Auto dealer glut hurts U.S. makes
http://www.detnews.com/apps/pbcs.dll...702030361/1148


LAS VEGAS -- The number of auto dealers selling American cars is shrinking,
but not nearly fast enough, a top industry analyst and former General Motors
Corp. adviser said Friday.

About two-thirds of the more than 15,000 dealers who sell Detroit-made cars
and trucks need to get out of the business in order to create a healthy
dealer body that can compete with Toyota and Honda, said Stephen Girsky,
speaking at an auto industry roundtable hosted by J.D. Power and Associates
in conjunction with the National Automobile Dealers Association's annual
convention.

The domestic dealer network is shrinking by about 3 to 4 percent a year. And
while that's been painful for dealers, the market remains oversaturated.
"Three to 4 percent a year just isn't cutting it," Girsky said, who was an
adviser to GM CEO Rick Wagoner and Chief Financial Officer Fritz Henderson
until he resigned last year.

Automakers prefer a smaller number of large and modern dealerships over many
smaller, marginally profitable dealerships. Large, healthy dealers tend to
invest in new showrooms with modern amenities and well-trained staffs, which
leads to more sales and better customer satisfaction.

The glut of dealers selling American cars is a side-effect of the Big 3's
huge loss of market share in the recent years.

The average Chevrolet dealer now sells 583 cars a year. Ford dealers sell
631 vehicles a year on average, while Dodge dealers sell 375 on average,
according to J.D. Power and Associates Power Information Network. All three
are sharply down from previous years.

By contrast, the average Toyota dealer sells 1,685 vehicles, while Honda
dealers close 1,289 sales on average. Despite the imbalance, domestic
dealers outnumber foreign-car shops more than 5 to 1.

"There's that idea of more is better," said Gary Dilts, J.D. Power senior
vice president and former Chrysler Group sales executive, "which isn't
working particularly well in the U.S. car business."

Detroit's automakers are pushing for more dealer consolidation. And while
dealers largely agree consolidation is needed, few are willing to close.

Buying out dealers is a costly move for the carmakers, as GM found out when
it killed its Oldsmobile brand in 2004.

GM isn't considering a major dealer buyout at the moment, instead looking to
spend its cash on new vehicles, says Troy Clarke, head of GM North American.

Ford Motor Co. and Chrysler have been more actively consolidating
dealerships. Some dealerships are going out of business due to reduced
volumes.

"Every day there are dealers closing their doors and not being replaced by
other dealers," said Michelle Van Vorst, executive director of the Ford
Dealer Alliance, which represents 1,200 dealers.



Cut dealerships by two-thirds, automakers told
Detroit-based companies sell too few per showroom
http://www.freep.com/apps/pbcs.dll/a...702030341/1014

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.

He was 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.



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