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Cut dealerships by two-thirds, automakers told
Detroit-based companies sell too few per showroom
February 3, 2007
BY SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
LAS VEGAS -- Detroit's automakers have too many dealerships, and one prominent auto analyst said Friday they need to cut the number of stores by two-thirds to make their retail networks competitive with those of foreign automakers.
General Motors Corp., Ford Motor Co. and the Chrysler Group need to reduce the number of dealerships nationwide by 60% to 70%, Stephen Girsky, president of Centerbridge Industrial Partners LLC, said Friday morning.
addressing several hundred dealers and auto industry insiders during the J.D. Power and Associates Automotive Roundtable at the Green Valley Ranch Resort. Consolidating, however, would cost billions of dollars that the automakers are reluctant to spend.
"This consolidation is going to have to occur -- the faster the better," he said.
Girsky's remarks were among many similar ones at the Nevada event, held in conjunction with the National Automobile Dealers Association's annual convention.
In 2006, GM had 13,974 dealerships. Ford had 7,106 and Chrysler 8,541.
The number of cars and trucks sold by each dealership has declined in recent years, causing financial strain for many showrooms.
Foreign automakers with growing sales and fewer retailers sell more vehicles per store.
An aggressive reduction of domestic dealerships would improve profits for dealers and increase quality of service for customers, dealers and other experts said. Brand loyalty and sales go to the nicest showrooms and best service, which automakers could afford with fewer dealerships.
Some experts view the restructuring of the dealer network as the last and most complicated part of the necessary downsizing of the Detroit-based auto industry.
Having too many dealers is not unlike the problem of having too many plants. Automakers end up pushing more sales, often with big discounts, than consumers demand, just to keep people working -- whether in a factory or a showroom.
Buy us out, some say
Several dealers, who did not want to be identified for fear of retribution from the automakers, told the Free Press they would like to see a buyout program similar in size to the amounts spent to buy out assembly employees and reduce production capacity.
One dealership executive provided an analysis to the Free Press that showed $3 billion could eliminate 1,000 stores at $3 million each, a figure that many dealers said was reasonable considering the profits their stores generate in good years.
All three automakers have incremental and slow-moving programs to reduce dealerships or combine brands under one roof.
GM has been combining Pontiac, Buick and GMC stores, while Chrysler has been joining Chrysler, Dodge and Jeep stores as part of its Project Alpha. Last year, Ford announced a program to reduce the number of dealers.
Why it's not faster
The programs, however, have not been aggressively financed or given public targets.
That's largely because automakers recognize the power dealers have in their respective states, where they have lobbied over the years for powerful laws to protect their franchises.
Adding to the complication: Many dealerships are still family-owned, and the issue of closing or selling the family business can be highly emotional.
Girsky -- a veteran automotive analyst from Morgan Stanley, who most recently worked at GM -- said the dealer market is consolidating at about 4% to 5% a year.
"We need to go faster," he said. "It's going to take us a long time at that rate" to get to where the market needs to be.
Troy Clarke, president of GM North America, said automakers obviously need to reduce dealerships, but he didn't think they had the cash to do a massive restructuring. He agreed GM has taken an incremental approach, but said that's because of the great sensitivity -- and cost -- of reshaping the retail network nationwide.
"GM is a company that knows how much it costs, by the way, because we eliminated the Oldsmobile brand" at a cost of $939 million in 2001, he said. "So, we know exactly what it costs to take a brand out of the market and those equivalent number of dealerships.
"We don't have a lot of cash to invest in that at this particular point in time," he said, noting GM's $10.6-billion loss in 2005. "If I had a couple of billion dollars, would I like to do that? ... Right now, I think the place we need to put our money is in the product."
GM recently added $1 billion to its planned spending on product development, to $9 billion a year.
Automakers told to cut dealerships by 2/3's.
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