Wednesday, February 14, 2007

Auto dealer glut hurts U.S. makes

Saturday, February 03, 2007
Auto dealer glut hurts U.S. makes
About two-thirds of 15,000 dealers who sell Big Three vehicles need to close, says analyst and ex-GM adviser.
Sharon Terlep / The Detroit News

LAS VEGAS -- The number of auto dealers selling American cars is shrinking, but not nearly fast enough, a top industry analyst and former General Motors Corp. adviser said Friday.

About two-thirds of the more than 15,000 dealers who sell Detroit-made cars and trucks need to get out of the business in order to create a healthy dealer body that can compete with Toyota and Honda, said Stephen Girsky, speaking at an auto industry roundtable hosted by J.D. Power and Associates in conjunction with the National Automobile Dealers Association's annual convention.

The domestic dealer network is shrinking by about 3 to 4 percent a year. And while that's been painful for dealers, the market remains oversaturated. "Three to 4 percent a year just isn't cutting it," Girsky said, who was an adviser to GM CEO Rick Wagoner and Chief Financial Officer Fritz Henderson until he resigned last year.

Automakers prefer a smaller number of large and modern dealerships over many smaller, marginally profitable dealerships. Large, healthy dealers tend to invest in new showrooms with modern amenities and well-trained staffs, which leads to more sales and better customer satisfaction.

The glut of dealers selling American cars is a side-effect of the Big 3's huge loss of market share in the recent years.

The average Chevrolet dealer now sells 583 cars a year. Ford dealers sell 631 vehicles a year on average, while Dodge dealers sell 375 on average, according to J.D. Power and Associates Power Information Network. All three are sharply down from previous years.

By contrast, the average Toyota dealer sells 1,685 vehicles, while Honda dealers close 1,289 sales on average. Despite the imbalance, domestic dealers outnumber foreign-car shops more than 5 to 1.

"There's that idea of more is better," said Gary Dilts, J.D. Power senior vice president and former Chrysler Group sales executive, "which isn't working particularly well in the U.S. car business."

Detroit's automakers are pushing for more dealer consolidation. And while dealers largely agree consolidation is needed, few are willing to close.

Buying out dealers is a costly move for the carmakers, as GM found out when it killed its Oldsmobile brand in 2004.

GM isn't considering a major dealer buyout at the moment, instead looking to spend its cash on new vehicles, says Troy Clarke, head of GM North American.

Ford Motor Co. and Chrysler have been more actively consolidating dealerships. Some dealerships are going out of business due to reduced volumes.

"Every day there are dealers closing their doors and not being replaced by other dealers," said Michelle Van Vorst, executive director of the Ford Dealer Alliance, which represents 1,200 dealers.

You can reach Sharon Terlep at (313) 223-4686 or

© Copyright 2007 The Detroit News. All rights reserved.


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