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OC Auto Dealers Overcome Pandemic Speed Bumps

Surpassing 2019 Numbers Despite Manufacturing Challenges

Supply chain issues have been plaguing auto dealers with low inventory levels and empty lots for over a year.

“At this time of the year, we would typically have about 400 new cars on the lot. [Now,] we’ve got 33,” Theodore Robins Ford co-owner Dave Robins told the Business Journal.

“The demand is so far exceeding the supply because of all sorts of interruptions. It’s not just chips. It’s resins, steel—all sorts of different supplier challenges that are making it difficult for manufacturers to figure out what cars they can build each week in these plants,” Wilson Automotive Group President Craig Whetter added.

“I’ve never seen anything like this in my many years in the business.”

Despite the headwinds, revenue for Wilson Automotive, No. 7 on the Business Journal’s list of OC’s top private companies (see list, page 32), increased 27% to $3.2 billion.

Other Orange County auto dealers also bounced back from the hit they took during the height of the COVID-19 crisis.

Tuttle-Click Automotive Group, No. 19 on the list, broke $1 billion in revenue, growing 18%, and Irvine-based Shelly Automotive Group, No. 24 on the list, saw its business surge 50% to $882 million last year, surpassing the company’s pre-pandemic numbers.

“All the businesses in my industry experienced the drop-off in sales during COVID,” Shelly Automotive founder Damon Shelly told the Business Journal. “We recovered in 2021 pretty much to normal levels.”

 

Acquisition Activity

Officials at Shelly Automotive credit most of the company’s 50% revenue growth to the two Toyota dealerships in Bakersfield it acquired at the end of 2020.

Because “2021 was the first full year with the [acquired] dealerships,” the revenue jump from 2020 is relatively high, Shelly said.

The company saw about 10% organic growth in sales volume, he said.

It isn’t the only dealer group reaping the benefits of its 2020 acquisitions.

Officials from Wilson Automotive chalk up much of their 27% revenue growth to its Claremont Toyota acquisition.

The company acquired the dealership in late May 2020. The following year not only saw its first full year with the new dealership, but also pent-up demand from 2020, Whetter said.

 

Payroll Dips

While OC auto dealers bounced back in revenue, they saw a decline in local payrolls.

Shelly Automotive’s OC employee count dropped 9% to 231—a result of the company being more efficient, Shelly said.

“We’re being a little more careful with how we hire right now,” he said. “We’re constantly looking if we have too many people and how to get more and more efficient.”

Wilson Automotive’s 2% decrease to 1,079 employees was a result of employees leaving on their own volition.

To ensure all its employees kept their jobs during the COVID shutdown, “we [accepted] we would not be profitable. Our people are our most valuable asset, so they come first,” Whetter said.

CEO David Wilson’s “formula is: take care of your employees, and they’ll take care of the customer.”

“He’s got 2,100 families to worry about and he’s not going to put them in a tough position,” Whetter said.

 

Presale Pivot

As demand for cars outpaces supply, dealers are preselling their vehicles before they even reach the lot.

“Everything we get in, within a month’s time, 90% to 95% of them are already sold,” Robins said. “We actually like the business model. We don’t have to carry this huge amount of inventory, which gets very expensive to do.”

Customers can also order the exact model they want, Robins said. They don’t have to “pick and choose what we happen to have on the lot.”

However, delivery times for presold vehicles can vary.

“Generally, about 60 days is already spoken for,” Whetter said.

“We have to tell people that if they want something really particular, they have to wait until we can secure that production. And sometimes it’s for longer than 60 days” for special features.

As manufacturers wait for inventory levels to normalize, Shelly says dealers “really don’t have much choice other than to wait on them.”

“They’re the ones who’ve got to solve the problem.”

 

Automaker Uncertainty

Automakers are just as unsure as dealers as to when the industry will see the end of shortages and supply chain issues.

“I’m hearing that things should get better by the end of this year but no one really knows for sure,” Hyundai Motor America Senior VP of National Sales Randy Parker told the Business Journal.

The shortages brought a collective decline in sales for OC automakers last month.

Irvine-based operations of Mazda reported a 64% drop in May sales from the year prior. Company officials cite low inventory levels and the recent COVID lockdown in Shanghai, which has tightened parts supplies and impacted production.

Irvine-based Kia America said it saw a 28% decrease in May sales, while sales for Fountain Valley-based Hyundai were down 30% for the month.

Although the numbers are trending downward, demand isn’t the problem, Parker said.

“Everybody’s going to be down simply because we don’t have enough microchips,” he said.

“On a year-over-year basis, it looks like doom and gloom … but we’re gaining market share and achieving all of our internal targets.”

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