TPT March 2009

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From the AmericaS
89 March 2009 ›
makers face in restructuring their businesses in return for billions of
dollars in federal loans” (‘Urgent need to shed dealers hampered,’
10 January).
It is the judgment of the automakers that, as new car and truck sales
fall to their lowest levels in decades, fewer dealerships are needed.
Industry experts concur. The dealers, understandably, want to keep
their businesses. For dealers and producers to be at loggerheads
is not remarkable. But positions harden quickly in the cauldron that
is the US auto industry right now, and Ms Merx believes that the
dealer-producer standoff holds potential for becoming one of the
most complicated problems facing the industry.
In addition to their own ‘gritty will’, Ms Merx wrote on Freep.com, the
dealers are fortified by state laws and individual franchise contracts
that have made it difficult for the automakers to shed dealerships
quickly or affordably. One of her respondents, Sheldon Sandler,
founder of Bel-Air Partners (Skillman, New Jersey), a dealership
brokerage, said, “It’s one thing to shrink your own business, but
telling an independent business owner to close up is a whole other
story. This is a real conundrum and is probably as difficult a problem
as negotiating [with a union], if not more so.”
Meanwhile, under the restructuring plans presented to the federal
government, the US automakers have pledged to speed up the
process of shrinking their retail outlets. Neither Chrysler LLC (with
3,300 dealerships) nor Ford Motor Co (with 3,790) has disclosed a
target for reductions. But General Motors Corp told Congress that
it aims to reduce its dealer count by 26 per cent, from 6,375 at the
end of 2008 to 4,700 by 2012.
Even if GM were to succeed in cutting its dealer body to 4,700, that
might not be enough. Ms Merx wrote, “Without shrinking the rest of
the business, experts said, GM’s sales per dealership would remain
much lower than those of [their Japanese] competitors Toyota Motor
Corp and Honda Motor Company.”
The prescriptions for shrinkage vary widely. To be competitive, one
analyst said, GM should reduce its dealer count to closer to 2,000.
Other experts told the Free Press that Detroit’s automakers need to
reduce their stores nationwide by up to 20 percent.
On the subject of shrinkage, a New York-based automotive
consultant shared an opinion with the Globe and Mail (Toronto).
John Casesa, managing partner of Casesa Shapiro Partners, told
the Globe’s Greg Keenan (12 January), “These [auto] companies
are size 38’s in size 44 suits. They have too many plants and
dealers.”
› Assuming that the automakers must jettison dealerships or else
forfeit the help from Washington, what are industry observers
saying? Given the complexities of shaking off dealerships, several
experts told the Free Press that it might not be possible to achieve
the scope of closures and consolidations the automakers are
seeking without bankruptcy or government-facilitated bankruptcy-
like proceedings. These would presumably permit the automakers
to void franchise contracts to achieve their aims; but at what political
cost to the nascent administration of President Barack Obama?
And the question suggests itself, would the results justify such
strenuous efforts? Mark Johnson, an automotive merger consultant