What to do with auto malls?

There has been a lot of news lately about auto dealers. Even before Chrysler and GM decided last week to pull the plug on a couple thousand dealerships, there were a lot of closures. Now it seems that the issue is becoming acute. 

Any vacancy is bad for a landlord, but in most cases properties are fairly adaptable. Adapting a property will often take some work, such as adding refrigeration to convert a clothing store to grocery. But car lots are car lots, and there isn’t really much other potential for these odd buildings surrounded by huge expanses of pavement (sometimes with strange fake rocks for displaying SUVs at adventurous angles they will never see again).

Other than the occasional hybrid or smart car dealer, nobody is trying to get into the auto business these days. I suppose that a construction company might use a former car lot as a really swanky equipment yard, but auto dealers love to cluster and engage in (quasi-cooperative) joint marketing. So that would be a disaster for any neighbors still trying to keep up a good impression. Vacancies are bad enough, but a bunch of grimy backhoes and lumber piles next door will not put people in the mood to buy a Lexus. I’m not a huge fan of cars, but I recognize that they are a major part of what remains of our manufacturing sector, and so the transition to a less car-dependent economy is a dangerous one. There is a real risk of auto malls collapsing, which would have serious impacts on local tax rolls and newspaper advertising.

The L.A. Times reports that the upcoming wave of car dealership closures will have a severe impact in places like San Bernardino. In this city, there were once a dozen dealers, and already five have gone out of business. Only one has been reopened, and that was Arrowhead Motors, which was launched by a credit union that had so many reposessed cars it went into the auto business. Because this is a not-for-profit operation, it has a chance to survive. And if Arrowhead’s venture does profit, that money goes back to the members in the form of lower fees and better interest rates.

It sounds bad that credit unions would be repossessing cars, and in a perfect world a cooperative would be able to find a way to let its members keep their vehicles. But even a member-centered organization sometimes has to look out for the collective good of its members by doing some difficult things with individual members. Every financial institution will eventually have to repossess property; when it does, it must sell those assets in order to convert them back into cash for the purpose of making loans. The easiest way to do this is to hire a specialist broker to make the sales (and keep much of the profit). However, what Arrowhead has done is internalize an expense that would otherwise leave the credit union.

If this goes well for Arrowhead, it will result in better returns on repossessed cars, which would in turn limit the risk for financing auto loans. Presumably, that will result in a more profitable auto loan operation, which will in turn result in lower rates. This (we may hope) will eventually lead to fewer repossessions. And on the side of the auto lot, the credit union does not have to make a profit, so it has a better chance of succeeding than the usual investor-owned company or entrepreneur. Its member base provides a unique marketing channel, and of course all of the financing can be done in-house.

My own credit union, The Golden 1, has its own approach to helping members with automotive credit needs. Yesterday, I got an email announcing that they had arranged for rates as low as 3.99% with a local auto dealer. Essentially, they have used the bargaining power of 600,000 members to negotiate deals with auto sellers, described at the Golden 1 Auto web site. I’m not aware of any other credit unions or banks doing this, but if anyone out there can tell of such a thing, please comment.

Autoland is another way that credit unions (including the Golden 1) help members buy cars. This organization was formed in 1971, and recently converted into a cooperative, owned by the hundreds of credit unions that use its services. It maintains offices and kiosks inside numerous credit union branches.

As a parting thought on cooperatives and cars, I want to talk about another co-op that has gotten into the auto business. In the UK, most of the food co-ops have merged into a massive enterprise called the co-operative group , which has three million members and is the world’s largest co-op. It has thoroughly diversified into many areas, including finance and insurance, pharmacy, travel, and legal and funeral services. It has also dabbled in other industries, often related to core businesses (for example, manufacturing its own uniforms). The group also owns Sunwin Motors, which is a subsidiary whose profit from 23 sites (one of the UK’s 50 largest dealerships) goes to the larger co-op.

I would not be at all surprised if other co-ops do vehicles. Many agricultural co-ops include equipment in their purchasing programs, and I once visited a co-op in Melfort, Saskatchewan, where they had campers for sale in the parking lot. They also had a couple of manufactured homes set up on trailers for about $75K, but that’s another story.

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2 Responses to What to do with auto malls?

  1. mattozan says:

    Skateparks. Lots and lots of skateparks!

  2. coopgeek says:

    Dropping in on one of those rock features would be pretty harsh, but that’s as good an idea as any.

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