Resilient Valley car dealers keep close watch

By Don Shilling

Thousands of car dealers are expected to close under pressure from the recession and federal government.

Automakers are closing plants, suppliers are going bankrupt, but the steep fall in car sales has another victim: car dealers.

About 1,000 car dealers went out of business last year, and between 2,000 and 3,000 are expected to close in coming years, said Sheldon Sandler, a financial adviser to dealers across the nation.

“When you have thousands of dealerships going out of business, the impact is terrible,” said Sandler, chief executive of Bel Air Partners in New Jersey.

The average dealer employs about 50, so more than 150,000 workers will lose their jobs because of dealership closings if his prediction holds.

Chuck Eddy Jr., of Bob & Chuck Eddy Chrysler Dodge Jeep in Austintown, said the Mahoning Valley is subject to consolidation pressures just like any other area, but he didn’t want to speculate on how likely dealership closings would be.

Dealers operate 51 locations in Mahoning, Trumbull and Columbiana counties.

He added, however, that all dealerships are under pressure because national car sales have slowed drastically in recent months.

New vehicle sales fell from 16.2 million in 2007 to 13.2 million last year, but the pace from October through December was much slower. The Center for Automotive Research in Michigan is predicting sales of 11.5 million this year, with sales gradually building to 16 million in 2013.

Area dealers have an advantage over others that had grown used to operating in booming markets, said Steve Chos, executive vice president of the Automobile Dealers Association of Eastern Ohio.

“The dealers in this area are accustomed to facing difficulties over the years,” he said.

Eddy said the Mahoning Valley never fully recovered “from the recession of 1980” when area steel mills were closing. He added that the pain has continued in recent years as the area’s remaining industrial giants — General Motors and Delphi Packard Electric — have drastically cut jobs.

Economic troubles have made local dealers resilient, hard-working and watchful of their bottom lines, he said.

While local dealers may be used to tough times, a new pressure is at work. Terms of federal loans accepted by General Motors and Chrysler require them to reduce their dealership count.

Those two companies have 9,800 U.S. dealerships, or nearly half of the nation’s 21,000.

Sandler said the three Detroit-based automakers clearly must reduce dealerships.

GM, Chrysler and Ford have 64 percent of total dealerships, but they have only 47 percent of total sales. Last year was the first time the domestic automakers’ market share dipped under 50 percent.

Chos and Eddy said they couldn’t speculate on whether the automakers would be looking to reduce dealership numbers in this area.

Eddy noted that he and his father once had separate dealerships in Austintown but combined them to be more efficient.

He said his 2008 sales were down just 8 percent and he has avoided laying off any employees. The dealership’s new- and used-vehicle sales at the end of December and in early January were stronger than normal, he said.

Eddy, who represents Chrysler on the National Automobile Dealers Association board, said he hopes that any dealer who is forced to close would be compensated adequately.

Sandler said automakers can’t force dealers to close because dealers are protected by state franchising laws. Closings will have to be negotiated and most likely will include payments, he said.

When GM eliminated its Oldsmobile brand, for example, dealers that were left without products received millions of dollars each, and GM’s total payment was more than $1 billion, he said.

Even dealers who are struggling today will hold on as long as they can in order to see if they can be bought out, he said.

Falling new-vehicle sales doesn’t necessarily mean that a dealership is hurting financially, however.

Sandler said profits on new-vehicle sales has shrunk to almost zero in recent years. Dealers have turned to their service departments and used-car sales for profits, he said.

Plus, dealers who own their own real estate often use that land as another source of profits, he said. They create a company that owns the property and receives rent payments from the dealership, he said.

“In some cases, they don’t care if the dealership makes any money. They just want that $25,000 to $50,000 that goes into their pocket every month,” he said.

As pressures to reduce dealerships mount, most dealers remain optimistic they will survive because they are entrepreneurs who have confidence in their abilities, he said.

“They are fighting a ground-level war. They are trying to figure out how to stay in business. They have their family’s income and their real estate investment all on the line,” he said.

shilling@vindy.com