Stabilizing Profits for Recession Surviving Auto Dealers

Story first appeared on The Detroit News -

Innovations in retail and outlet upgrades are hot topics for discussion at annual convention

As auto sales have come roaring back from the recession, dealers across the country are seeing profits stabilize and in some cases improve, as many continue to upgrade their buildings and customer waiting areas and amenities.

Many of the nation's 17,540 new car dealers are gathering here this weekend for the annual National Automobile Dealers Association Convention and Expo.

Dealer renovation programs and future innovation will be hot topics among the more than 20,000 dealers, manufacturers and other auto industry officials expected to attend.

"Dealers that are in business today are strong and stable," Terry Burns, executive vice president of the Michigan Automobile Dealers Association, said in an email.

"Many have upgraded their facilities, retooled their service departments, focused on their customer experience and look forward to a great 2013."

In 2012, automakers and their dealers sold about 14.5 million vehicles in the U.S. NADA Chief Economist Paul Taylor expects consumers to buy or lease more than 15.4 million new vehicles this year across the country.

Last year, new-car dealers in Michigan sold 486,372 cars and trucks; that's up 5.6 percent from 460,628 sold in 2011, and up 18.2 percent from 411,342 vehicles sold in 2010. The figures still pale in comparison to what Michigan's dealer body sold in 2007, before the industry collapse and the large reduction of dealerships among the Big Three.

Michigan has about 650 new-car dealers. Burns said he expects a "little contraction" among them this year, due to consolidation of brands.

Nationally, some automakers plan to add new-car dealerships in 2013, including Kia Motors America, which expects to add 10, and Volkswagen Group of America Inc., which plans to add more than 15. In the past year, Chrysler Group LLC's Fiat brand has added about 60 dealerships across the country to grow to 201 locations. Fiat executives have said they would like to add more dealerships in select cities.

Other car companies aren't increasing dealership numbers, but they are helping dealers improve facilities to retain loyal customers and gain new ones.

In a recent interview, Hyundai Motor America President and CEO John Krafcik told NADAFrontPage.com, a website run by the dealer group, that the company does not plan to add to its 820 dealerships. Instead, Krafcik said Hyundai has focused on boosting customer satisfaction; more than 340 dealers have completed renovations.

Automakers from Chrysler to American Honda Motor Co. Inc. and Toyota Motor Sales U.S.A. Inc. have facility upgrade programs. Many of those programs have been in progress for several years.

Volkswagen, which has more than 600 VW dealers and more than 250 Audi dealers, said it plans to complete 45 modernist "White Frame" facilities this year. Some are new construction, others are renovated dealerships. More are in the pipeline for next year. More than 100 Volkswagen dealers are spending $450 million on renovations from 2011 to 2013, while Audi dealers are spending $206 million on renovations from 2009 to 2013.

Doug Fox, owner and president of Ann Arbor Automotive, which includes five Asian brands, renovated his Acura store about seven years ago and his Nissan store five years ago.

"We are in the process of doing an image store for Kia, and we're certainly going to be considering doing one for Hyundai in the next couple of years," he said this week in a phone interview, adding sales at both his Kia and Hyundai franchises each were up about 10 percent in 2012. Fox said he hopes to complete the Kia redesign by the end of the year; Kia will contribute a portion of the cost.

"Certainly, a consumer likes to come into a nice, clean, fresh, contemporary building," Fox said. "And I think in our case, the buildings we're talking about are definitely in need of refurbishment."

More than 70 percent of Ford Motor Co.'s Lincoln Motor Co. dealers in the top 130 U.S. markets have agreed to renovation programs that include creating a "new sales and service experience for future Lincoln owners," Ford spokeswoman Elizabeth Weigandt said in an email.

About 25 percent of dealers in those top markets will have renovated facilities this year, Weigandt said.

General Motors Co. expects almost all Chevrolet, Buick, GMC and Cadillac dealers will have a new look by 2016. The Detroit automaker, which reduced its dealerships over the past year by about 50, said about 92 percent of its 4,355 dealers have agreed to participate in its renovation program.

Russ Shelton's dealership in Rochester Hills is one that has the new look after he spent more than $2 million gutting the facility. He added more square footage to his showroom, new furniture and energy-efficient lighting.

GM is defraying some of the cost, he said.

Shelton, in a phone interview, said he expects sales at Shelton Buick GMC will rise from about 650 to 700 annually to about 1,000 vehicles a year.

"I think 2013 is going to be a good year. All manufacturers are predicting big numbers."

Wind Energy in Michigan is 'On the Edge of a Cliff'

Story first reported from freep.com

With the auto industry on the verge of collapse in 2008, former Michigan Gov. Jennifer Granholm and other state officials were eager to diversify the economy and create thousands of jobs by making a big push into alternative energy.

To capitalize on the state's strengths, they focused in particular on the manufacturing of parts for wind turbines.

But four years later, the drive to grow a new sector built on clean energy has lost momentum with little to show, the victim of turbulent industry conditions, Washington politics and what some critics would call misguided government policies.

Several high-profile projects have encountered significant delays and have yet to launch full-scale production. They include a manufacturing plant for large wind turbines in Saginaw, a new foundry in Eaton Rapids to make iron parts for wind turbines and an innovative ethanol plant in the Upper Peninsula.

In late June, one of the state's major solar industry players, United Solar Ovonic, was liquidated.

Even some of the wind turbine parts suppliers that have successfully launched production have seen a sharp drop in orders because of uncertainty over whether a production tax credit that expires at the end of December will be renewed. Ventower Industries in Monroe started building giant wind turbine towers late last year in a new factory, but its business would be three times larger if the tax-credit situation was resolved, said Scott Viciana, the company's vice president.

"The wind industry is on the edge of a cliff," said Matt Kaplan, associate director of IHS Emerging Energy Research, a consulting firm in Cambridge, Mass. Although, wind turbine repair companies are doing well compared to manufacturing companies, because repair is less costly than replacement.

He and other experts predict that 2012 will be a record year for the installation of wind turbines as companies rush to take advantage of the tax credit before it ends. On the flip side, however, the number of installations could plummet to record lows next year, Kaplan said.

The tax credit isn't the only headwind facing wind turbine parts manufacturers. Just like in the solar industry, the wind industry has too much production capacity, which is driving turbine prices lower. That's good for the growth of wind energy but puts pricing pressure on turbine parts suppliers. Kaplan forecasts that the industry is on the verge of consolidation.

In Michigan, the alternative energy industry lost a key proponent when Granholm left office at the end of 2010. She tried to transform the state into a manufacturing hub for wind and other renewable-energy industries, providing millions in grants, tax credits and other incentives to entice companies to the state. A team of economic development officials worked to grow green jobs.

Today, Michigan has 35 wind-related manufacturing plants, according to the American Wind Energy Association. In 2010, the state had nearly 80,000 green jobs, which accounted for 2.1% of its total employment, a U.S. Bureau of Labor Statistics study found.

The growth of the alternative energy industry has always been dependent on government subsidies. Critics, such as the Mackinac Center in Midland, have long opposed this assistance, arguing that these business ventures should be based on market forces.

Under Gov. Rick Snyder, programs specifically designed to spur the growth of the alternative energy industry no longer exist. The state revamped its economic development strategy with the goal of treating all industries equally.

"We're doing what we can to help all industries in Michigan be competitive," said Steve Bakkal, director of the state's Energy Office. He contends that successful companies will be those that are supplying products for multiple industries, not just wind or solar.

But at the moment, several projects that are trying to break new ground in the alternative energy field have run into difficulties.

Two years ago, Northern Power Systems announced plans to manufacture large wind turbines, something that had never been done in the state. So far, the Vermont-based company has made and sold only two prototypes of its next-generation turbines to a wind farm in the Upper Peninsula.

The uncertainty over the future of the production tax credit has caused customers to delay placing new orders, said Douglas Prince, Northern Power's chief financial officer.

The company's leased facility in Saginaw is "kind of in standby mode right now," Prince said. "We're hopeful the market will recover."

In central Michigan, a plan to make iron parts, which are called castings, for wind turbines at a new foundry in Eaton Rapids has also been delayed. The foundry was supposed to open at the end of 2011, promising lower-cost and higher-quality castings. But it ran into management, financing and other problems.

Eaton Rapids Castings hopes to start production this fall but still needs to find additional investors, said Lennart Johansson, the company's CEO and one of its owners.

To offset the uncertainty in the wind business, the foundry plans to make castings for other industries. It has scaled back its initial production volumes.

To be sure, the outlook isn't completely bleak. A few ventures are making progress, most notably Energetx Composites in Holland. The company, which has nearly 80 employees, won an order to build more than 200 large wind turbine blades for a customer it cannot name, said David Slikkers, Energetx's chairman.

He and other family members saw blade manufacturing as a natural fit because they have been building boats for decades as the owners of S2 Yachts. "We have been composite fabricators for 50 years," Slikkers said.

And near the Port of Monroe, Ventower expects to have built 15 towers for large wind turbines by this fall. It occupies a new factory on a former industrial landfill and has hired 53 employees. But the industry slowdown caused by the tax credit situation is holding back its growth.

"I would have orders booked through the bulk of next year if the tax credit was not an issue," Viciana said.

More Details: Hitting a Green Wall

Here are some of the high-profile alternative-energy business ventures in the state that have shut down or run into significant delays:

* Northern Power Systems' large wind turbine plant: The Saginaw plant has yet to launch production and is operating with a skeleton crew.

* Eaton Rapids Castings: Foundry to make iron parts for large wind turbines in Eaton Rapids has been delayed. It is still trying to get financing.

* United Solar Ovonic: The maker of solar roofing materials filed for bankruptcy in February and sold its assets at the end of June.

* Mascoma's cellulosic ethanol plant near Kinross in the Upper Peninsula: Groundbreaking was supposed to occur this summer. The company says construction will start at year's end after engineering design work is completed, contracts are awarded and financing is finalized.

* Astraeus Wind Energy: In 2010, company announced plans to make spar caps for wind turbine blades in Port Huron. It is still in the testing phase.

* Danotek Motion Technologies: Was supposed to start making generators for large wind turbines last year. The company says production will begin this fall in Canton. It has 28 employees, down from 45 at the end of 2010.

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Bankrupt Solar Panel Manufacturer Pulled from Stock Market

Story first appeared in The Detroit News on March 14th, 2012.

The stock of Energy Conversion Devices. Inc., the bankrupt Auburn Hills-based solar panel manufacturer, was pulled from the Nasdaq Stock Market on Feb. 24, according to a filing on Wednesday.  The company primarily makes, sells and installs thin-film flexible solar products and systems to the building and rooftop markets.  These panels are useful in the construction of Solar Carports and solar roof structures.

Energy Conversion filed for bankruptcy protection Feb. 14, when its stock price closed at 29 cents a share from $1.46 the day before. Nasdaq told the company Feb. 15 that it no longer qualified for listing on the stock exchange, according to the company's filing with the U.S. Securities and Exchange Commission.

When the company did not appeal the decision, the stock was suspended from the exchange Feb. 24, when Energy Conversion Device's stock closed at 16 cents a share. The delisting will become official 10 days after the Nasdaq files the paperwork, according to another filing made Wednesday with the SEC.

The company's stock — now traded on the over-the-counter "Pink Sheets" under the symbol ENERQ — closed Wednesday at nine cents a share.

The Auburn Hills-based firm said in May that it would lay off 300 workers, including 115 in Michigan, as it restructured amid cutbacks in government solar incentives overseas and after posting a large quarterly loss.

Class Action Lawsuit on Theater Snacks?

First appeared in Detroit Free Press

Joshua Thompson loves the movies.

But he hates the prices theaters charge for concessions like pop and candy.

This week, the 20-something security technician from Livonia decided to do something about it: He filed a class action in Wayne County Circuit Court against his local AMC theater in hopes of forcing theaters statewide to dial down snack prices.

"He got tired of being taken advantage of," said Thompson's lawyer, Kerry Morgan of Wyandotte. "It's hard to justify prices that are three- and four-times higher than anywhere else."

American Multi Cinema, which operates the AMC theater in Livonia, wouldn't comment on the suit. A staffer at the National Association of Theatre Owners in Washington, D.C., angrily hung up the phone when asked about industry snack pricing practices.

Although consumer experts predicted that the case will be dismissed, it struck a chord Friday with area moviegoers, who said they're tired of being soaked on movie munchies.

"The prices are ridiculous," Rebecca Motley, 55, a self-employed Southfield physician, said while leaving the AMC Star Southfield 20.

Motley said she and her office manager spent $5 each for morning movie tickets and $11 each for soft drinks and popcorn.

"When I was a kid, $1 could get you into the movies and buy you a pop and popcorn. But not anymore," Motley said. "I don't know how kids can go on their own to a movie anymore."

Timothy Fells, 29, part owner of a Redford Township gym, agreed with Motley.

"Movie concession prices are extremely high, and that's why I don't stop at the snack bar very often," he said while leaving the AMC theater in Southfield.

Thompson didn't want to be interviewed because he doesn't want any notoriety, Morgan said. But Thompson said in his lawsuit that he used to take his own pop and candy to the AMC in Livonia until the theater posted a sign banning the practice.

On Dec. 26, he paid $8 for a Coke and a package of Goobers chocolate-covered peanuts at the Livonia theater -- nearly three times the $2.73 he paid for the same items at a nearby fast-food restaurant and drug store, the suit said.

The suit accused AMC theaters of violating the Michigan Consumer Protection Act by charging grossly excessive prices for snacks.

The suit seeks refunds for customers who were overcharged, a civil penalty against the theater chain and any other relief Judge Kathleen Macdonald might grant.

Two consumer lawyers predicted that Macdonald will dismiss the suit.

"It's a loser," said Gary Victor, an Eastern Michigan University business law professor. He said state Supreme Court decisions in 1999 and 2007 exempted most regulated businesses from the Michigan Consumer Protection Act.

Added Ian Lyngklip, a nationally known consumer lawyer in Southfield: "Movie theaters are regulated, so the lawsuit won't go anywhere"

Victor, an avid moviegoer, agreed that snack prices are excessive at theaters. That's why he shuns the concession counter unless he's with a date.

Griping about excessive prices at the theater concession is a time-honored tradition, says Paul Dergarabedian, an analyst for www.hollywood.com , a movie industry website.

"But like high airline prices, it's just one of those things that we've become accustomed to because we don't have any control over it," he added.

Although movie ticket sales are down -- 1.2 million tickets were sold last year compared with 1.6 million in 2002 -- he said a difficult economy mainly is to blame, not snack prices.

To cope with the issue, some consumers eat before or after they go to the movies, or resort to smuggling.

Fells said he sometimes smuggles Gummi Bears into the theater to save money.

Kristy Belanger, 20, a real estate secretary from Redford Township who showed up at the AMC in Livonia on Friday to see a movie with her boyfriend, concealed two bottles of Pepsi in her purse.

"I did it to save money, and I feel like I did," she said, adding that what she saved on Pepsi enabled her to buy a $4.74 serving of nachos to share with her beau.

5 Hour Energy CEO Makes Sense

First appeared in the Detroit Free Press

Who needs a PhD when a double dose of common sense will do?

That question has been kicking around in my head ever since the hour I spent last week with Manoj Bhargava, listening to some of most plain-spoken unconventional wisdom I'd heard in a long time.

As I wrote a couple days ago in another article, Bhargava, 58, of Farmington Hills, is the largely unknown founder and CEO of a growing business empire anchored by the 5-Hour Energy brand of dietary supplements.

He's no dummy, that's for sure, but the Princeton dropout also has a healthy distrust of so-called experts.

What follows are several Bhargava anecdotes that stuck with me:

Hire salespeople older than 50: He has a core sales staff of 20 who peddle most of the 9 million bottles of 5-Hour Energy shots the company produces per week. "All but one guy," he said, "are over 50 years old. I don't hire kids for sales."

And why not? "You've got to train them, teach them, it takes too much time, and they don't work as hard most of the time," Bhargava said. The older folks "hit the ground running, they know what they're doing, they work their tails off. Yeah, they get a little more money but so what? They're cheaper by half than the kids. And they're also not valued by large companies, which is amazing. So we take the opposite approach.

"I tell people we don't hire executives. We hire staff sergeants and master sergeants. The military without officers can run for months -- but without sergeants, not even one day. So we hire people who actually do stuff."

Why sell 16 ounces when two will do?: When he first sampled an energy drink at a trade show in 2003 that gave him the idea for the 5-Hour Energy shots, Bhargava couldn't fathom why it was packaged in 16-ounce bottles. "It didn't make any sense. It would be like selling Tylenol in 16-ounce bottles. I thought, you have to drink this whole thing? I just want to drink a couple swallows and go.

"So I reduced it down to two ounces -- actually we tried to reduce it down to one ounce, but you couldn't see the label it was so small." Today the brand is valued at about $4 billion.

Why make the stuff in Wabash, Ind.? "Anybody can build a plant; that doesn't take brains. Running one does," Bhargava said. So when 5-Hour Energy needed a production plant, he called Ed Snyder, a former partner in an Indiana plastics firm, and tapped him to run it.

"He's a very smart guy," Bhargava said, "the best plant operator I've ever met. So I said, 'Look, if you're not moving, I'm putting the plant next to your house.' "

Ask where the wife's family is from: "I'm here in Detroit for the same reason most guys are where they live," he said, "because it's where the wife's family is. In fact one of my questions in the interview process, if it's a guy, is, 'Where's your wife's family from?' Because if they're from Louisiana, he's leaving at some point." Then Bhargava smiled: "I know I'm going to get a lot of flak about that remark," he said.