Academic journal article Monthly Labor Review

Auto Retailing: Changing Trends in Jobs and Business

Academic journal article Monthly Labor Review

Auto Retailing: Changing Trends in Jobs and Business

Article excerpt

The automobile sales industry has been 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 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, new-and-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, however, 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)

[CHART 1 OMITTED]

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. …

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