How to Save Black Dealers

By Frank S. Washington

The more things change the more they stay the same is an axiom that certainly rings true when it comes to black car dealers.

When the National Association of Minority Dealers (NAMAD) was founded in 1980, it had three action goals for presentation to the U.S. Government: immediate, low interest loans, refundable tax credits for the purchase of new cars and trucks, and a restructuring of, and moratorium on, repayment of dealer development debt.

In other words, minority dealers who were mostly black back then needed investment capital as well as operating cash. And even though today others such as Asians, Latinos and other people of color have joined the ranks of minority dealers, their need remains the same: capital.

If A.V. Fleming, executive director of the Ford Minority Dealer Association had a wish list it would be comprised of two parts. The first part would be for black dealers who bought their dealerships through dealer development programs. Fleming would provide black dealers with enough capital to quickly buy out manufacturers, who own the majority of the stock in the dealerships. That would fall under the heading of investment capital. He would also seek a downward adjustment of the good will the dealers are paying.

Called blue sky, this good will is a premium that is added to the purchase price that is paid by all dealers for the name and reputation of a dealership. Many argue that black and other minority dealers paid too much blue sky. The assumption is that the name of a dealership will attract customers. However, recent hard times have changed that equation especially for domestic brands.

For instance, at one time Ford commanded a 25 percent share of the auto market. In other words, one of every four automotive purchasers walked into a Ford dealership. At the end of 2007, Ford's market share had shrunk to 15.2 percent. As consumers flock to other makes, mostly foreign, it means that domestic dealerships are no longer worth their original purchase price. "Some dealers could find themselves upside down," Fleming said. "The dealership is not worth what they owe on it."

And Fleming says that for dealers who purchased their stores using private equity, they need working capital. Both Marjorie Staten, executive director of General Motors Minority Dealer Association and Damon Lester, president of the National Association of Minority Dealers cite working capital as a major need of black and minority dealers.

African American car dealers typically do not own the land upon which their dealerships sit. Lester said, "A lot of those dealers are in urban areas on fairly expensive land but they can't use (the land as collateral) to raise capital."

Worse, said Staten is that black and other minority dealers lack financial history in their communities. In other words they are not second, or third or fourth or fifth generation dealers who have built up ties with financial institutions that span decades.

Many minority dealers are under-capitalized and do not have the "legacy wealth that many majority dealers have to leverage and sustain the losses they are currently experiencing in their dealerships," she said.

Activists on behalf of black and minority car dealers have lobbied Congresswoman Carolyn Cheeks Fitzpatrick (D-MI), chairwoman of the National Black Caucus, to enlist her aid in establishing a $500 million SBA Direct Loan Program to save minority dealers. Fleming said that Kilpatrick, a native of Detroit, is receptive to the idea.

The Chrysler Minority Dealer Association (CMDA) has been working for three years on its faith-based Partners Program. The organization has entered marketing and sales initiatives with at least five organizations – the Progressive National Baptist Convention, 1,000 Churches, Church of God in Christ, the African Methodist Episcopal Zion and Kappa Alpha Psi Fraternity, Inc. Together they represent 9 million mostly African American consumers.

The way it works is that members of those organizations can get a coupon that gives them a $500 discount on a new Chrysler, Dodge or Jeep vehicle. Once that coupon is redeemed, Chrysler's minority dealers have agreed to contribute $100 back to the patronizing customer's organization.

Jesse Greathouse, chairman of CMDA's Partners Program and principal of Crossroad Chrysler Jeep in Oklahoma City, Oklahoma, said of Chrysler's coupon program, "It won't solve all the problems but it's a step in the right direction." In local markets some CMDA dealerships have relationships with local churches that are not affiliated with the faith based national associations.

"It's a win, win for everybody," said Greathouse. "Hopefully, we'll continue to develop that relationship with the institutions and with our dealerships." Still, the program does have holes. For instance, members of Detroit's historic Hartford Memorial Baptist Church, which belongs to the Progressive Baptist Convention, cannot take advantage of the coupon program. Chrysler does not have any minority dealers in the area.

"The coupon can't be used at any Chrysler dealership," said Greathouse. "More minority dealers would be another step in the right direction."

But why should black and minority dealers be saved seems like a fair question. The industry is consolidating. As overall sales slide, domestic automakers have suffered the most and they are scrambling to right-size their businesses.

Ford alone has shrunk its domestic brand dealers by almost 350 stores. Its minority dealer count has fallen by almost 30 to 309. That's out of more than 4,000 domestic brand dealers. And the company wants to buy out the 81 dealers in its dealer development program. Two-thirds of them are minorities.

According to NAMAD, people of color comprise almost one-third of the population, purchase 15% of new and certified used vehicles but ethnic minorities represent less than 5% of majority owners of dealerships in the U.S. This year Chrysler reported that it had 184 minority dealers who make up 5% of its dealer network and account for almost 8% of sales. They generate $7 billion in revenue.

According to the 2007 report, The Buying Power of Black Americans which is published by Target Market News, black households alone spent $33 billion on new and used vehicles in 2006. If black and minority dealerships fail, it's doubtful that much of that money would ripple back through their communities in the form of salaries and through black and minority organizations like banks, small businesses and other organizations.

"It is important to the black community that black dealers be "saved" because many of them provide valuable opportunities and other levels of support and resources to those communities," said Staten. "If black and minority dealers are challenged, those communities will be challenged as well."

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