A record number of automotive dealerships closed in the United States during 2008, and Detroit Three dealerships took the biggest hit, research and analysis firm Urban Science reported. The company’s Franchise Activity Report showed that the nationwide dealership count for 2008 fell by 881, or 4.2 percent, to 20,084 last year.
The decline was the largest since 1991 when data was first collected, with the bulk of closures occurring in the fourth quarter. Urban Science believes that surviving dealers will likely turn to service and parts to stay in business.
“There has been a loss of franchises across all the manufacturers, but
the Detroit Three have been hit the hardest, accounting for 80 percent
of the loss,” said John Frith, Urban Science vice president. “We’ll see
even more contraction in the next several years as the Detroit Three
strategically rethink their retail counts and locations.”
“Proactive consolidation,” a process in which an automaker closes a dealership or consolidates it with other nearby franchises, can be complex and expensive, Urban Science says. To close down a retailer, state franchise laws and individual sales-and-service agreements must be honored, and automakers must provide compensation for dealer investments, such as new vehicle inventory, special tools and resalable parts.
According to Randy Berlin, global practice director for Urban Science, proactive consolidation is the preferred method, but the market itself will force some dealers to shut their doors.
“The credit crunch is a two-pronged attack on dealers they can’t get credit lines to secure new vehicle inventory, and customers can’t get credit to buy those vehicles,” said Berlin. “However, most dealers will be able to weather the storm by reducing variable expenses and focusing on service and parts.”
Dealers are also looking to collision repair to insulate their bottom
lines, according to Michael Giarrizzo, Jr., president and CEO of DCR
Systems, LLC, which offers Toyota dealers both turnkey collision repair
outsourcing as well as collision repair licensing opportunities.
"Dealers that are remaining in business are definitely more focused on
fixed operations and completing their customer offering," he said. "A
dealer-branded collision center is now coming into focus as one of
Urban Science’s Franchise Activity Report, a subset of Urban Science’s monthly Automotive Dealer Census, analyzes dealership data on national, state and market levels. Other findings included:
Colorado, Alaska, Hawaii, North Dakota and Montana were the only states that did not suffer declines in their dealership count.
Rhode Island, California and Massachusetts experienced the largest percentage declines.
Denver and Colorado Springs, Colo., and Raleigh and Greensboro, North Carolina, either added dealerships or had no declines.
Five of the top 10 cities with the highest percentage declines were in California.
Berlin predicted more dealership consolidations in urban markets but said rural markets, which have less competition between the Detroit Three and foreign manufacturers, will be affected less.
“More than 90 percent of brands in non-metro areas are from the Detroit Three,” Berlin said. “Ford, Chrysler and GM serve the rural areas well, and don’t have much competition from foreign automakers.”