Thursday, February 14, 2008

The Big Dealership Downturn

From Now

To Then?

Cliff Banks
Ward's Dealer Business

Prediction time — Sometime, probably in early 2010, when Ward's run its annual number of roof tops and sales per brand, the automotive industry may be in for a shock because the number of existing dealerships very likely could be much less than it is today.

The total numbers for 2007 aren't in yet (check back next month) but 2006 finished with just under 22,000 dealerships.

By the end of 2009, that number could very well be between 19,000 and 20,000 rooftops.

We know the domestics are trying to reduce their dealership ranks. Till now, the “Big Three” officially have allowed the market to drive much of that process.
There are indications, though, that General Motors is about to become more aggressive in that arena. GM sales and marketing executive Mark LaNeve downplayed recent media reports of GM's aggressive stance, but the situation bears watching.

Ford appears to be on track with its plan, however, with approximately 400 of its dealers exiting the market in the last two years. One problem, though, we hear many of those stores are minority dealers.

The good news is, Ford dealers' profitability was up in 2007 — mostly at Lincoln Mercury stores. Still improvements fall far short what it was in the heady years at the end of the last decade.

It's anybody's guess as to what happens with Chrysler this year. For now, it appears there is no money set aside to facilitate dealers getting out of the game. A lot of you seem to be hanging on to see what happens but from here in Detroit, it looks like Chrysler is in for a couple of rough years yet.

Another brand working on a dealer reduction plan is Volvo, which has said it will eliminate about 20% of its 350 dealers.

When you start adding the numbers up, losing 2,000 dealerships isn't such a stretch.
And, if sales do drop to the 15.5-15.6 million level this year as many analysts are predicting, we can expect more dealers to get out.

It will be interesting to see at this year's National Automobile Dealers Assn.

convention in San Francisco, how Dale Willey and Annette Sykora handle their message to auto makers to leave dealers alone and let the market run its course.

There probably will be some tough meetings behind closed doors this year.

Another trend we'll see is privately owned dealer groups will get larger. One large group in Texas tells me it plans to acquire as many 50-60 stores in the next couple of years.

A director at another group in the Southeast says his company loves downturn years. “Those are years we capture a lot of share,” he says. They also are reworking some of their framework agreements with certain OEMs to allow for more flexibility in how many rooftops they can own.

For those of you who can hang on, the struggle might be worth it — some analysts are predicting the market to rebound to the 17 million-unit level by the end of the decade.

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