The great unexplained mystery in the auto bailout is the persistence of all the surplus dealerships for American-made cars. UAW benefit costs have been broken down and analyzed but no one has bothered to explain why the Big Three are unable to break their dealership agreements or show the mechanics of how those surplus dealerships are an economic drain on the companies. (I assume it is the cost of providing them with cars and helping to finance those cars but it would be great to have some hard numbers to illustrate the scope of the problem.)
Today, the WSJ at least begins to generate some dealership facts:
One problem for the domestic-brand dealers is that there are so many of them. At the start of 2008, according to the National Automotive Dealers Association, the U.S. had 20,700 new-vehicle dealers, of which about two-thirds sold domestic makes. But those brands accounted for only about half of sales.
GM alone has 6,426 dealers, the company says. Toyota, with U.S. sales equaling about 85% of GM’s, has just 1,461 dealers.
In seeking federal aid, the Detroit companies promised to close or combine thousands of dealerships. Although the recently approved loans for GM and Chrysler don’t require this, the recession has been lowering the numbers anyway. The dealer association estimates that 900 auto dealers in the U.S. closed in 2008 — 86% of them sellers of domestic makes. It expects about 1,100 more dealerships to close in 2009.
With 3.7 dealers for GM to everyone 1 for Toyota on a car by car basis, there’s still a lot more room for GM to drop dealers.
The Trials of the Auto Dealer
Long a Road to Wealth in Towns Across America, Selling Cars Has Turned Into a Struggle to Survive, Not Always Successful
Wall Street Journal; January 3, 2009