Tough Times Force More Domestic Auto Dealers To Close
25 Januar 2009 - 3:47PM
Dow Jones News
About 1,000 General Motors Corp. (GM), Ford Motor Co. (F) and
Chrysler LLC auto dealers went out of business last year, a loss
deeper than anticipated amid a crippling decline in auto sales.
The rate of decline has been so swift and deep that GM and
Chrysler have backed off once-aggressive efforts to strategically
downsize their vast dealer networks, sized for a time when
Detroit's Big Three commanded more than 75% of the U.S. market.
While many dealers consolidated stores or voluntarily bowed out
of the auto business, many left under duress. "You can't explain
how depressing it is to drive past an abandoned dealership every
day, how it leaves you with an empty feeling," Annette Sykora,
chairwoman of the National Automobile Dealer Association, said
Saturday in a speech at the group's annual convention. "What is
happening to the business I grew up in?"
The NADA in December predicted about 900 dealerships - including
a small number of dealers for the foreign-based auto makers - would
go out of business in 2008. But Detroit's auto makers alone lost
more than that, company executives said this weekend. About 300
Ford dealers closed last year, while 401 GM dealers and 287
Chrysler dealers went out of business.
Consulting firm Grant Thornton estimates about 2,500 of the
nation's 25,000 new-vehicle dealerships will close in 2009.
However, 5,000 would need to close to have a healthy level for this
year's anticipated auto sales, the firm said this week.
"Auto makers have had these plans to reduce dealers, but the
cost of implementing those schemes is intensive," Paul Melville, a
Grant Thornton expert on dealer restructuring, said. "Now, market
conditions are forcing dealers to consolidate."
The strain is evident as thousands of dealers and their spouses
convene for a scaled-down convention with fewer posh parties and
more sessions coaching how to stay afloat in tough times. Adding to
the pressure is uncertainty around plans by GM and Ford to
eliminate or overhaul several brands, including Ford's Volvo lineup
and GM's Hummer and Saab brands. GM also is in the midst of a
strategic review of Saturn, whose fate could range from being shut
down to getting sold to franchise owners.
"There's a lot of anxiety, a lot of worry," GM sales chief Mark
LaNeve told reporters Saturday.
Eliminating dealers has been a key goal for Detroit's auto
makers as they adjust to the reality of a smaller market share and
contracting U.S. market. The auto companies believe profitable,
healthy dealers attract customers and create a more appealing
image. Yet domestic-brand retailers sell far fewer cars and trucks
on average than rivals selling nameplates made by foreign-based
auto makers.
In recent years, auto makers have facilitated downsizing of
their networks either by helping negotiate consolidations or
pitching in money to facilitate deals. It's a balancing act for the
companies, which fear that losing the wrong dealers in the wrong
markets could cost them valuable sales.
Chrysler Vice President Jim Press said Chrysler doesn't have a
target for the number of dealers that should close, but that a
"Darwinian" process is occurring that will cull the number
naturally. Of the 287 Chrysler dealers to go out of business last
year, 92 left as part of Chrysler's strategy to get its Chrysler,
Dodge and Jeep brand dealers under the same roof. The remaining 195
left for economic and other reasons.
Press said the auto maker is being less aggressive for fear of
losing market share.
"We want to consolidate, but not at the risk of losing market
share," he told reporters on Saturday.
GM also is less active in its dealers' affairs, in part because
the cash-strapped auto maker doesn't have resources to help dealers
close or merge, GM's LaNeve said. The auto maker has said it plans
to cull 750 of 6,450 stores from its dealer network as part of a
viability plan presented to the government as part of a loan
request. The reduction is not a condition of the deal.
"It costs money to consolidate," LaNeve said. "And we've slowed
down the activity while we figure out our brand and nameplate
situation."
Ford said the company's strategy is unchanged. Even more than
closed dealerships, Ford worries that drastic cost-cutting at
dealerships threatens the business, said Ken Czubay, Ford's vice
president of U.S. sales and marketing. "We're dealing with dealer
families that have been in business 100 years," he said.
Dealers, who will meet on Sunday with top auto maker executives,
appealed to auto makers and lawmakers to stay out of the fray.
"When a manufacturer targets a specific number of dealers to
cut, that disturbs me," Sykora, of the dealer association, said.
"What's the right number of dealers? The question is irrelevant.
(Dealers) have the answers."
-By Sharon Terlep, Dow Jones Newswires; 248-204-5532;
sharon.terlep@dowjones.com
(Kate Linebaugh contributed to this report.)
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