Automotive Dealerships Suffer Largest Decline on Record, Says Retail Expert - aftermarketNews
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Automotive Dealerships Suffer Largest Decline on Record, Says Retail Expert

According to John Frith, vice president at Urban Science, the decline in automotive franchises was less than brick-and-mortar dealerships, implying consolidation.

DETROIT — Retail performance experts Urban Science revealed this week that a record number of automotive dealerships closed in the United States during 2008. The company’s Franchise Activity Report showed the nationwide dealership count for the year fell by 881, or 4.2 percent, to 20,084. This decline is the largest Urban Science said it has seen since it began collecting data in 1991. The bulk of closures occurred in the fourth quarter, according to the report.

Urban Science maintains a list of current new vehicle dealership and franchise information for all car and light truck brands in the United States. Compiled on a monthly basis, the data comes from a variety of sources, including feeds from automotive manufacturers as well as phone and field verification.

According to John Frith, vice president at Urban Science, the decline in automotive franchises was less than brick-and-mortar dealerships, implying consolidation. "There has been a loss of franchises across all the manufacturers, but the Detroit Three have been hit the hardest, accounting for 80 percent of the loss," Frith said. "We’ll see even more contraction in the next several years as the Detroit Three strategically rethink their retail counts and locations."

Proactive consolidation, a process in which an automaker closes a dealership or consolidates it with other nearby franchises, can be complex and expensive. To close down a retailer, state franchise laws and individual sales-and-service agreements must be honored. Automakers must provide compensation for dealer investments, such as new-vehicle inventory, special tools and resalable parts.

"When closing a dealership, the main focus for the automaker is to minimize the negative impact on the dealer and ensure customers can still be conveniently serviced," Frith added.

According to Randy Berlin, global practice director for Urban Science, proactive consolidation is the preferred method, but the market itself will force some dealers to shut their doors.

"The credit crunch is a two-pronged attack on dealers — they can’t get credit lines to secure new-vehicle inventory, and customers can’t get credit to buy those vehicles," said Berlin. "However, most dealers will be able to weather the storm by reducing variable expenses and focusing on service and parts."

Urban Science’s Franchise Activity Report, a subset of Urban Science’s monthly Automotive Dealer Census, analyzes dealership data on national, state and market levels. Other findings include:

— Colorado, Alaska, Hawaii, North Dakota and Montana were the only states that did not suffer declines in their dealership count.

— Rhode Island, California and Massachusetts experienced the largest percentage declines.

— Denver; Colorado Springs, Colo.; Raleigh, N.C.; and Greensboro, N.C. either added dealerships or had no declines.

— Five of the top 10 cities with the highest percentage declines were in California.

"We will continue to see proactive dealer closures in metro markets," said Berlin.

"Rural markets, however, will likely withstand consolidation efforts. When people talk about the number of Detroit Three dealerships versus import brands, the Detroit Three do have more. Actually, more than 90 percent of brands in non-metro areas are from the Detroit Three. Ford, Chrysler and GM serve the rural areas well, and don’t have much competition from foreign automakers."

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