Auto dealers look for ways to stay open after cuts from Chrysler and GM

Imagine after years of building a business, you're told you've lost your dealership. That's what's happening to 800 Chrysler and 1,100 General Motors (GM) dealership owners this week. Thousands more will be cut in the months ahead. Eventually, hundreds of thousands of workers will be out of a job.

Car dealers are not giving up quietly, as fellow blogger Jonathan Berr wrote yesterday. He reported that the National Automobile Dealers Association is starting a major lobbying effort to try to stop these cuts. He quotes NADA as saying, "A rapid reduction in dealer numbers would further CUT manufacturer revenue and market share and do NOTHING to improve the manufacturer's viability in the short-term."

Today's Detroit Free Press reports that dealers are looking for other ways to stay in business. Some plan to sell just used cars. Others plan to offer auto services, such as auto repair and body work. Yet most are still reeling. "It's like somebody took the air out of your body," Fred Brans, a sales consultant at Lochmoor Chrysler Jeep in Detroit, told the Free Press.

Chrysler and GM believe the surviving dealerships will be in a stronger position to compete against their rivals without as much local competition from other dealers selling the same brand. In all, GM plans to eliminate 42 percent of its dealer network, or about 2,600 dealerships, affecting a total of about 300,000 workers.

Some will be easy cuts. About 400 Saturn and 200 Saab dealers will be cut because GM is dropping the brands. The other cuts for GM will primarily be in metropolitan or suburban areas where there are already several locations. GM believes dealership overcapacity is a major problem in these markets. The company thinks that the closing of dealerships will make the remaining franchises larger and more profitable and therefore able to spend more on advertising and facilities. It disagrees with the NADA position that the cutbacks will cause it to lose market share.

GM spent $1 billion dollars buying out Oldsmobile dealers when they nixed that brand. The company had to make payments to 2,800 dealers plus buy back their inventory. It does not expect this buyout to be as expensive given the threat of bankruptcy looming over the dealers' heads.

Do you agree with GM and Chrysler or do you think NADA's lobbying efforts should prevail?

Lita Epstein has written 25 books including Trading for Dummies.

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