing, used vehicles were an increasingly important market for car dealers in the early 2000s. Consumers and lenders were more willing to take risks on high-quality used vehicles. According to the NADA, used vehicles continue to represent a significant profit center for dealers. Some 26 percent of the average dealer's operating profits was attributable to used vehicle sales in 2001. In addition, used vehicles accounted for 29 percent of the average dealership's overall sales in 2001, compared to 24.5 percent in 1991.

Special incentives like zero-percent financing has a negative effect on the sales of used vehicles. Automotive News indicated that, in late 2002, this was having an especially harsh impact on dealerships that concentrate on the sale of used vehicles. The publication also reported that, of the nation's leading 100 automotive dealers, more than 50 percent of used car sales were attributable to the top 10 dealerships in 2001. Furthermore, the top 10 used car dealerships saw their sales of used vehicles increase significantly in 2001, by almost 29 percent.

In 2002 J. D. Power and Associates conducted a study involving more than 27,000 new vehicle buyers. This study revealed the Internet's growing importance in the car-buying process. According to the study, "of the 60 percent of new-vehicle buyers who use the Internet while shopping, 88 percent visit automotive Web sites before arriving at a dealership for a test drive. The average automotive Internet user visits seven Web sites while shopping for a new vehicle and starts the online shopping process nearly two months before they purchase." Although the study found that third-party Web sites were the most widely used by consumers shopping for new vehicles, it explained that Web sites for automotive manufacturers and dealers were receiving increasing amounts of traffic. Dealership sites received an especially noteworthy increase in traffic, with levels rising 55 percent from 1999 to 2001.

The Internet also was coming to the forefront of manufacturer-dealer relationships. For example, in early 2002 the financial divisions of Ford, General Motors, and DaimlerChrysler announced plans to cooperatively launch an online system that would enable dealers to approve loans—and thus drive more sales—in a more expedient manner. The system also would electronically link dealers with other lenders, including banks and credit unions. Around the same time, Ford introduced a Webbased service to help dealers locate vehicles at other dealerships.

One Internet-related dealer-manufacturer development was especially noteworthy. In late 2002 Daimler-Chrysler was in the process of establishing a Web portal called DealerCONNECT. According to Automotive News , by 2003 the automaker planned to require its dealers to user the portal for dealer-manufacturer communications. As the publication explained: "Dealers will need access to this portal to order vehicles and parts, submit warranty claims or do training or other business with the automaker." As of late September 2002, some 30 percent of dealers did not have the appropriate high-speed Internet connections in place to use DealerCONNECT.

Industry Leaders

In 2002 AutoNation, Inc. was the largest automotive retailer in the United States. Their sales for 2001 included 712,000 vehicles, 454,000 of which were new. AutoNation also was the largest online retailer of both new and used cars in the early 2000s, earning $1.8 billion in 2001. That year, the company had more than 370 automotive franchises (284 dealerships) in 17 states. The company's revenue from all departments in 2001 was $20 billion.

United Auto Group, Inc. was ranked second in 2002. At that time, the company had 126 domestic franchises and 71 international franchises. Group revenue from all departments in 2001 was $6.2 billion, an increase of more than 27 percent from the previous year. On April 12, 1999, Penske Capital Partners agreed to purchase the controlling share of United Auto Group, Inc., with Roger Penske to be the chairman.


According to statistics compiled by the NADA, franchised automotive dealers employed a record 1.1 million workers in 2001, including 228,900 salespeople, 265,500 technicians, 325,800 service and parts workers, and 309,700 supervisory and office personnel. In 2001 NADA figures placed average dealer employment at 52. However, this was much higher with the leading U.S. auto groups. For example, AutoNation, Inc. employed 30,000 people in 2001, and United Auto Group Inc. employed 8,500.

Further Reading

"Autos & Auto Parts." Standard & Poor's Industry Surveys. New York: The McGraw-Hill Companies, 13 June 2002.

Cantwell, Julie. "Study: Automakers Must Grasp Web Shopping Usage." Automotive News, 4 March 2002.

Couretas, John. "CarPoint Is Eager to Accept Net Orders." Automotive News, 27 September 1999.

——. "Trilogy's Web Buying Service Plans 'E-dealers' Chain." Automotive News, 1999. Available from .

English, Bob. "Canada's Dealers Are at a Crossroad." Automotive News, 1 February 1999.

"Ford's Retail Network." Automotive News, 1 February 1999.

"GM Halts Dealership Plan." Detroit Free Press, 2 November 1999.

"Groups Grow." Automotive News, 1 January 1999.

Harris, Donna. "Buyer's Market." Automotive News, 1 February 1999.

——. "Everything to Everyone." Automotive News, 1 February 1999.

——. "Group Struggles to Find Direction in its Response to '99's Biggest Issue: Factory-Owned Dealerships." Automotive News, 1 February 1999.

Healey, James R. "Car Buying Sites on Net Take Turn for Best Services." USA Today, 3 September 1999.

J. D. Power and Associates. "J. D. Power and Associates Reports: Automotive Web Site Traffic Still Strong; Manufacturer and Dealership Sites Attract More Buyers," 10 October 2002. Available from .

Kisiel, Ralph. "Big 3 Form Online Loan Venture." Automotive News, 28 January 2002.

——. "Chrysler Will Move to Web Portal in 2003." Automotive News, 23 September 2002.

——. "Ford Unit Plans Web Programs for Buyers, Dealers." Automotive News, 28 January 2002.

Lira, Guillermo. "Light Vehicle Sales Up 32 Percent in Mexico." Automotive News, 1 February 1999.

Miller, Joe. "Dealers Vow to Fight GM." Automotive News, 4 October 1999.

Moran, Tim. "Futurist Sees Constant Links to Net for Cars." Automotive News, 27 September 1999.

National Automobile Dealers Association. 2002 NADA Data, 26 December 2002. Available from .

Petersen, Scot. "Psst! Hey, Buddy! Wanna Buy a New Car?" PC Week, 30 August 1999.

Sawyers, Arlena. "Biggest Dealer Groups Gained Share in 2001." Automotive News, 15 April 2002.

——. "Service Centers Put GM in a New Market." Automotive News, 1 February 1999.

——. "Top 100 Groups Add Sales in 2001; 10 Biggest Win More Than 50 Percent of Used-Vehicle Volume." Automotive News, 20 May 2002.

Value Line Inc. "Ford Motor Co., " 6 December 2002. Available from .

Whitford, Marty. "It's a Bigger World Since He Sold to UnitedAuto." Automotive News, 8 February 1999.

Wilson, Amy. "Retail Groups Take Their Lumps." Automotive News, 14 October 2002.

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