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Why auto dealerships could be among last businesses to recover from coronavirus

The Corpus Christi Caller Times logo The Corpus Christi Caller Times 5/29/2020 Kathryn Cargo, Corpus Christi Caller Times
a car parked on the side of a building: A view of the sales room of Ed Hicks Nissan on Wednesday, May 20, 2020, in Corpus Christi. The dealership is among several locally that have adapted to serve customers because of coronavirus. © Annie Rice/Caller-Times A view of the sales room of Ed Hicks Nissan on Wednesday, May 20, 2020, in Corpus Christi. The dealership is among several locally that have adapted to serve customers because of coronavirus.

CORPUS CHRISTI -- Ed Hicks dealerships have been in South Texas for nearly 50 years. 

Owner Charlie Hicks' parents, Ed and Gloria Hicks started the family-owned company in 1973 in Corpus Christi. 

But even those decades of experience and family history wasn't enough to prepare the company  for the economic hit during the coronavirus pandemic. 

Hicks' sales declined by 28 percent in April compared to the same time in 2019. His service business also dropped by about 25 percent. March, April and May are usually the busiest months for Ed Hicks dealerships as well as the rest of the industry. 

"We've had to minimize the loss, and for us, the biggest part is ... we don't know the duration of this,"  the 57-year-old Corpus Christi native said. "That's what has everybody concerned."  

Charlie Hicks wearing a suit and tie: Charlie Hicks discusses the auto industry's response to the coronavirus, Wednesday, May 20, 2020, at Ed Hicks Nissan. Hicks is the owner of the Ed Hicks dealerships. © Annie Rice/Caller-Times Charlie Hicks discusses the auto industry's response to the coronavirus, Wednesday, May 20, 2020, at Ed Hicks Nissan. Hicks is the owner of the Ed Hicks dealerships.

Even so, the South Texas auto company fared better than many others across the United States. 

Parts of the nation were hit harder by the pandemic than Corpus Christi. Nationally, auto sales dropped by an average of 50 percent in April year-over-year, Hicks said. 

For instance, Bowden Ford Co. in Alice reported sales were down about 50 percent from mid-March to mid-April. But it's not all bad news especially for customers looking for a bargain. 

"The dealership has seen a steady increase in sales the last few weeks, mostly attributed to the financing deals being offered," said Omar Silvas, general manager. "I have been in the business for 27 years and never seen these type of promotions."

a truck is parked in front of a building: A view of Bowden Ford Co. in Alice on Wednesday, May 18, 2020. The dealership is among the South Texas businesses that have adapted to serve customers during the coronavirus pandemic. © Robin Bradshaw/ Alice Echo News Journal A view of Bowden Ford Co. in Alice on Wednesday, May 18, 2020. The dealership is among the South Texas businesses that have adapted to serve customers during the coronavirus pandemic.

Most Texas dealerships were allowed to remain open and deemed essential during state lock downs. Many others in areas such as California and the Northeast had to close.

Hicks and his sister, Debbie Layton, own five dealerships in the Coastal Bend that mostly sell luxury vehicle makes including Mercedes-Benz, Infiniti, Subaru and Nissan.

"So there's some big global factors and national factors that are impacting our business as we figure out how to manage our inventories and how to respond to customer demand," Hicks said. 

a person standing in front of a car: Charlie Hicks, owner of Ed Hicks dealerships, stands outside the dealership on Wednesday, May 20, 2020, in Corpus Christi. © Annie Rice/Caller-Times Charlie Hicks, owner of Ed Hicks dealerships, stands outside the dealership on Wednesday, May 20, 2020, in Corpus Christi.

Issues with manufacturing  

Although sales have dropped drastically, Hicks has still run out of some models such as Mercedes-Benz G-Class. Many auto manufacturers have been suspended for two months due to the pandemic. 

And dealerships operate on a day supply, Hicks said. 

"That pipeline gets stopped. So then inventory starts to deplete," Hicks said. "So as those inventory levels go down, it's tougher for us to try and manage our business, because there's not the supply of vehicles being manufactured to replace the vehicles that we sell."

Manufacturers did have a "decent" supply of unsold vehicles going into March. Hicks has still been able to get new inventory that would have other wise gone to dealerships that have shut down. 

Values on pre-owned vehicles

Values of pre-owned vehicles are about to depreciate, Hicks said. Rental car companies' business has dropped about 75 percent. Vehicle auctions, which drive the market value of used cars, have also stopped. These values have decreased by 18 percent from March to April. 

"So they have all this sitting inventory of rental cars that are getting ready to get flooded into the market," he said. 

That also impacts new car sales because trade-in values will be lower. 

Forecasts expect the values of pre-owned vehicles to flatten out and come back up in the latter half of this year, Hicks said.  

a car parked in a parking lot: Charlie Hicks discusses the auto industry's response to the coronavirus, Wednesday, May 20, 2020, at Ed Hicks Nissan. Hicks is the owner of the Ed Hicks dealerships. © Annie Rice/Caller-Times Charlie Hicks discusses the auto industry's response to the coronavirus, Wednesday, May 20, 2020, at Ed Hicks Nissan. Hicks is the owner of the Ed Hicks dealerships.

How some dealerships adapt 

Hicks has put an emphasis on digital retail. His customers can conduct their entire vehicle-buying transaction online, even signing the deal. Less than 8 percent of customers bought a car this way before the pandemic took off in the U.S. That has since more than doubled to 19 percent, Hicks said. 

He is also offering pick up and delivery for vehicle service. 

"(We) recognize the importance and the impact that this is having in most people's lives. And everybody handles it differently," he said. "We've tried to mirror the customer. ... We'll conduct business on the terms that they feel most comfortable with."

Dealerships and manufacturers have been offering abnormal deals on new cars to help sales. Some of Hicks' largest hand outs include zero percent interest for 84 months and a $10,000 rebate. 

"Part of the response to all of this was manufacturers trying to figure out, 'Can we do anything on our side to support the dealers to minimize the impact?'" Hicks said. 

When will the auto industry recover?

The seasonally adjusted annual selling rate for 2019 was 17 million new cars in the U.S., Hicks said. The forecast for this year is 12.5 million. Hicks expects a "slower ramp up" regarding recovery in the industry and in consumer confidence. 

Economist Jim Lee said the retail sector is expected to bounce back, although slowly with reopening of the economy. Lee is the director of the South Texas Economic Development Center at Texas A&M University-Corpus Christi. 

Auto dealerships should be the last businesses to recover, Lee said. That's because a vehicle is one of the most expensive items that a family would purchase, second only to a house.  

"For those 27,000 residents, 13 percent of the local workforce, in the Corpus Christi metro area that have filed first-time unemployment claims ... buying a vehicle would be the last thing they have in mind," he said. 

"But hopefully rock bottom gas prices may help raise our appetite for new or used vehicles post-COVID-19."

a group of people sitting around a car window: A view of inside Alice Chevrolet Buick GMC in Alice on Wednesday, May 18, 2020. The dealership is among the South Texas businesses that have adapted to serve customers during the coronavirus pandemic. © Robin Bradshaw/ Alice Echo News Journal A view of inside Alice Chevrolet Buick GMC in Alice on Wednesday, May 18, 2020. The dealership is among the South Texas businesses that have adapted to serve customers during the coronavirus pandemic.

However, economic expert Thomas Tunstall anticipates auto sales to pick back up by the end of 2020, if not sooner. Tunstall is a senior research director at the University of Texas at San Antonio Institute for Economic Development. 

"The fact that people are going to, in fairly short order, probably start resuming normal driving activity, and the fact that those rental fleets will have to be replaced at some point -- both will positively impact the demand for cars," he said. 

The pandemic can drive up personal vehicle ownership if people aren't comfortable enough to use ride-share services, such as Uber and Lyft, and public transportation, Hicks said. 

"That would certainly help our industry recover in a more measurable way," he said.

Edmunds.com, a California-based automotive data firm, forecasts auto sales will have a financial comeback in the following months due to less air travel and increased road travel.

a close up of a sign: Ed Hicks dealerships are among those businesses locally that have adapted to serve customers during the pandemic. © Annie Rice/Caller-Times Ed Hicks dealerships are among those businesses locally that have adapted to serve customers during the pandemic.

Hicks said the pandemic will be passable for his company. 

"One thing we do well is adapt when circumstances require it. And we've been through the (2008, 2009) recession that had a huge impact on our industry," he said. "We hoped we wouldn't have to draw on those experiences."

Being deemed an essential business helped Hicks keep all of his 235 employees working. He also received a Paycheck Protection Program loan, which is part of the Coronavirus Aid, Relief, and Economic Security Act $2 trillion economic stimulus package President Donald Trump signed into law March 27.

"We made a commitment to our employees that we're going to pay them for April and May the average of what they made the previous six months," Hicks said. "They're going to be able to ... take care of their families."

What consumers can expect 

  • Financing promotions being offered now include: zero percent annual percent rate of interest for 84 months or 120 days no payment due during the start of the loan.
  • Shop around online and look for the best deal. Get price quotes from different dealers. Most bigger dealerships will have online staff that can help with questions when you click on their website to shop for cars online.
  • Get an accurate trade-in appraisal, research online and contact a few dealers on a trade-in quote.
  • Test drives can now be scheduled to come to your home with extended safety precautions in response to the coronavirus.
  • Financing applications can be completed on online and local sales representatives will come to your home to finalize the customers financing contract and consumers paperwork.
  • Delivery options are available after purchase at most automotive dealerships.

Robin Bradshaw of the Alice Echo News Journal contributed to this report. 

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Kathryn Cargo follows business openings and developments while reporting on impacts of the city government’s decisions. See our subscription options and special offers at Caller.com/subscribe  

This article originally appeared on Corpus Christi Caller Times: Why auto dealerships could be among last businesses to recover from coronavirus

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