Industry expertise | January 2025 Damon Lester on NAMAD and today’s dealer challenges

We have relationships with every auto manufacturer, and most of them have embraced the business case to increase the minority dealer body. The buying power of minority consumers and the performance of minority dealers exceed the averages; that makes for a compelling business case.

Data drives business decisions, and increases in minority dealerships have proven to be solid business wins. We lost a sizable number of minority dealers during the recession of 2008. From a peak of 2,000 minority dealers back then, we’ve steadily rebuilt the minority dealer base to 1,500 now. We’re still trying to get back to levels we saw fifteen years ago.

The pandemic era clearly showed the resilience of dealers and automakers alike. It also showed the trust that governments—both federal and state—had in dealers. They had to deem us essential to make sure vehicles could be repaired and people could go to work.

In terms of auto retail, these have been some of the best years in our history. The three years following 2020 were glorious years in the industry from a profitability standpoint. Everyone, from the OEM to the dealer, faced reduced inventory and production levels, but that tragic and unique situation of a global pandemic created higher demand and drove prices up. Dealers had a lot of free cash flowing with strong consumer demand, in addition to federal and state financial support during the pandemic.

Some manufacturers are doing better than others in maintaining adequate days of supply and inventory, but there are a handful of OEMs that have overproduced. That excess supply puts a lot of pressure on dealers with floor plan carrying costs and lower margins. The challenge for dealers now comes from uncontrollable expenses and interest rates. Higher interest rates and other rising expenses have a significant impact on profitability and day-to-day cash flow. For consumers, we went from 0%, or even negative interest, a few years ago, to eight, nine, and even 10% interest for some customers, dampening demand for vehicle purchases and service.

People must make sure they can provide a roof overhead and food on the table first, and because of inflation and high interest rates, consumers aren’t always feeling good. Today we're seeing customers having to decide, “Should I get an oil change or buy a dozen eggs?” Those are the decisions that consumers must make every day. 

The product shift to EV’s plays into the equation as the federal goal of becoming less fuel-dependent drove manufacturers to push to put electric vehicles on the road. Price point and infrastructure matter. But we weren’t ready with the EV infrastructure—and EVs weren’t at the right price point with affordability becoming more of an issue. Hybrids have come to the rescue—some OEMs were better prepared than others—to provide a product that delivers better fuel efficiency, reduced emission and is financially accessible.

We’re starting out with an administration that wants to see more vehicles manufactured, not just assembled, in the U.S. Production in the U.S. may mean higher costs with proposed tariffs on Mexico, China, and Canada, and those tend to make their way to the customer with a higher price point. We hope that interest rates and inflation decrease enough to offset that, but it will have some effect on the dealer, the OEM, and the consumer. Keeping supply in check may not be a bad thing for dealers, as long as it doesn’t cut into consumer affordability.

Dealers need to realize that EVs are going to continue to matter. The consumer pushback on EVs from insufficient infrastructure and a higher price point will subside as more charging stations come online, prices for EVs moderate, and tax credits unfold. Expect the demand that hybrids enjoy today to swing back to EVs at some point. Keep a close eye on product mix to stay in line with these trends.

Finally, dealers have to factor in the higher expenses we’ve already talked about, whether it’s interest rates, the cost of parts and labor, or the inflation pinch still felt by customers. All of it matters from the dealer’s perspective. Plan for how to manage these expenses, and how to help buyers navigate affordability issues as they deal with higher expenses.

Leaders in auto retail see themselves wearing the Superman cape to address whatever challenge is in front of them. Whether it’s the owner, the GM or the department head, every leader is a human being with a family to go home to—a person who needs and deserves a work-life balance. I think it’s important to focus on the things that keep people grounded, both for yourself and your employees.

I see it as a responsibility for all of us to try to help as many people as we can, trying to make life a little bit better or easier for others. In meeting that responsibility, that’s where we find satisfaction in our own lives.