Monthly Labor Review October 1998 19

Research Summaries

T he automobile sales industry hasbeen undergoing significant structural transformation in recent years. Two

principal factors driving the change are

the proliferation of new-car leasing arrangements and the rise of high-volume,

publicly-owned automobile “superstores.”

The two factors are related. New cars typically are leased for 2 or 3 years, after which

they are returned to the dealer, creating

a large supply of late-model used vehicles. As a result, new-car dealers currently are selling proportionally more

used cars than ever before, and a formidable competitor has entered the market in the auto superstore.

Employment growth in the industry

that includes establishments primarily

engaged in the retail sale of new automobiles or new and used automobiles

has been accelerating in recent years,

especially since 1992.1 At the same time,

the total number of dealerships has been

declining, and the occupational distribution within the industry has changed as

well. This report explores employment

trends and significant developments in

the industry that are changing its structure and composition.

The early years

The first car ever sold in this country, a

Duryea Motor Wagon, was purchased

directly from the factory in the spring of

1896. As the industry developed, a relatively small number of larger manufacturers began to concentrate in the upper

Midwest, and it became evident that a

Auto retailing:

changing trends

in jobs and business

distribution system was needed. Factories established branch offices, and independent distributors and dealers entered the market as well. Most distributors also were dealers in large urban areas, selling cars both directly to the public and to dealers in nearby towns. Typically, a distributor would charge about

30 percent over the original factory price,

and the local dealer would add another 20

percent.

In the 1930s, the automobile manufacturers moved to eliminate the independent distributor-dealer by setting up

franchise arrangements to sell their products. The practice cut the cost of the

middleman and gave manufacturers

greater control over how their cars were

sold. When franchise agreements first

developed, they were vague, with dealers agreeing to provide “suitable facilities” and their “best energies” to sell the

cars. Dealers could carry as many other

brands as they wanted, but they were

restricted to an assigned selling territory

and had to sell the cars at the price specified by the manufacturer.2

Growing employment

In December of 1997, new-and-used car

dealers employed 1,056,000 workers, an

increase of 34 percent since December

1972. Proportionally, this was about half

as much as in the total private sector over

the same period (69 percent), and even further behind job expansion in the rest of

retail trade (90 percent). As a result, newand-used car dealers represented 5 percent of total retail trade employment in

1997, down from a share of 7 percent in

1972. 3

Chart 1 shows that employment in the

auto retailing industry is highly responsive to business cycles, dropping sharply

during economic downturns, and gradually returning to prerecession levels during expansions. Over the 1972–84 period, the rate of growth was slow (0.3

percent per year), with the net increase

in jobs only 33,000. Since 1984, howKeith G. Keel

Keith G. Keel is an economist in the Division of

Monthly Industry Employment Statistics, Bureau

of Labor Statistics.

ever, employment has grown more rapidly, especially following the 1990–91

recession. To illustrate, from 1984 to

1992, employment in the industry grew

at a modest rate of 0.8 percent per year,

as 64,000 jobs were added over the 8-

year period. Over the 1992–97 period,

by contrast, the growth rate jumped to

nearly 3 percent per year, as 168,000

jobs were added in just 5 years.4

The number and type of employees

vary significantly among auto dealerships,

depending on such characteristics as size

and location of the dealership, manufacturers and models handled, and distribution of sales among departments.

Based on data compiled by the National

Automobile Dealers Association, in

1996, the average dealership employed

45 persons and had an annual payroll of

$1,556,000.5

The tabulation below shows the percent distribution of workers in auto

dealerships by occupation in 1980 and

in 1996.6

 1980 1996

Salespersons .................. 20 21

Technicians .................... 29 24

Service and

parts personnel ............ 28 28

Supervisors, other

 workers .................... 23 27

In 1996, salespersons accounted for 21

percent of employment in the industry,

while service and parts workers (excluding technicians) represented 28 percent.

Both occupational groups represented

about the same proportion in 1980. The

technicians group, however, represented

a smaller share of total dealership employment in 1996 (24 percent) than in

1980 (29 percent). Supervisors, (general

office) and other workers, on the other

hand, increased their share of employment from 23 percent in 1980 to 27 percent in 1996.

According to industry sources, the

shrinking of the technicians’ share of

auto dealership employment is partly attributable to declines in the number of
20 Monthly Labor Review October 1998

customer repair orders as vehicle quality has improved. Dealers also continue to explore the potential for satellite service operations as a way to

address the convenience concerns

many consumers have about dealership service. Additionally, competition from independent auto repair

shops is on the rise and dealers continue to exit the body-shop business

because of the prohibitive costs of the

required high-tech equipment.7 Partially offsetting these declines, however, has been a sharp increase in “internal” technical work related to used

vehicle reconditioning and an increase

in overall net profit per repair order.8

Fewer dealerships

The number of new-car dealerships

peaked at 51,000 in 1950, as car sales

reached 6.5 million units, a million

more than in 1929, the previous peak.

By 1996, the number of dealerships

had been cut in half. Not only is the

number of dealerships in long-term decline, but it also is highly cyclical.

Much like employment in the industry, the number of dealerships tends to

fall sharply during recessions. Over

the study period, the greatest losses occurred during the recessions of 1973–

75 and 1980–82; during the expansions of the 1980s and 1990s, on the

other hand, the number of dealerships

actually grew slightly.9 (See chart 1.)

While the total number of dealerships has declined dramatically since

1950, surviving firms tend to be large.

Over the past 20 years, the loss of

dealerships has been concentrated

among those with relatively small sales

volumes. As shown in the following

tabulation, in 1976, there were 13,200

dealerships with new-unit sales levels

of less than 150 per year. Currently,

there are only 4,664 dealerships in that

category. In contrast, there are now

5,801 dealerships that sell more than

750 new units per year, while in 1976

there were only 3,450 dealerships with

that level of business.10

Rising used car sales

Salespersons at new-car dealerships

are increasingly likely to sell used

cars. New-car dealers sold 11.9 million used vehicles in 1996, an increase

of 40 percent from the level recorded

in 1985. In contrast, over the same

period, the number of new vehicles

sold actually decreased by 2 percent,

totaling 15.1 million in 1996.11 Reflecting these trends, used-vehicle deUnits sold 1976 1996

0–149 .............. 13,200 4,664

150–399 .......... 9,000 7,053

400–749 .......... 3,650 5,233

750 plus ........... 3,450 5,801

Chart 1. New and used car dealers, employment (197297) and number of dealerships (197596)

Employment

(in thousands)

Dealerships

(in thousands)

Employment

Dealerships

1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996

600

700

800

900

1,000

1,100

24

26

28

30

32

34

Note: Shaded areas denote recessionary periods, as designated by the National Bureau of Economic Research.

Research Summaries
 Monthly Labor Review October 1998 21

Table 1. Annual sales of new vehicles and used vehicles as percent of total vehicle sales

 Vehicle sales (in thousands of dollars)

Percent of Percent of

total total

1989 ................................ $12,510 $7,780 62.2 $2,900 23.2

1990 ................................ 12,890 7,840 60.8 3,080 23.9

1991 ................................ 12,630 7,570 59.9 3,090 24.5

1992 ................................ 14,370 8,610 59.9 3,650 25.4

1993 ................................ 16,470 9,880 60.0 4,350 26.4

1994 ................................ 18,850 11,370 60.3 5,070 26.9

1995 ................................ 20,130 11,810 58.7 5,840 29.0

1996 ................................ 21,590 12,540 58.1 6,370 29.5

Source: National Automobile Dealers Association, Industry Analysis Division

Year

Total New Used

partment sales dollars as a percentage

of total sales dollars increased from 23

percent to 29 percent for the average

dealership between 1989 and 1996.

During the same period, new-vehicle

department sales as a percentage of total sales declined from 62 percent to 58

percent. (See table 1.)

The increase in used-vehicle sales

dollars as a percentage of total sales

dollars also may be partly attributable

to the 56-percent increase in the average retail selling price of a used vehicle

over the 1989–96 period. New-vehicle

prices, by contrast, increased just 41

percent over the same period.12 Similarly, data from the Consumer Price Index (CPI), which controls for quality and

model mix, also show that used-car

prices are increasing faster than new-car

prices. Between 1989 and 1996, the CPI-U

for new cars increased 19 percent, while

the index for used cars increased 30 percent.13

Although used-vehicle prices are

growing faster than new-vehicle prices,

the average retail price of a used vehicle

is still only a little more than half that of

a new one. Nevertheless, this ratio also

has been slowly increasing, as the following tabulation shows.14

 1986 1996

Used auto .............. $5,978 $11,500

New auto .............. 12,950 21,750

Ratio ................... 0.46 0.53

According to representatives from the

industry, the used-vehicle department,

already important to the health of today’s

stores, which is helping to transform the

industry.

New competitors

During the 1980s, the focus within the

automobile industry was mostly concentrated on foreign competition, supply,

and product development. In recent

years, however, the industry has shifted

its priorities, placing more emphasis on

the used-car market and how vehicles are

distributed and sold.

The automobile “superstore,” which

was first introduced in 1993, is one of

the fastest growing trends in the auto

sales industry. At the very time when

used-car sales were growing as a proportion of new-car dealers’ total sales, a formidable competitor emerged. Superstores

offer challenges to both traditional dealers and to manufacturers. Some of the auto

superstores are publicly-owned national

chains that offer a huge selection of vehicles and no-haggle prices. Their access

to the stock markets yields them capital at

significantly lower costs than those paid

by traditional dealers. They also have the

financial resources to acquire and implement the latest technology.

Superstore customers are greeted by

“sales consultants” who are dressed casually and taught to be helpful and not

confrontational. The typical superstore

salesperson receives a salary rather than

commission. Customers may use computer kiosks to search through the store’s

stock by price, make, and other variables. As late as 1980, only about half

dealerships, will be even more so in the

21st century.15 Dealers are taking an increasing interest in their used-vehicle operations because of low returns on new

units. In recent years, the typical dealer’s

new-vehicle department has been essentially a break-even operation. Currently,

the largest share of dealership profits is

derived from service and parts, followed

by used vehicles. The following tabulation shows that, in 1985, the used-vehicle department of the average dealership represented only 7 percent of total

net profits; by 1996, that proportion had

grown to 34 percent. 16

 1985 1996

New vehicles ........ 77 13

Used vehicles ....... 7 34

Service and parts .. 16 53

Growth in leasing arrangements

Advances in vehicle quality and the

availability of low-mileage, previouslyleased models are among the leading factors fueling the increase in used-vehicle

sales. Currently, leasing accounts for

more than 31 percent of all retail activity.17 The average life span of a car manufactured in the United States is 8.5 years,

more than 40 percent higher than 20

years ago, when the average vehicle

lasted only about 6 years.18 Due to the

uniform quality of previously-leased vehicles, the used-car sales industry has

changed from one dominated by unique

units to one with many effectively identical vehicles. These changes have contributed to the rise of used-car super-
22 Monthly Labor Review October 1998

of the country’s dealerships were using

even the most rudimentary computer

services, and applications were usually

limited to accounting and parts inventory. Traditional dealers and independent used-car dealers rarely carry more

than 100 to 150 used cars. Superstores

typically have separate lots with 500 to

1,200 cars on each lot.19

Because superstores tend to stock

many different models, it is difficult to

stock parts for all of their cars or to service them. To solve this problem, some

superstore chains have their own satellite service facilities. Others have contracted with national chains of car repair

shops to do their warranty work. These

developments potentially could have a

negative impact on employment in the

industry, because fewer technicians and

administrative staff will be needed with

much of the work being contracted out.20

Many dealerships are being forced

into volume-selling just to increase their

cash flows enough to stay in business.

To remain competitive, an increasing

number of dealers are consolidating and

forming large dealership groups. Manufacturers also are buying dealerships and

consolidating them to improve operations among their retail distribution networks. Some dealers have gone public

to raise the needed capital to finance the

escalating costs of running a dealership.

Taking competition to a new level, some

manufacturers are allowing the auto

superstore chains to sell new cars. This

development could have a large impact

on the future of auto retailing.21

THE GROWTH IN LEASING ARRANGEMENTS

and the development of the auto superstore

are among the principal factors in the recent transformation of the retail automotive sales industry. These developments

have contributed to industry consolidation and a long-term decline in the total

number of dealerships.22 Nevertheless,

employment has been expanding, especially following the 1990–91 recession.

The transformation has altered the occupational distribution of employment

somewhat as well, with proportionally

fewer technicians and more office workers needed in the current climate. In sum,

the automotive sales industry has

changed significantly in recent years,

affecting not only workers in the industry (and related industries) but also anyone considering purchasing a new or

late-model used car. 

Footnotes

1

 The scope of this report includes Standard

Industrial Classification (SIC) 551, Motor vehicle

dealers (new and used) and excludes SIC 552, Motor vehicle dealers (used only). The latter is a much

smaller industry and is quite different in character

than SIC 551. In March 1997, “benchmark” employment for SIC 552—obtained from universe

counts and used to produce monthly estimates from

survey data—was 89,800, or less than one-tenth

the level of SIC 551 (1,045,600). Also, because

employment estimates for SIC 552 do not meet BLS

standards for accuracy and reliability, they are not

published. See Manual on Series Available and

Estimating Methods, BLS Current Employment Statistics Program, March 1997 (Bureau of Labor

Statistics, June 1998). 2

 Most of the information in this section came

from Ward’s Dealer Business, April 1996. 3

 Employment data are for SIC 551, Motor vehicle dealers (new and used), and are from the Bureau of Labor Statistics Current Employment Statistics (CES) survey. For more on the CES program,

see BLS Handbook of Methods, Bulletin 2490 (Bureau of Labor Statistics, April 1997), pp. 15–31. 4

 Annual rates of change are based on the compound growth method of computation, using December to December changes unless otherwise

noted. 5

 “NADA Data,” Automotive Executive Magazine (National Automobile Dealers Association),

August 1997, p.42. 6

 These data were obtained from the National

Automobile Dealers Association, Industry Analysis Division. 7

 Lending support to this argument, employment in automotive repair shops increased by

392,000 or 166 percent over the 1972–96 period—

more than 4 times as fast as in new and used car

dealerships. 8

 “Transition to the 21st Century,” Project 2000

(National Automobile Dealers Association), May

1996, pp. 8–9. 9

 The data on the number of dealerships in 1950

are from the National Automobile Dealers Association, Industry Analysis Division. The data for

1975–96 are establishment counts from the Bureau of Labor Statistics Covered Employment and

Wages program, commonly known as the ES-202

program. Beginning in 1991, employers reported

employment and wages on an individual establishment basis. In prior years, a reporting unit

concept was used, which sometimes included more

than one establishment. Thus, the establishment

counts presented for 1991–forward may not be

strictly comparable with data prior to 1991. 10 National Automobile Dealers Association,

Industry Analysis Division. 11 Ibid. 12 Ibid. 13 The CPI-U is the Consumer Price Index for

All Urban Consumers. CPI data can be found in

the monthly publication, CPI Detailed Report (Bureau of Labor Statistics), or at the official CPI Web

site <http://stats.bls.gov/cpihome.htm>. For methodology and technical background on the CPI, see

BLS Handbook of Methods, pp. 167–230. 14 Data used in this tabulation are from the

National Automobile Dealers Association, Industry Analysis Division 15 “Transition to the 21st Century,” p. 8. 16 “NADA Data,” p 51. 17 “Transition to the 21st Century,” Project 2000

(National Automobile Dealers Association), August 1997, p. 7. 18 The Plain Dealer, “Average Life span of U.S.

Consumers’ Cars Keeps Climbing,” Mar. 2, 1997. 19 Ward’s Dealer Business. 20 Franchise Times, Aug. 1, 1997. 21 On the move toward volume-selling, see Automotive News, Nov. 14, 1994; Feb. 12, 1996; Apr.

1, 1996; and Sept. 30, 1996. On manufacturers

allowing superstores to sell new cars, see Automotive News, Feb. 5, 1996. 22 Standard & Poor’s, “Consolidating US Auto

Industry Faces Uncertainty,” July 14, 1997.

Research Summaries