Minority Auto Dealers Wait On Bailout Decision Last week, the CEO's of Ford, Chrysler and General Motors again pleaded for a billion dollar rescue plan on Capitol Hill. Now, the struggling U.S. automotive industry waits as lawmakers decide how, if at all, the government will bailout Detroit's "big three." Listen to a discussion on how minority auto retailers are especially being affected.
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Minority Auto Dealers Wait On Bailout Decision

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Minority Auto Dealers Wait On Bailout Decision

Minority Auto Dealers Wait On Bailout Decision

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I'm Michel Martin, and this is Tell Me More from NPR News. Coming up, we will hear about a financial consultant who can help a client through money problems and offer some spiritual healing at the same time. That's in just a few minutes.

But first, Congress is working on legislation to give some relief to the country's struggling auto industry after auto executives pleaded their case on Capitol Hill again last week. If approved, automakers could get at least $15 billion in emergency loans as early as next week, according to news reports, money that would come from an existing loan program to promote fuel-efficient technology. But the money will also come with strings attached. The industry will have to stop paying bonuses and dividends and submit restructuring plans to the government.

During the course of the bailout talks, a lot of attention has been paid to the foibles of auto executives and to the concerns of autoworkers. But there's another group we wanted to hear from, those who are in some sense in the middle: automobile dealers. So we've called on Damon Lester. He's president of the National Association of Minority Automobile Dealers, and Alan Hughes, who is the editorial director for news and business at Black Enterprise magazine. I thank you both so much for joining us.

Mr. DAMON LESTER (President, National Association of Minority Automobile Dealers): Thank you for us.

Mr. ALAN HUGHES (Editorial Director, Black Enterprise): Thank you.

MARTIN: Mr. Lester, I want to start with you. You testified on the Hill last week about the crisis and its effect on minority dealers. If you'll just give us a little taste of what you said. As I understand it, there are about 2,000 minority automobile dealers in the country. That's less than five percent of the total dealer network. What did you tell Congress?

Mr. LESTER: What we told Congress was basically that, you know, we do support the bailout or the bridge loan fund that the Big Three - Detroit Big Three are requesting. We do support the concessions made by UAW, as well. But we wanted to make sure that if they want to provide assistance, financial assistance also has to be made available to automobile dealers, particularly minority dealers.

MARTIN: Why should it be?

Mr. LESTER: Right now there's an overall credit freeze for dealerships, period. As many of the banks that received the TARP funds, they are not lending that money out to anyone, for that matter, as there is no traffic in the stores. What banks are doing right now is actually increasing the dealers' floor plan rates, which is the loans that they get - they use to buy their vehicles. They're cutting out the lines of credit just because of the overall risk and the negative affect that the industry has been having for the past six to eight months right now.

MARTIN: Why, though, is this an issue of national concern such that there should be some federal involvement in helping the dealers? Because people say, look, autoworkers, sure, that's like one out of 10 jobs is connected to the auto industry. People understand the workers. And the auto executives, people say, well, you know what? These people are going to have to deal with consequences of their decision-making. But the dealers, why - why the dealers?

Mr. LESTER: Well, right now, the dealers are the pillars of many of the communities in which they serve. Most of the dealers or majority for the dealers, for that matter, contribute to local state - local athletic teams. They're sponsors of local faith-based organizations. They are key contributors and key incubators within their localities which they reside. The average dealer gross revenue is $33 million, and that's $33 million of tax revenue that's generated within that particular area.

Mr. HUGHES: You have to keep in mind...

MARTIN: Alan, let's - I was just going to say, let's bring you into the conversation.

Mr. HUGHES: Sure.

MARTIN: And also I wanted to mention that Black Enterprise publishes an annual report on the top black businesses. I'd be interested to hear your take on how significant the auto industry is and dealers in particular are to that list of top black-owned businesses.

Mr. HUGHES: I mean, well, when you look at the auto dealers, what you see are - what's essentially coined as small business. And as Barack Obama has said many times, small business is critical to driving this economy going forward. And if you let an industry, even if it percentage-wise it may not seem all that significant from a macro scale, if you allow that to fail, Lord knows what sort of chain reaction this could cause.

The auto dealers, at one point, were considered one of the avenues to building wealth. You know, you start your auto dealership and, you know, you grow it and, you know, you create more jobs and you have the impact, as Mr. Lester pointed out, in your community. And it got so popular that we used to - we used to have the auto list as part of our overall industrial services list, and it became such a popular route for black entrepreneurship that we broke it out and made it its separate list and ranked the top 100 auto dealers out there.

MARTIN: If you're just joining us, you're listening to Tell Me More from NPR News. I'm speaking with Damon Lester and Alan Hughes about the impact of the global economic crisis, particularly as it's affecting the auto industry, and particularly its effect on minority-owned automobile dealers.

It's been reported that Reverend Jesse Jackson's planning rallies to put a face on what will happen if the auto industry is allowed to fail. And also, I understand that the auto union workers are headed to Washington for a rally to talk about their support for the bailout and what affect it would have on them. Are the dealers planning some similar initiative or are you just too few in number to really be able to make the case that way?

Mr. LESTER: Well, there's actually dealers flying in today. There's going to be a walk on the Hill tomorrow morning, I believe - all day tomorrow, lobbying with Congress and the Senate - I think the Senate is actually reviewing the bailout bill today - to bring more awareness and bring the sense of urgency that the Congress and Senate has to act on.

MARTIN: Can I ask both of you this, though, that even Democrats now are arguing that the auto industry brought some of these problems onto themselves. President-elect Barack Obama said over the weekend that the industry has to get its head out of the sand, that they're not making products the people really want to buy, that they're not addressing the obvious issue of, you know, climate change, fuel economy. I'd like to ask, what is your take on that, Damon? As a person who is - in essence, your guys are in the middle - gals, I hope there are some gals - are in the middle. They have to sell what Detroit makes. What's your take on that?

Mr. LESTER: Well, from the manufacturer's standpoint, not that I'm on their side, but the Big Three collectively actually spend more in research and development than any of the other import manufacturers. Right now, what we've experienced with the Big Three is that they've - we've literally seen an overnight shift from trucks and SUVs to smaller vehicles and crossover vehicles, which then twist-shifted(ph) the demand because everyone, particularly the Big Three, were more so focused on the heavy duty trucks, large vans and things of that nature, which then, you're saying the more popularity on the import side, which had more of the smaller, compact, fuel-efficient vehicles.

So they got - they did get caught by the eight ball by not diversifying their...

MARTIN: No. Wait a minute. Wait a minute. Wait a minute. How could that be the case? If Toyota could figure out how to develop an array of hybrid vehicles that are now very popular, how was it possible that Detroit could not have seen similar, similar - a similar appetite among the public coming? And secondly, there's the whole issue of the high cost of benefits. It's not - it hasn't - it's not exactly a secret that the high cost of benefits is one of the issues plaguing Detroit. Have they been vocal in addressing these matters in the policy realm? I mean, this is not just an issue for Detroit.

Mr. LESTER: I think now...

Mr. HUGHES: One of the things...

MARTIN: Go ahead, Alan.

Mr. HUGHES: One of the things in sort of defense, if you will, of the Big Three is that the way they were structured and the way they are currently are structured, that they cannot adapt to changeing consumer trends on the turn of a - you know, just turn a corner, just at the drop of the hat. They have a lot of contracts in place to manufacture things from suppliers and what have you. And if the consumer base is saying, we want big trucks, and then gas hits, you know, records levels of over $100 a barrel, then all of the sudden, we don't want trucks, then it's easier said than done to just say, OK, let's make smaller cars and more fuel-efficient cars.

And granted, they were a little behind that the curve on this, but it's not like they can just say, shut everything down, stop producing trucks. Let's just make some hybrid cars. It's not nearly that easy. They're just too big and too complex for that as they are now.

MARTIN: Damon.

Mr. LESTER: I want to agree with everything Mr. Hughes says. But on top of it, the Big Three, you know, they were - are behind the eight ball with regards to launching the products that they've been researching for several years now. But with the imports, they do have the capability, since they're newer plants, to retool those plants fairly quickly from the trucks to a smaller vehicle fairly quickly than the other - the older plants that the manufacturers typically have, which are the Big Three.

MARTIN: Now your dealers are minority dealers but they don't exclusively sell American-made cars. Right? Or is that the bulk of your membership?

Mr. LESTER: We're about 50 percent import and 50 percent domestic.

MARTIN: Is there a difference of opinion within the membership about whether this bailout should go forward?

Mr. LESTER: I think everyone understands that in order for it to be a perfect balance, you have to have a strong Detroit in order for it to be strong import side. As we're seeing a double-digit percentage decline in the overall global sales now, more so on the import side, everyone is really realizing that we have to have that balance. As majority of all the minority dealers came through minority dealer programs initiated by the Detroit Three, 90 percent of all our import dealers were once domestic dealers, so everyone understands that plight of trying to make sure that Detroit survives.

MARTIN: Interesting. Alan?

Mr. HUGHES: Yeah. It's also - I agree 100 percent. And it's also a fact that the dealers that are selling imports right now, it's not as though they're doing wonderfully. You know, a lot of them have done things like expanded their service base and focus on getting a revenue from servicing existing clients. You know, bring your car in, we'll tune it up at a discount, what have you. They're looking at other ways of generating money with the understanding that foreign or domestic sales are trending downward.

MARTIN: Alan, is it conceivable that this bailout would not go forward, and if it does not, what would be the consequence?

Mr. HUGHES: I think the consequences would be devastating. There is the old saying, too big to fill, and I think this is a classic case of it. I think the Big Three in Detroit, they cannot be allowed to fail. There's just so many things tied into the auto industry, everything from the dealers to revenues from media companies, and GM is one of the largest advertisers out there.

MARTIN: But there are still members of Congress who say that they object to this. They think it's throwing good money after bad, and that they're going to do what they can to stop it, including Richard Shelby of Alabama. What do you say to him?

Mr. HUGHES: I agree that there should be strings attached. I think that they should be forced to develop models that work, business models that work in the 21st century, and that where they can react quickly to change in consumer trends. But I think that just leave them alone, let them sort it out, I think that that is - that would be a colossal mistake.

MARTIN: Alan Hughes is the editorial director for news and business at Black Enterprise magazine. He was kind enough to join us from our New York bureau. Damon Lester is the president of the National Association of Minority Automobile Dealers. He was kind enough to interrupt meetings on Capitol Hill to join us here in our Washington, D.C. studio. Gentlemen, thank you both so much for joining us.

Mr. LESTER: Thank you.

Mr. HUGHES: Thank you.

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