Tom Krisher The Associated Press Saturday, February 9, 2008
When thousands of U.S. auto dealers gather in San Francisco this weekend, much of the talk will be about just getting through 2008.
The obstacles include a shaky economy, volatile stock market and tightening credit, setting up what economists are predicting could be the worst sales year in more than a decade.
With word Friday that Chrysler plans to thin its dealership ranks and the other two U.S.-based automakers looking to do the same, those left to sell another day may end up stronger - and car buyers may benefit as well.
"Fewer dealers means better prices for the customers," said Gerald Meyers, a former chairman of American Motors Corp. who now teaches leadership at the University of Michigan.
That's because dealers not making money aren't quick to offer discounts.
"If they're profitable, they won't lose the sale," Meyers said. "If they're not profitable, they might lose the sale on the margin."
Automakers this year also could again offer zero percent loans through their finance arms and other incentives to help spur sales. But 2008 may be toughest for dealers who sell cars and trucks made by the Detroit Three, all of which saw sales declines last year and all of which are in the midst of restructuring.
"It's going to be an interesting year," said Paul Gaudet Sr., owner of a six-dealer group in Tilton, N.H.
About 10,000 dealers and their spouses will attend this year's four-day National Automobile Dealers Association convention starting this weekend at Moscone Center, and many of the programs are designed to help them cope with 2008. This comes as the Detroit Three want to cut dealer ranks to better match their market share, which has shrunk in recent years as competitors like Japan's Toyota Motor Corp. made gains.
"Myself and everybody else realizes we're not going to sell as many new cars, but the used car business should be fairly strong," Gaudet said.
On Friday, Chrysler President Jim Press said a rejuvenation plan for the automaker could include jettisoning some dealers and cutting its product lineup by as much as half.
Press, speaking to industry executives in San Francisco, emphasized that Chrysler's management team has not yet decided the severity of the cuts. Chrysler needs to pare down its lineup so similar models don't compete against each other, a change that will save marketing expenses and help dealers become more profitable, he said.
Trimming the number of dealers, he added, will also help Chrysler reduce cannibalization among its brands as it embarks on a plan called Project Genesis to align the Chrysler, Jeep and Dodge brands under one roof. The consolidation should occur within five years, Press said.
Just last month, General Motors Corp. Chief Executive Officer Rick Wagoner said the automaker wants to step up dealer consolidations. He said efforts will be specific to combining Pontiac, Buick and GMC dealerships into one channel. Ford Motor Co. also has faced the issue of too many dealers vying for too few customers.
Paul Taylor, chief economist of the National Automobile Dealers Association, has predicted annual new U.S. vehicle sales this year of 15.5 million to 15.8 million, down from 17 million as recently as 2005. Automakers sold 16.1 million vehicles in the United States last year, and that was considered lackluster.
Average dealer pretax profit, though, remained fairly strong through November, up 6.6 percent compared with the year-ago period, Taylor reported. The results came despite difficulties in the new-car market, with dealers making much of their money on used cars, Taylor said.
But even that is starting to wane. NADA used-car auction data show that prices are starting to drop, not just for larger vehicles but even small four-cylinder cars that get good gas mileage.
"For the last several months we've seen prices falling. That's a concern because it affects trading values on new cars as well," he said.
But other opportunities are emerging. On Friday, GM announced a deal with online auction site eBay Inc. that includes listing the entire inventory of GM Certified Used Vehicles on eBay Motors at no cost to its more than 3,900 certified used U.S. dealers. The companies also plan to work together to boost sales.
This article appeared on page C - 1 of the San Francisco Chronicle
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