World and Nation

Car Dealers, Hoping for a Bailout, Brace for Closings

As Denny Fitzpatrick, a Chevrolet-Hummer dealer near Oakland, Calif., has watched the top Detroit auto executives plead for money from Congress, he has been rooting for them — but with no great conviction.

With a bailout moving through Capitol Hill, “we have a chance of being hung with a softer rope,” said Fitzpatrick, chairman of the California New Car Dealers Association.

His gallows humor is typical of dealers these days who believe they are on the chopping block, whatever happens to the Detroit automobile companies. All three carmakers have told Congress they need to cut their dealer networks as a fundamental element of their survival plans. Even as Congress works on a bailout for Detroit, many dealers are still likely to be nudged, or forced, out of business.

It is possible fights could erupt between some dealers and the auto companies. Virtually every state has stringent laws that make it difficult for manufacturers to alter dealer contracts, even when they abandon brands, as General Motors is talking about doing. These laws have been a big impediment to auto companies in the past as they sought to cut their dealer networks.

But this time, many analysts say the sheer scale of the economic downturn is reducing the likelihood that many dealers will fight to stay in what has become a money-losing business.

The National Automobile Dealers Association has predicted that 900 of the nation’s 20,770 new-car dealers will have gone out of business by the end of this year, and many automobile industry experts say that estimate will rise to thousands in 2009.

Auto dealerships are an economic force everywhere in the country, employing some 1 million people. In the past, their sales accounted for as much as 20 percent of sales tax revenue for state and local governments.

The prospective dealer shutdowns would be an acceleration of a trend that goes back a decade. General Motors, which had 8,150 dealerships in 2000, has pared that number to 6,400 as its share of the car market has shrunk. In the plan that Rick Wagoner, GM’s chief executive, presented to Congress last week to save the company, he called for reducing that number to 4,700 over the next three years.

Industry experts note that Chevrolet, GM’s flagship brand, has about three times as many dealerships as Toyota but sells about the same number of cars. That network is a legacy of the era when GM controlled 60 percent of the domestic market, instead of 20 percent or so today. The high number of dealerships means too little business for each, and it also means General Motors is paying higher transportation costs to send vehicles and spare parts to multiple dealerships.

Mark LaNeve, a GM vice president for sales, service and marketing, said in an interview that it was vital for the company to reduce the number of dealerships to have “a healthy competitive retail channel.”

LaNeve said a competing foreign-car dealership with higher sales “has more money to invest in their facilities, in their people, in training, in the customer, in advertising, and that puts us at a competitive disadvantage. That’s why you do dealer reduction.”