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This a followup from Perian's pervious post on the subject:
GM "Expects" To End 2008 With 350 To 400 Fewer Dealers; Current Count Is 6,550



SOURCE: AutoObserver

Credit Meltdown Eliminating Dealers As Automakers Couldn't
October 07, 2008
By Dale Buss

The Big Three U.S. automakers have been trying to get rid of their weakest dealers for years, but the weeding-out process has gone far, far more slowly than car company executives have wanted.

Now, this year's double-whammy of economic shocks - explosive gasoline prices that scared consumers away from large vehicles, followed by the current financial crisis that is constricting credit at every level - has already begun culling out U.S. car dealerships at a rate far faster than General Motors, Ford and Chrysler brain trusts could even dream was possible by their methods.

The Chapter 11 bankruptcy filing last week by Bill Heard Enterprises, the nation's largest chain of Chevrolet outlets, was only an inkling of the trouble that has begun overwhelming America's car-distribution network.

Edmunds.com research shows that as many as 30 percent of U.S. dealers faced dramatically worse profitability from new-vehicle sales last summer compared with 2007, and 70 percent of U.S. dealers faced at least some deterioration.

And so now, new projections are emerging almost daily of a market-rationalizing Armageddon for auto dealers during the fourth quarter.

Grant Thornton, the accounting firm, recently estimated that 3,800 of the nation's more than 20,000 new-car dealerships would have to close soon to maintain last year's average sales per dealer in today's greatly depressed market. That followed a projection by the National Automobile Dealers Association that as many as 600 dealerships may shut down or consolidate with other dealers this year compared with 430 dealership closures last year.

"It's like the 800-pound gorilla meeting the perfect storm and dancing," said Todd Smith, a former dealership executive and now a consultant as president of Lear LLC, in Orlando. "There's going to be a massive shift."

Mike Yatsko, Chrysler's director of dealer operations, agreed that the economic pressures are driving dealers "to action -- whether that's saying, 'This is a good time for me to sell,' or, 'Maybe this is a good time for me to make [an acquisition] that's going to make my operation more competitive in the marketplace."

Consider Aaron Zeigler firmly in the latter group. The president of Zeigler Automotive Group, based in Kalamazoo, Mich., is eyeing potential acquisitions of about four or five other dealers right now -- at prices he estimated are about half what they would have been a year ago.

"This is a tremendous opportunity we're trying to take advantage of," said the head of a group of 10 dealerships and 27 domestic and import franchises in Illinois, Indiana and Michigan.

Category 5 Storm

Columbus, Ga.-based Heard was the 13th-largest dealership group in the country by volume, and its cessation of operations closed 14 showrooms and laid off nearly 3,200 employees in six southern and western states. Heard's situation was a bit of a one-off because, reportedly, the dealerships logged extremely high levels of complaints about treatment of customers. And then in August, GMAC refused to continue financing for some of Heard's stores.

But the rapid deterioration of the new-car market last month clearly tipped Heard into bankruptcy court. And those economic gales now are beating hard against the doors of every dealership in the country.

Their problem only begins with the fact that the pace of American auto buying has declined so precipitously that overall sales will come in at only about 13.9 million for all of 2008, according to a projection newly released by Edmunds.com, compared with 16.1 million unit sales in 2007. Amplifying the financial pressures inherent in that number is the massive shift of consumer preferences over the last several months to smaller, more fuel-efficient vehicles that are far less profitable for dealers - and automakers - than the large SUVs and pickup trucks that have become Big Three staples over the last 10 to 15 years.

The more immediate reason for the breakdown, however, is that auto dealerships absolutely run on credit. And now, dealers are losing floor-plan financing. Automakers have restricted their leasing programs. Many former customers no longer are individually credit-worthy. And more and more Americans with the desire and wherewithal to purchase vehicles are simply holding out until the crisis on Wall Street and in Washington is resolved - or until they can get an even better deal.

"An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines, said Paul Melville, a Grant Thornton partner in Southfield, Mich.

Beaten Down

Based on comparisons of total gross profits from new vehicle sales of about 25 percent of the nation's auto dealers, this year and in 2007, Edmunds.com concluded that 25 percent of gross dealer profits were lost. Meanwhile, 30 percent of dealers dropped from more than 55 monthly new sales in 2007 to fewer than 55 this year.

"And of the 70-percent of dealers who saw a drop in total gross margin this year, 28 percent lost more than half of their gross margin, and 42 percent lost at least some," said David Tompkins, executive director of industry solutions for Santa Monica, Calif.-based Edmunds.com. "The troubles of very recent days only add to the tremendous stresses on dealerships that we measured."
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Discussion Starter · #2 ·
More on this from LeftLaneNews:

SOURCE: LeftLaneNews.com

NADA chair: 700 dealerships could close this year

The National Automobile Dealers Association Chairwoman, Annette Sykora, told journalists today that in light of global economic difficulties, the dealer group anticipates 700 car dealerships will close their doors for good. That 700 store figure represents about 2 percent of all car dealerships across the United States.

Nearly 94 percent of new car buyers finance their purchases, according to the Detroit Free Press, meaning that, as securing financing becomes more difficult, fewer buyers will walk out of showrooms with new cars. NADA reports that many dealers have been unable to obtain bank financing for buyers with FICO credit scores above 700.
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Then this is actually a blessing in disguise.
But it is a source of frustration, as the silly Pontiac dealership that I took my G6 to get service just closed.

Oh well.
Sorry to hear about the dealership and your G6. Hopefully you got it back and its getting serviced at another Poncho dealership.

However, I too believe that perhaps this is good news in diguise. I think that the Big Three dealership network is completely over-extended. I don't want to see anyone go out of work or lose money on an investment in a dealership -- but perhaps there is a silver lining here if it helps things get aligned more quickly. Those dealers that survive will be healthier and able to better compete with each other.

Nevertheless - if the dealership closes, is that the same thing as giving up your franchise? It may be a techincal point but still a valid one. If a dealership closes its doors, then it is possible that it could be purchased by someone else and reopend. If the dealership gives up its franchise, then there is no way that it can reopen under a brand's banner.

Just wondering.

I tell you one thing though, if this is what we have in store for us, then used car lots are probably going to be looking very good right now and will remain relatively healthy in comparison to their new-car dealer competitors. Granted, they need access to the credit market too, but I'm sure its a smaller percentage of the total sale.
 

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When times gets tough-in this case, a credit crunch-it's funny that the companies with stronger business plans are more likely to survive and the weaker ones will fall by the wayside. It will mean an overall healthy U.S. auto dealership network.
 

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Sorry to hear about the dealership and your G6. Hopefully you got it back and its getting serviced at another Poncho dealership.
Well, I don't drive the G6 anymore as I gave it to my dad. So I guess he'll have to find a new dealership, as it's just about time for the G6 to be serviced.

Nevertheless - if the dealership closes, is that the same thing as giving up your franchise?
That's a very good question.
I dunno.
 

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Well, I don't drive the G6 anymore as I gave it to my dad. So I guess he'll have to find a new dealership, as it's just about time for the G6 to be serviced.


That's a very good question.
I dunno.

your dad can have it serviced at any GM dealership. the G6 shares the same motor as a lot of other Generous Motors products.
 

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your dad can have it serviced at any GM dealership. the G6 shares the same motor as a lot of other Generous Motors products.
Yeah. True. The thing is, this Pontiac dealership was really close to home.
Guess he could take it to the Chevy-Cadillac dealership that is still open.
Or just go down to the POntiac dealership a few miles down south on the freeway.
 

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Then this is actually a blessing in disguise.
Maybe we'll see... This is a lot like curing cancer with chemo.. Sometime it will cure the cancer and the patient dies because they are so week from the chemo.

Lets not forget that these dealerships are going under because they aren't able to sell GM cars. That of course means that GM isn't selling cars either.

I would not be breaking out the pom-poms on this one just yet.
 

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strange how loyal franchisees are forced now to close after many years of operation and some of yuou see this as a good thing. we are only over dealered because GM has gone so far downhill, wrong products, wrong merchandising. shame on General Motors for hurtng so many people.
 

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Maybe we'll see... This is a lot like curing cancer with chemo.. Sometime it will cure the cancer and the patient dies because they are so week from the chemo.

Lets not forget that these dealerships are going under because they aren't able to sell GM cars. That of course means that GM isn't selling cars either.

I would not be breaking out the pom-poms on this one just yet.
Not necessarily as credit is required for floorplanning. Without access to credit, dealerships can't buy the necessary inventory to put on their lots and they go under.

GM is moving cars and trucks just as well as everyone else in the industry (which is admittedly not well right now).
 

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GM is moving cars and trucks just as well as everyone else in the industry.
You are right except you neglect to point out that NO ONE is selling cars right now... The fact that GM is "on par" with everyone else is TERRIBLE news... Why? 'cause they (Toyota, Honda, etc) started this latest round with a huge profit margin and a "set" of cars that everyone wants. GM started this phase of the economy behind the 8 ball both in terms of products, profit and marketing.

When you give the competition that much of a lead it is going to be difficult to survive, let alone win.
 

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there is a big problem here, what if so many buick and gmc and pontiac dealerships close down that when the economy is good again those brands are no longer as easy to find on a showroom floor? and then in turn effecting sales and growth etc
 

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strange how loyal franchisees are forced now to close after many years of operation and some of yuou see this as a good thing. we are only over dealered because GM has gone so far downhill, wrong products, wrong merchandising. shame on General Motors for hurtng so many people.
Loyalty is not the metric to determine survival in industry, Buickman. I know people who own a combination Chevrolet-Cadillac dealership handed to them by their father. These two young ladies run a tight ship. They pay for all of their cars in cash-no floorplanning for these two-and they have several million in the bank for a rainy day. They run their personal finances similarly, and they and their business are better for it. How do you think their business is doing presently?

To the contrary, I also know one or two people who were handed dealerships in a similar fashion. However, they mismanaged their inheritance in a different way: large homes; frequent vacations to more exotic locales; lavish clothing and cars. In short, they destroyed a good thing. Sad to see a storied business go down the toilet? Sure. But should the business have survived? No.

It's hard for me to believe that businesses that are going under simply reflect short-term credit market crises and that outside of that issue they would have been fine. I say that as a person who runs a non-automotive business in the same tight credit market.

Weak dealerships do not a strong GM make. Strong dealerships contribute to a resurgent General Motors Corporation.
 

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there is a big problem here, what if so many buick and gmc and pontiac dealerships close down that when the economy is good again those brands are no longer as easy to find on a showroom floor? and then in turn effecting sales and growth etc
This is not a significant concern. As Honda, Lexus and Toyota readily demonstrate, significant volume can be generated through smaller dealer volumes. Lexus has fewer dealers than Cadillac, but the former division moves nearly twice the volume in the U.S as the latter. Toyota Division moves similar volume to Chevrolet and Ford through less than half the number of dealers.

Smaller dealer volumes will see individual dealerships with increased showroom traffic and full service bays. Those dealerships that remain will have a better chance of survival, assuming GM lives up to its end and delivers competitive product, of course.
 

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I can't help but think about how many of our regular members on this site will be affected by this train wreck.
 
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