Northland's surviving auto dealers see silver lining in franchise cutsU.S. automakers significantly pared down their dealership operations last week, but the effects on the well-being of the U.S. car industry remain to be seen.
By: Peter Passi, Duluth News Tribune
U.S. automakers significantly pared down their dealership operations last week, but the effects on the well-being of the U.S. car industry remain to be seen.
At least five Northland auto dealers were among the 789 who learned Thursday that they would lose their franchise agreements to sell Chrysler vehicles.
The next day, General Motors notified another 1,100 dealers nationwide that they would lose franchise agreements to carry its line. Whether that latest wave of cuts will claim any Northland dealerships remains unclear, as General Motors has not made public the list of affected parties, and most of its current dealership agreements won’t expire until the fall of next year.
“I’m sorry to say that what they [Chrysler and GM] did was probably the right move in this environment,” said Alan Birman, co-owner of Cloquet Ford Chrysler Center.
Chrysler reported that 50 percent of its dealers now account for 90 percent of its sales.
GM said the 1,100 dealers it plans to release accounted for about 7 percent of its total sales in 2008.
Cloquet Ford Chrysler was spared in the latest cuts, and Birman expects the dealership to reap the benefits not only of additional sales but of service work for vehicles under warranty as the number of Chrysler outlets is reduced.
“Considering the economy in which we now find ourselves, there were too many dealerships in close proximity to one another,” said Pete Stone of Duluth Dodge/Suzuki, another survivor of Chrysler’s latest cuts. The resulting competition was sometimes damaging, he said.
“It pitted dealer against dealer and eroded everyone’s margins.”
As U.S. auto manufacturers have lost market share to foreign competitors, their dealer networks have not shrunk in a commensurate fashion. The resulting dealer network for domestic automakers contrasts sharply with the efficiency of their foreign competition.
Today, the typical Toyota dealership averages 1,585 vehicle sales per year, as compared with 300 vehicles at the average Dodge dealership, 470 at the average Chevrolet dealership and 490 at the average Ford dealership.
“Chrysler had to make some unpopular but needed decisions,” Stone said.
“There are a lot of good people working in those stores that will be closing. It’s an unfortunate, sad situation,” he said
But Stone believes Chrysler’s remaining dealerships will enjoy greater odds of success as a result of difficult decisions being made.
“There’s no doubt in my mind that we will emerge stronger,” he said. “There’s always a little silver lining to every black cloud.”
But Scott Lambert, executive vice president of the Minnesota Auto Dealers Association, sees little to recommend in the recently announced dealer cutbacks.
“As dealers, we contend that we are not cost drivers. We are a cost-free distribution system,” he said, pointing out that dealers, not manufacturers, bear the costs of acquiring property, erecting facilities, putting up signs and purchasing inventory.
Lambert suggested manufacturers are instead suffering mostly as a result of their own production decisions and legacy costs associated with past labor contracts.
“I don’t understand it. We’re the manufacturers’ customers, and what they’re really doing is reducing their customers. It doesn’t make sense to me,” said Don Hilligoss Jr., owner of Ranger Chevrolet Cadillac Pontiac GMC in Hibbing.
While his operations in Hibbing and at a GM dealership in Grand Rapids have so far been spared, Hilligoss said he can’t help but sympathize with those less fortunate.
“I really feel for the people who may have their livelihoods taken away,” he said. “It’s a tragedy for a lot of guys.”
“I don’t think they needed to go so deep,” said Ken Waschke of GM’s recent dealer reductions.
The namesake of Ken Waschke Auto Plaza Inc. in Virginia also owns GM dealerships in Cook and International Falls, and expressed relief that all three of his dealerships survived Friday’s cuts.
He suggested GM may be losing sight of the advantages of being present in communities both large and small.
“We need to take care of our customers, and our extended dealer network has always been one of our strong suits,” Waschke said.
He pointed out that many small dealers play key roles as local employers and boosters.
“Dealers tend to be very generous within the communities they serve,” he said. “Especially being a small-town dealer, you really feel you’re a part of the community. And with the ups and downs of the Iron Range, we’re all in it together.”