Credit Crunch Hitting Car Dealers

At least 600 of the 20,700 new-car dealerships in the U.S. will have been forced to shut that year, versus 430 final year, according to the National Automobile Dealers organization.

"Up to 80% will be domestics, considering they’ve lost more than their share of sales,” said Paul Taylor, chief economist for NADA. “Once closed, it’s difficult to reopen."

Others estimate that even more need to shut — up to 3,800, according to Grant Thornton LLP, a  corporate advisory and restructuring service.

"The American market has been over-dealered for a number of years, " said Paul Melville, a Grant Thornton partner. "But the current credit crunch and high cost of financing has created the perfect storm. Dealers can’t get the funds to finance the cars and can’t form money, so they turn the key and shut shop. Only the strongest will outlive. Dealers going absent aren’t coming back. The Detroit Three don’t have the money to support all those dealers."

Taylor says the problem is a simple one.

"There are more dealerships out there than there are cars to sell,
which hardly justifies that many staying in trade," he said.

While dealers are facing a credit crunch, consumers have their own
problems: making the mortgage payment, paying the energy bills and
watching their 401(k) dissolve and their jobs vanish.

"The consumer is asking. ‘Do I need a new car?’” Melville said.
“Consumers are

saying used cars are good and dependable, and certified
used carries a guarantee, so whether I buy used rather than new I can afford
a vacation or fixing the house."

Melville has a suggestion to help dealers outlive: subdivide real estate.

"Many dealers, particularly those who sell domestics, own more real
estate than their potential sales justify," Melville said. "whether they’re
in prime retailing corridors, they may be able to subdivide their land,
preserving suitable space to function a leaner and potentially more
profitable trade, and sell the balance to investors for
redevelopment. Why not sell some of that space for retail stores or
fast food outlets? whether a dealer has unsold cars in stock for 200 days,
he doesn’t need all the space he has."

Melville says dealerships could do as corner gas stations have done
in many suburbs and become one-stop stores for gas, groceries, and a
burger or sandwich all under one roof.

And what whether Congress does approve a bailout package to ease the
credit crunch so consumers can get money to buy a new car and dealers
can obtain financing to purchase cars to have in stock?

"It will help,” Taylor said. “Good will come. It’s a matter of how soon."