Arapahoe County
The Villager
December 4, 2008

Auto industry’s loan needs result of perfect storm 

By Kim Amidei

As General Motors goes, so goes America.  From the 1940s and beyond, Americans looked to the auto manufacturer as the strength of the country.  But now, according to L.G. Chavez, Jr., president and CEO of the Burt Automotive Network, the public sees the company as disposable.
Earlier this month, General Motors, Ford and Chrysler sought access to government funds in addition to $25 billion that has already been committed to assist the Detroit automakers, and the mood in the country is not sympathetic.
“This is a difficult situation,” Chavez said of the troubles the automobile manufacturers are facing.  “I’m not sure the general public appreciates or cares about the auto industry or the local dealers.”
If the Big Three are forced into bankruptcy, the ripple effect could be catastrophic, Tim Jackson, president of the Colorado Automobile Dealers Association, said.  If they go down, suppliers will follow and then the foreign manufacturers will be affected.
“It’s not a handout, it’s not a bailout,” Jackson said.  “It’s a guaranteed loan.”
The dealers association said the automotive retail industry accounts for nearly 30,000 jobs in the state and generates more than $418 million in revenue for state and local governments.

Plethora of problems
Americans have a love/hate relationship with their cars, according to Chavez.
“We hate being controlled by our cars when it comes down to price, gas and repairs,” he said.  “Yet we love the freedom they afford us to be able to go where we want, when we want.”
The auto manufacturers’ need for government assistance is the result of a perfect storm, according to Chavez.
The five factors that combined to bear down on the industry, he said, include”

  1. World economic woes
  2. Credit crunch
  3. Mortgage industry collapse
  4. Stability of auto manufacturers
  5. Limited suppliers

“People have to have their vehicles,” Chavez said.  “There’s no getting around it.  This is a time when dealers depend on consumers finding credit and there’s a limited amount of money available.  The situation is very complex.”
Another challenge American auto manufacturers’ face, according to the CEO of the state’s largest auto industry empire, is that the revolutionary thinking of GM has stopped.
“The manufacturers have to have a plan and then have the where-with-all to follow it through, “Chavez said.  “That takes time, money and patience because it costs about $1 billion to develop a new model.  Recently, Ford’s been developing a number of fuel-efficient cars, but when the price of gas went down, there was a call to change direction once again.  Sometimes Americans aren’t as patient as they need to be.”

Custom-made autos
According to Chavez, the big three have catered to the demand of Americans to have custom-built cars and trucks.
“Choice is a big deal to the consumer,” he said.  “The American manufacturers have catered to the desire of the public, so the autos are very expensive to manufacture.”
A consumer can order a Chevy truck that has been manufactured 50 different ways and then add a list of accessories before the auto is shipped to the customer.
“That makes it tough to compete when the Japanese manufactures send the dealer five or six of one model and that’s what you have to sell on the lot.  They don’t customize.”
One of the reasons why the Toyota Camry has remained at the top of the auto world, according to Chavez, is that Toyota tweaks the car each year rather than starting over with a different model.
“For 10 years, Toyota has been manufacturing the same Camry with minor changes, so it’s less and less expensive to produce,” he said.
Another major difference in American and foreign manufacturing is union labor.
“There are a lot of workers retiring in Detroit, and the manufacturers have to pay their retirement and medical benefits,” Chavez said.  “Union adds a huge cost to the bottom line.”

Zero percent financing
In 2001, after the 9/11 tragedy, the nation looked to GM to get the economy jump-started.
“GM offered 0 percent financing to get people back to work and the economy going in 2001,” Chavez said.  “Now in Colorado, new car sales are down 50 percent since 2001.”
Chavez said he doesn’t know the answer to the question of how to improve the auto industry.

Car corridors
South metro Denver has boasted the best of the automotive industry in Colorado for many years.  Two of the biggest auto corridors in the state are on Broadway and along East Arapahoe Road.  Yet Chavez said the state’s auto dealers are at a disadvantage in comparison to other businesses, like the big box stores.  One of the problems the industry faces locally is that when a consumer purchases a car or truck, they’re taxed where they live, not where the dealership is located.
“A typical Wal-Mart might generate $50 million in a year,” Chavez said.  “We don’t have a dealership that generates that little.  But because the municipalities don’t benefit from having a car dealership in their area, we don’t get tax incentives, free land – none of the things the governments do to lure other businesses to the area.”
Approximately 800 people are employed by the Burt Automotive Network, according to Chavez, who took the reins of the company from his father, Lloyd G. Chavez, chairman of the board of the Burt Automotive Network.
Chavez said that if the manufacturers are not given government loans during the down economy, some of the local dealers will be forced to close, and many people will lose their jobs.   
“The economic situation is so complex, no one really understands exactly how to fix things and everyone has an opinion,” Chavez said. “Impatience drives us to want a simple solution, but if we don’t have a long-term attitude to do things right, we won’t be able to get things back on track.  It’s going to take time, but this country, this state” this south metro area can’t afford to have the American auto industry fail.”


Colorado Automobile Dealers Association
 290 East Speer Boulevard Denver, CO  80203
 Telephone:  303.831.1722  |  Facsimile: 303.831.4205