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EDUCATED CONSUMERS DRIVE DOWN PROFITS, DEALERS LEARN

There's upheaval in the asphalt jungle.

For decades, owning an auto dealership virtually guaranteed profits -- it was like raking money up from the car lot.

Of course, things weren't as easy for buyers, many of whom dreaded haggling over "list" price, options and trade-in values.

"Now there are no secrets," said Frank Downing Jr. vice president of Towne Automotive Group based in Orchard Park. Today, car shoppers are usually armed with the invoice price the dealer paid for each car, plus the options on it.

"It's harder to make a big profit, but an informed customer is good," Downing said. "The deal process is much easier."

Despite near-record levels of car sales nationally, Niagara Frontier dealers expect to see more consolidation this year, as lower profit margins and higher standards for customer service pressure dealers to cut costs.

The trend was behind the consolidation of several local auto dealerships in 1998, and the slimming is expected to continue -- with the region's large dealer groups getting bigger as a result.

Nationwide, dealers achieved a surprising 3 percent increase in sales last year, as the muscular U.S. economy shook off the effects of the eight-week strike against General Motors Corp. America's garages made room for 15.6 million new vehicles, with sales of light trucks outpacing cars for the first time.

"We don't think sales will be as high in '99," said Elizabeth Spear, economist for the National Automobile Dealers Association in McLean, Va. Makers will still post the 15-million vehicle mark that indicates general health, but a weaker U.S. economy won't be able to sustain 1998's buying pace, she said.

For Niagara Frontier dealers, sales through the first 11 months of the year were down 3.8 percent, but the industry association expects that a strong December will put 1999's total ahead of the previous year's. Dealers reported selling 15,828 new cars through November 1998, down from 16,365 units in the same 11-month period of 1997.

"A lot of new products are coming out -- the Saab has a small station wagon and the T-bird is coming back," said Richard K. Welte, president of the Niagara Frontier Automobile Dealers Association Inc. Ford is reintroducing the Thunderbird as a retro-styled sporty coupe for the 2000 model year, expected to join GM's redesigned full-size truck on the list of hot products.

But while auto sales nationally are posting healthy totals, the number of dealers is expected to keep shrinking.

"For our population in Western New York, we have more dealerships than the area needs," Welte said. Erie and Niagara counties are home to about 85 auto dealers.

Competition in new cars has driven used-car profits to the fore at many dealers, according to the national industry group. Ford and GM dealers are the industry's most dissatisfied, partly because of low profits and pressure from the automakers, according to a recent survey by J.D. Power and Associates.

The capital clout to take care of increasingly sophisticated customers is also raising the bar, dealers said.

"We have a full-time computer analyst on staff -- that's the sort of luxury a small dealership can't afford," said Joseph Calabrese, vice president of Northtown Automotive Cos., an 11-franchise dealer group.

At the 10-franchise Towne group, a service shuttle and a playroom for kids are among the extras that customers are coming to expect, Downing said.

All that competition has meant that a number of smaller dealers in the area announced plans to sell to other outlets or otherwise go out of business.

Streng Oldsmobile in Buffalo will sell its franchise back to GM, owner Herb Streng said, as the automaker pares its Olds outlets. The sale follows the move of neighboring Braun Cadillac-Buick to Depew.

Holiday Oldsmobile/Jeep-Eagle in Clarence is negotiating to sell its franchises to other dealers. Schmitt's Garage, a Chrysler-Plymouth dealer in Bowmansville, is buying Holiday's Jeep franchise.

And while foreign makes are rarely a consolidation target, Acura of Amherst expects to combine with Ray Laks Acura in West Seneca sometime this year, as Laks acquires the rival dealership.

Northtown, having acquired VW and Isuzu franchises from another dealer group, plans to build a nine-acre home for them -- along with a Toyota outlet -- on Millersport Highway in Amherst this year, Calabrese said.

Elsewhere the consolidation trend is being driven by automakers themselves. In Rochester, Ford Motor Co. is buying a controlling stake in nine dealerships, with an eye to gaining greater control over customer service and cutting Ford-vs.-Ford competition.

"That way they can do things like one-price selling and closing unprofitable dealerships," Downing said.

Buffalo dealers are looking over their shoulders at the Ford Network's experiment in Rochester, but they don't believe it will be repeated here. The automaker enjoys high sales from its numerous Ford outlets in the Buffalo area, Welte said.

While the long-established American automakers are reducing their retail presence, newer carmakers are still expanding.

Towne added an Isuzu store in 1998 and plans to open a Hyundai franchise this year, the area's second, Downing said.

Kia, the upstart Korean automaker that Hyundai Motor Co. recently acquired from bankruptcy proceedings, also has a franchise available, he said. Towne recently passed on an offer from Hyundai to open a Kia outlet that would compete with Northtown Kia in Amherst.

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