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Car dealers cautiously rev up engines

First came high gas prices and the housing bust. Then came the credit crunch, soaring unemployment, auto industry bankruptcies and massive Toyota recalls.

After a steady stream of bad news for new car dealers, it seems like things are finally looking up — at least for those who have managed to stay afloat through the downturn.

That could be good news for job seekers as well, as dealers are forced to add staff because so many positions were eliminated in the recession, according to some analysts.

“The industry has sort of come back,” said Toon van Beeck, senior analyst with IBISworld, who is among those predicting that auto dealers will have to hire new employees this year to keep up with demand.

Others in the industry caution that those new jobs could trickle in slowly, as the memory of the recent recession remains fresh in many dealers' minds.

“I think a lot of dealers have learned how to get by with fewer people,” said Aaron Bragman, senior analyst with IHS Global Insight. “It’s the same (story) that we’re hearing throughout the economy.”

Still, it's a glimmer of good news for an industry that was flat on its back two years ago.

The National Automobile Dealers Association expects U.S. new car sales to grow 12 percent in 2011 to 12.9 million vehicles. That is well below peak levels dealers saw years ago but would mark the second year of annual sales gains.

As sales increase, dealers are facing the same conundrum as countless other companies trying to negotiate the economic recovery: Hire employees too quickly, and you risk hurting your bottom line. Hire too slowly and you might not have enough staff to keep up with your growing business.

“There are some expenses you can’t avoid if you don’t want to be caught flat-footed if the industry comes back dramatically,” said Paul Taylor, an economist with the National Automobile Dealers Association.

As sales ramp up, dealers might worry that they could lose a sale or service job if they don't have enough staff to return calls quickly, Taylor said.

Nevertheless, Marc Cannon, a senior vice president with AutoNation, one of the nation’s largest car dealership chains, predicts that hiring will be modest this year.

“We’re going to have gradual growth this year over last year, but I don’t see any dealers … ramping up fast,” he said.

AutoNation posted a 14 percent increase in profits last year, to $226 million, and Cannon credited both an increase in car sales and productivity improvements. The dealer chain lost $1.2 billion in 2008.

“I think dealers have really learned how to operate in this environment,” Cannon said.

For those who are still in business, there is a big advantage to having survived the downturn — the customer doesn't have nearly as many competitors to turn to, leaving those who are still in business with a bigger potential chunk of sales to grab.

The number of franchised car dealerships, which had been shrinking slowly for years, fell dramatically over the course of the recession in part because of pressure from the struggling U.S. automakers. There were 17,698 new car dealers at the start of this year, down more than than 2,000 from just two years ago, according to NADA.

“Business that used to occur at closed dealerships is migrating to the existing dealerships,” said Taylor, the dealer trade group economist.

Like many companies grappling with the effects of the recession, Cannon said car dealers that survived have eliminated or consolidated many back-office operations and increased their reliance on technology for some tasks.

He said dealers also have become much more efficient at getting cars through the service centers, which can be a profit hub, and have extended their service hours to serve more customers on weekends and evenings.

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