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Dallas-Fort Worth auto dealers facing own challenges
09:18 AM CST on Saturday, December 6, 2008
In recent weeks, car dealers have used their lobbying muscle to chip away at political opposition to a $34 billion bailout for Chrysler, Ford and General Motors.
But even if Detroit gets the dough next week, the franchise dealers will probably face their own set of sacrifices.
Chief executives for the Detroit 3, particularly General Motors and Chrysler, testified before Congress this week that a surplus of dealerships in metropolitan areas has contributed to their financial problems. General Motors wants to cut 35 percent of its dealers by 2012. Chrysler hasn't put a number on its reductions, but its chief executive says the company is "overdealered."
"We are going to see major consolidations, generally in the metropolitan markets," said David E. Cole, chairman of the Center for Automotive Research. "They really don't have enough volume per dealer to justify the number of dealers they have."
Rep. Michael Burgess, R-Lewisville, said during a recent meeting with three dealers from Tarrant County that all were resigned to "a slimming of the number of dealerships."
"The overcapacity was pretty acknowledged and accepted, that that was part of what their world was going to look like," Mr. Burgess said.
The slimming has already started, as car sales have plummeted this fall. New-car sales dropped about 32 percent nationwide and about 15 percent in North Texas in October.
Nationwide, 20,000 auto dealer employees lost their jobs in October, according to the U.S. Labor Department.
In Texas, employment at car dealers fell in October compared with September, although the businesses still employed about 2.1 percent more workers than a year earlier, according to the Texas Workforce Commission.
The state still sells more than its share of cars; it has about 7 percent of the country's franchise dealers but accounts for 9 percent of new-vehicle sales, according to the Texas Automobile Dealers Association.
Local dealers hope they'll be spared. While dealers throughout the country have gone bankrupt in recent weeks, none in North Texas has.
They note that automakers can't arbitrarily close independent dealers. They don't own the businesses, and state laws prevent them from yanking their franchises because of low sales.
"From a practical standpoint, unless they go through bankruptcy, it would be extremely difficult for them to do it," said Ray Huffines, chief executive of Plano-based Huffines Auto Dealerships, which includes Chevrolet, Dodge, Chrysler and Jeep dealerships. "It has to be a low priority from the manufacturers' standpoint, because we're not costing them any money and they don't have the money to buy us out."
But manufacturers will have to trim dealerships as they become smaller companies selling fewer nameplates, industry experts predict. And factory workers, who are giving up perks and benefits to get the bailout, are pressing for other groups to take a haircut as well.
"We think the management, suppliers, dealers, equity holders and, especially, creditors should be at the table, and we believe that there should be equal sacrifice," UAW president Ron Gettelfinger said Friday at a hearing of the House Financial Services Committee.
Bruce M. Belzowski, associate director at the University of Michigan's Transportation Research Institute, said the automakers approved too many dealerships in cities and fast-growing suburban areas when they dominated the market for new cars.
Texas' urban markets were no exception to the trend, he said. "They are fighting against each other for the same sales."
Many local dealers said they doubt the Detroit 3 could save much through reducing dealerships.
Dealers get incentive payments from the factories and occasional help with financing their inventory. But few get any direct financial support.
"The manufacturers don't have any money invested in my store," said Jim Snell, owner of Snell Buick-Pontiac-GMC in Dallas. "My guess is it would cost them far more to buy us out than what it does now."
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