The financial crisis that has stung homeowners and depressed credit markets has spared no mercy for car dealerships, dozens of which have closed statewide this year, with many more expected to follow. The California New Car Dealers Association, which represents most of the state’s dealerships, estimated that 70 dealers out of about 1,300 members have called it quits this year.
"I’ve been doing this for 25 years in some form or another, and I have never seen consolidation like this going on," said Peter Welch, association president. "We might end up with 1,000 (members) when this is over."
The National Automobile Dealers Association estimates that by the end of the year, as many as 600 dealerships might close or consolidate. (Note: Other reports put the number as high as 3,000.)
The latest casualties include three Bay Area dealers – Colma Buick Pontiac GMC; Good Chevrolet in Alameda; and Los Gatos Chevrolet – which closed this week.
Most of the state’s closures have affected U.S. car dealerships, a distinction that underscores the pummeling the domestic car industry has endured in recent months.
The auto manufacturers released their September sales on Wednesday, and the numbers were not pretty. Chrysler reported a 33% drop in sales since September 2007, while Ford saw a 34.6% slide. General Motors held up better with a 16% decline.
Car dealers have been bedeviled by a host of factors, all of which have coalesced in recent months. The faltering economy and rising jobless rate means fewer people are in the market for automobiles. The housing slump has left little home equity to pay for new car purchases. The credit crisis has made it difficult for even customers with good credit to get decent rates on car loans, to say nothing of consumers whose credit has tanked due to home foreclosures.
And with the gas price spike earlier this year, the market shifted dramatically away from larger trucks and sport utility vehicles to smaller, less lucrative models. All of which has hammered the bottom line of car dealers, many of whom report a 50%-60% drop-off in sales in the past two years.
"The current economy doesn’t allow you to run a successful dealership," said Chris Spencer, general manager of Los Gatos Chevrolet, which closed Tuesday. "Unfortunately, 35 people are out of a job, including my family."
Spencer said his family, which owned the dealership, saw the writing on the wall earlier this spring and tried to sell the business to an out-of-state buyer. But the buyer backed out in August, leaving the family scrambling to find another buyer.
Trying to stay afloat proved impossible, because business had fallen by 50% since 2006. Spencer said that when word spread about the closure, he heard from at least 20 local dealers who said they were in similar straits.
Jason Mattia, former president and general manager of Stevens Creek Buick Pontiac GMC, knows the feeling well. He sold out his share of the dealership in Santa Clara last year to his partners and stayed on as a consultant until it went under in June.
There were just too many GM dealers chasing dwindling market share, he said. GM commanded 40% of the market in the 1980s, selling cars through 7,000 dealerships. But while GM’s slice of the market tumbled by 40% or more, the number of dealers has declined by 1% or 2%, Mattia said.
"The dealers will have to suck it up and go away," said Mattia, who now leads Auto Engage, a consulting firm for dealers and manufacturers. "It wouldn’t surprise me if we didn’t have a nationwide loss of 10% of the dealers."
Dealers said the credit crunch in particular is compounding the problem. Even when a sales person can persuade a customer to take the plunge, the banks are holding back on attractive financing.
"It’s getting tougher for people with marginal credit. The banks are not buying as many average loans," said John Brooks, general manager of Ellis Brooks Auto Center in San Francisco. "If you have less than a 600 or 700 credit score, it can be more difficult to get approved. We’re probably losing five deals a month (because of credit issues) compared to two months ago."
For the surviving dealers, the mentality is to hunker down and hope to make some money off servicing and parts in lieu of big sales. For the better-positioned stores with some money on hand, most should be able to weather the downturn. Many are hoping for a turnaround by next year, though some are pointing to 2010 when healthy sales return.
"We have to find a way to get through this because business will come back," said Denny Fitzpatrick, owner of Fitzpatrick Chevrolet Hummer in Concord and chairman of the California New Car Dealers Association. "All you can do is be positive and manage as best as you can. And pray harder." (Tire Review/Akron)
