An irony of annual National Automobile Dealers Assn. conventions in recent times is that so much of the talk centers on reducing dealership numbers.
This year is no exception. The topic of cutting dealership numbers comes up early, at a J.D. Power and Associates conference held as a prelude to the annual dealer powwow.
Dealership ranks stood at 21,500 a few years ago. They now total less than 20,000. That's still too many, says Gary Dilts, J.D. Power's senior vice president-global automotive.
“That number doesn't work,” he says. “Current sales volumes and 37 brands do not support that many rooftops.”
But it would be a mistake “to let nature take its course” and watch dealers drop like prey, he says. “That's not a solution. You won't get the desired results doing that.”
Instead, auto makers need to “strategically manage” the reductions, Dilts tells Ward's. He also advocates programs in which best-in-class dealers, who've substantially invested in their facilities, get financial support for their efforts.
“You've got to be fair, but if a dealer spends $20 million to support a brand and its customers, an auto maker should support that dealer,” says Dilts, the one-time head of sales for the former DaimlerChrysler Corp.
The goal of shrinking dealerships, especially those not doing well, is to make the survivors more profitable with higher throughput, an industry term for sales per store.
Some auto makers' throughput numbers are awful, relative to their competitors. Dealer Fritz Hitchcock cites a striking comparison between General Motors Corp. and Toyota Motor Sales U.S.A. Inc.
“GM has 6,400 dealers and eight brands, Toyota has 1,400 dealers with three brands, and both companies are selling close to the same number of vehicles,” he says. “Do the math to figure out who has too many dealers.”
Hitchcock, a greater-Los Angles dealer with five stores, represents Toyota and BMW, two of the strongest automotive brands. Yet business is hurting, he says.
“Toyota business has been so good for so long in my market, but it is down 50%,” he says. “Even so, it gained market share, from 25% to 26.2%.”
Toyota is the market-share leader in California.
Hitchcock once had 750 employees. He's now down to 531. As 2009 vehicle sales are forecast at 11.4 million units, compared with what was considered a dismal 13.2 million last year, more job reductions are in the cards for Hitchcock's dealerships.
“I'm headed to 490,” he tells Ward's. Cuts in advertising are next for him.
Hitchcock favors reducing dealer numbers, but he doesn't plan on being a casualty.
“One-third of dealers for domestic car companies have got to go away,” he says. “Who should go? It's heartbreaking, but it has to happen or the rest of us won't survive.
“And I plan on surviving.”