Credit Crunch Hitting Car Dealers

Dealerforsale

At least 600 of the 20,700 new-car dealerships in the U.S. will have been forced to close this year, versus 430 last year, according to the National Automobile Dealers Association.

"Up to 80% will be domestics, because they've lost more than their share of sales,” said Paul Taylor, chief economist for NADA. “Once closed, it's difficult to reopen."

Others estimate that even more need to close — up to 3,800, according to Grant Thornton LLP, a  corporate advisory and restructuring service.

"The American market has been over-dealered for a number of years, " said Paul Melville, a Grant Thornton partner. "But the current credit crunch and high cost of financing has created the perfect storm. Dealers can't get the funds to finance the cars and can't make money, so they turn the key and close shop. Only the strongest will survive. Dealers going away aren't coming back. The Detroit Three don't have the money to support all those dealers."

Taylor says the problem is a simple one.

"There are more dealerships out there than there are cars to sell, which hardly justifies that many staying in business," he said.

While dealers are facing a credit crunch, consumers have their own problems: making the mortgage payment, paying the energy bills and watching their 401(k) dissolve and their jobs disappear.

"The consumer is asking. 'Do I need a new car?'” Melville said. “Consumers are saying used cars are good and reliable, and certified used carries a warranty, so if I buy used rather than new I can afford a vacation or fixing the house."

Melville has a suggestion to help dealers survive: subdivide real estate.

"Many dealers, especially those who sell domestics, own more real estate than their potential sales justify," Melville said. "If they're in prime retailing corridors, they may be able to subdivide their land, preserving enough space to operate a leaner and potentially more profitable business, and sell the balance to investors for redevelopment. Why not sell some of that space for retail stores or fast food outlets? If a dealer has unsold cars in stock for 200 days, he doesn't need all the space he has."

Melville says dealerships could do as corner gas stations have done in many suburbs and become one-stop stores for gas, groceries, and a burger or sandwich all under one roof.

And what if Congress does approve a bailout package to ease the credit crunch so consumers can get money to buy a new car and dealers can obtain financing to purchase cars to have in inventory?

"It will help,” Taylor said. “Good will come. It's a matter of how soon."

By Jim Mateja | October 2, 2008 | Comments (7)

Comments 

B Talley

In my part of town I have seen my old Jeep and Ford dealerships go under. These are two dealerships that wouldn't honor warranty work so I never purchased another vehicle from them again. Compared to my local Subaru dealer where three months ago I bought my 6th Subie I noticed they are expanding next door. Credit crisis or not if a dealer sells quality cars and provides good service they will always have customers. The quality cars is what trips up the likes of Jeep and Ford.

B. Talley,
When was the last time you bought a new ford or Jeep? Couldn't have been too recent if you are on your 6th subie. Times have changed quite a bit. I can't speak for jeep, but my current and ford and two prior(Five Hundred, Focus,Escort), have been flawless. Plus, location has a lot to do with things- Subaru is almost nonexistant in Houston where I am (surely due to climate)- no matter how good their service may be- and they probably wont close any stores since there are only maybe 2 in the whole huge city of Houston compared to the dozens of high volume ford toyota and chevy dealers.


Broq

Broq

Tod

There are four Subaru dealerships in Houston--one out west in Katy, one southwest 59 and 8, one north up 45 and one south in Dickinson. Seems a pretty even distribution.

B Talley

We owned a 2005 Ford Explorer and more recently a 2007 Jeep Grand Cherokee. The Explorer was finally lemon-lawed due to multiple transmission problems. The JGC was totalled by a UPS truck, however as my wife said it was a gift from God (it was parked, the UPS driver's truck rolled a 1/2 block into the Jeep - no one was injured). The JGC had so many electrical problems we stopped counting. The dealer would play a game of classifying the same electrical issues as being different so we couldn't develop a history.

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Steven Pardis

Houston Mazda dealership closed . I bought a new Mazda3 November 2008. Love the car. Second Mazda for me. Got a letter today from the management company that administers the Vehicle Service Contract. The Mazda dealership didn't turn over the fee I paid for the extended warranty and "...therefore, we have terminated your service contract and all coverage associated from the effective date of your purchase." Called the dealership all day - phone busy. Drove by after work - out of business. Am I out the $1,595, just another victim of the economy?

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