Auto Dealers Fight To Stay On The Map

White House Pressures General Motors To Shed Dealers, Who Are Already Hurting Thanks To Recession And Skittish Consumers

(CBS)  President Obama's newly-announced plan for General Motors and Chrysler has again put the spotlight on what the future holds for the floundering companies and an already downtrodden Detroit.

Equally uncertain, however, is the fate of the nation's roughly 20,000 auto dealerships, many of whom are already struggling to stay in business.

Though they are not owned by the auto companies themselves, dealers are dependent on them for product and enter into complicated agreements with the automakers related to sales, service and presentation. A dealer might invest millions of dollars to create a dealership showcasing the Hummer line of GM vehicles, for example, and training workers to service those vehicles. If the line goes away, as could happen Tuesday when GM will announce whether or not it is phasing out the brand, they would be stuck with a dealership built to sell vehicles that will no longer be rolling off assembly lines.

The National Automobile Dealers Association (NADA) estimates that at least 1,200 dealerships will close nationwide this year; another 760 were closed in 2008. Though President Obama's announcement that he "will not let our auto industry vanish" on Monday was good news for dealers, they were less heartened by his suggestion that he would not be opposed to letting the companies go into bankruptcy.

Automakers and dealers worry that consumers, concerned about warrantees and parts availability down the road, will not purchase a vehicle from a company whose name is associated with bankruptcy.

"Bankruptcy, under any circumstances, should not be an option," NADA said in a statement released Monday. "It would further erode consumer confidence and, therefore, our ability to sell at the retail level. Moreover, it would further exacerbate the availability of credit. "

The plan GM initially submitted to the Obama administration included plans to cut one third of its 6,200 dealers by 2014. That wasn't enough for the White House, which suggested in a "determination of viability" statement Monday that the company is "burdened" by an "excess of dealers" and that it has not been acting aggressively enough to address the problem.

Cutting down on dealers is complicated for an auto company: They can't unilaterally shut them down since they don't own them, and any effort to cut them off could be met with legal action from owners who have built their dealership around the company's product. In addition, there are legal agreements between the parties that could be expensive and time consuming to deal with, and state franchise laws often require that the company continue supplying its product.

At first, it would seem counterintuitive that shedding dealerships would help struggling auto companies. At the most basic level, after all, more dealers means more sales, at least in theory. And while cutting brands, staff or products directly helps the companies save money, cutting dealers does not have the same effect.

The potential benefit to the company comes from the negative outcomes of competition, says TNS Global analyst Lincoln Merrihew, who studies the auto industry. When two GM dealers are close to each other, they cut costs in order to win business, shrinking margins and ultimately lowering the car's residual value.

As the Chicago Tribune reports, many dealers have become "addicted to selling vehicles through unprofitable financial incentives" even as the Internet has made the best deal easy to find; NADA estimates that by the end of last year margins had fallen to a mere one percent of sales.

Dealers thus now face a landscape in which automakers are being pressured to shed them, competition is fierce, and the few Americans who are looking to buy cars are not having an easy time with financing. (The president said he will offer incentives to get Americans buying again.) In addition, they are losing access to so-called "floorplan" financing, which allows them to buy cars on credit and is deemed essential to their survival; unless something is done to address the floorpplan situation, NADA warns, "the restructuring plan will not work."

If the recession ends relatively soon, gas prices stay low, credit starts to flow and the auto companies stay in business, most dealers should be able to weather the storm. But Merrihew said that if he were a dealer, he would be "feeling very worried."

"I'm looking for the government to do something to instill consumer confidence," he said. "I'm looking for the recession to end. I'm trying to drive people into service areas. I'm letting sales and service people go. I'm hesitant to restock my own supplies. And I'm trying to decide if I need to add more hours of operation or fewer."

[sjc_1]

afmcalax,

Thanks for the lucid essay. I wish more people on here would give more thought to what they write. It is easier just to spew than to think. It does provide a frightening cross section, but rather skewed sample of the populace, however scary that may be.

[sjc_1]

There are stories about car dealers going out of business in Southern California that have been in business for 40 years. They made it through several recessions, but not this one. I suppose that GM could wait for half of them to fail, but they do not have that long. Many state laws protect the dealers and now the courts will have to sort all of that out.

[afmcalax]

Let's see ... the Republican economic theory:
1. Huge tax breaks for the wealthiest of Americans
2. Total deregulation of the business environment allowing for tainted food, tainited toys, and tainted medicines into the marketplace
3. Don't enforce anti-trust laws and allow companies to merge thus decreasing compeition, allow them to become to big to fail, produce huge fees and bonuses for Wall Street and CEOs, and produce no lasting value
4. Now that we are in a mess Republican economic doctrine produced, let the banks fail, the auto industry fail. Turn a recession into a depression. The rich will come through but the middle class will finally be destroyed.
5. Create a budget that pretends to be balanced, but does not invest in America. Still believe that the rich's left-overs will trickle down and make us all better off. Blame worker for having the audacity to actually want to earn a living wage.
6. Bring the Christian Taliban back. Let preachers set scientific policy. Don't worry as much about souls as profits. Further erode American leadership positions in medical and biology.
7. Hope that the extra millions the super-rich gain in tax breaks and in controlling their ever escalating salaries, trickle down to the poor minions that actually work for a living. Don't actually try to tackle the major issues America is facing now and in the future.

The Democratic plan ...
1. Take away the tax breaks for the wealthy as this current economic collapse proves they never really earned them and that by taxing this unjustified wealth it will benefit the majority of Americans that saw no improvement in their economic lives over the last 8 years.
2. Reregulate businesses so that their greed and stupidity does not cause world-wide economic collapse once again. Try to actually force American companies to create quality goods once again; instead of just corporate profits. Accountability.
3. Enforce anti-trust so mergers actually have a purpose other than enriching the Wall Street banker and the CEO. Don't allow companies to become to big to fail so if they screw up they can actually fail. Start to make CEOs accountable.
4. Try to stave off total economic collapse by propping up the financial industry and forcing the auto industry to really reform. If the CEO is not capable then "fire" him. By accepting tax-payer aid we are now the stockholders and demand competence.
5. Create a budget that actually starts to address the country's underlying problems. Invest in the 21st century so America once again actually makes things and leads in the development of new products. Corporate America has sold this country's future for quick profits. Solve our underlying health and educational issues. Focus on the 98% not just the 2%. Stop the corporate welfare to Big Oil, Agri-corps, Sugar Beet farmers, and Big Pharma.
6. Return science to its rightful place. Let religions go back to trying to save souls instead of influencing government and scientific policies. Religion may uplift a person, but it stupifies a society.
7. Have the government invest and let those investments in technology bio-medical and green technologies create good, high paying jobs that will once again rejuvinate the middle class. This is true trickle down investment. The middle class is the backbone of this country and Republicans have long forgotten that.

[craigh41]

Kudos to Obama for having the guts to make the hard decisions and for pushing them forward. He understands the mess this country is in an has a firm grasp of the radical steps it will take to get things back under control. Instead of the usual mid-line poll driven decisions we have seen from 1st term presidents in the past designed solely for a second term, this president is getting his hands dirty and pushing necessary change regardless of what happens to his popularity rating.
He is well aware that this country is split basically 50/50 on every issue/situation imaginable - you can't do a good job AND be overwhemingly popular - but he understands what he was elected to do and he is doing it. It may not all be right and rosey but at least he has an action plan and isn't afraid to use it.

[rickwar98]

Sorry Skippy but Toyota and Honda aren't going around looking for bailout money from anyone.
Posted by frankly6 at 9:42 PM : Mar 30, 2009

Incorrect, Japan, Korea, and most of Europe has or will give got that? Give) their automakers money, incentives and additional funds as "targeted" industries. In addition they are to be given much more favorable tax breaks. And-- They've been making noise here about the loans to GM and Chrysler. What planet have you been on?

And in case no one has noticed--- Only 3 showed a + and Chevy beat Toyota.


THE NUMBERS - January 2009

Acura -29.7%7
Audi -26.4% 4
BMW -15.5%
Buick -45.3%
Cadillac -42.5%
Chevrolet -48.4%
Chrysler -68.9%
Dodge -50.4%
Ford -39.5%
GMC -40.8%
Honda -27.7%
HUMMER -59.9%
Hyundai 14.3%
Infiniti -17.7%
Jeep -49.2%
Kia 3.5%
Lexus -27.5%
Lincoln -23.7%
Mazda -27.3%
Mercedes -42.9%
Mercury -44.2%
MINI -15.4%
Mitsubishi -34.5%
Nissan -31.2%
Pontiac -60.5%
Porsche -36.1%
Saab -46.1%
Saturn -59.8%
Subaru 8.0%
Suzuki -48.7%
Toyota -32.3%
VW -11.6%
Volvo -63.8%

COMPANIES
BMW Group -15.5%

Chrysler LLC -54.8%
FoMoCo -40.2%
General Motors -48.8%
Honda America -27.9%
Nissan NA -29.7%
Toyota Mo Co -31.7%

[mjvwsr]

I drive a Ford product but it didn't have to be a Ford...as I've owned Dodge, Pontiac, Mercury.... Smart choices were a big part of my decision....I'm beginning to think only Ford will survive this even though they still have a way to go. Smarter management at Ford has helped them though not as much as I'd have liked.
Posted by rowdy6680

I drive a BMW 535i I bought new in 1992. That was a smart decision.

[sogaman]

Thoughts of Obama...................................

Banks under government control---Check!
Auto industry under government control- Check!
Biggest insurance company under government control---Check!
Lets see who's next-oh yes- health insurance, hospitals, and doctors would be nice, throw in Big Brother taking over states that need Fed help and since I do not like the way they do things I will figure out how to get the NCAA so I can start a playoff in college 1A football.

[jwesel1]

So do you union guys get the same benefits when you are laid off or what? Nothing wrong with a union that stands up for their members...but it's about time more sacrifices were made. Would your members rather have a job or follow your infinite wisdom and be "working" for a company that no longer exists?

P.S. If they don't like the job they are working now on a line, there's always time to be retrained....
Posted by rowdy6680 at 9:58 PM : Mar 30, 2009
===================================================================
There boss is getting a $20M retirement package. See how much sacrifice he's willing to make

[tmittelstaed]

The government should remain neutral on the number of dealers. If some GM dealers shut down and prices rise then people will just buy more imports and fewer domestics, thus nullifying any benefit. Yes, there are too many dealers. But there's a reason for this. The rape of home equity over the last decade got many people buying new cars with home equity loans. The number of new car sales were way too high, residual value on used cars were way too low (due to flooding of the used car market) and many many cars went to wreckers that were still drivable. I've seen bigger used car lots at some wreckers than at regular used car lots. Now sales are dropping back to replacement levels where they should be and some dealers won't survive. That is just life. The dealers with poor service will go and the ones with good service will survive.

[cheetah-man7]

Eastern Airlines, Pacific Southwest Airlines, Pan American Airlines, and others failed. they were huge companies with a long history and thousands of employees. Their planes were bought up by other airlines, the best of the employees went to work for other airlines, and you can still get on a plane and fly from any major city to any major city for a good price. Why aren't the car companies allowed to fail? The cars we drive will still be built mostly in the US. They will just be built by competitive companies like Honda, Toyota and Nissan.
Posted by jamesguy
_________________________________

Well said! I agree!