Fewer but bigger dealerships expected to boost car prices
By Megan Woolhouse and Erin Ailworth
Globe Staff / June 8, 2009
Email| Print| Reprints| Yahoo! Buzz| Text size – +
The shakeout in the US auto industry will mean fewer but larger dealerships - decreasing competition among dealers and pushing up consumer prices on some cars by several thousand dollars, according to auto companies and analysts.
Chrysler LLC and General Motors Corp., which have filed for bankruptcy protection, are expected to adopt a model similar to their Japanese counterparts - offering fewer brands and marketing them through fewer dealerships. Toyota, which surpassed GM as the world's largest automaker, has about one-fifth the number of US dealerships as GM, but sells almost three times as many cars at each location, according to industry publication Ward's Dealer Business.
Such streamlining - Chrysler's trimming of dealerships is expected to begin tomorrow - will create more profitable businesses, say dealers and analysts, because surviving dealers will be able to sell a higher volume of cars per location. What's more, fewer brands will allow dealers to focus on improving customer service.
"We're in an evolving business where the strong survive and the weak go away," said Sean McCarthy, sales manager at a Mastria GM dealership in Raynham, which expects to outlast industry turmoil.
But what is good for dealers may be bad for consumers.
Remaining dealerships will be able to charge more for cars, analysts say, because fewer dealerships make it harder for buyers to spark bidding wars. And as auto companies scale back factory production, heavy discounts and dealer incentives will dry up.
Tom Wilkinson, a GM spokesman, said once the "current glut" of car brands disappears, prices for GM cars will increase anywhere from $2,000 to $6,000 for a new vehicle.
Chrysler expects to see a price increase on new cars in the range of $1,000 to $2,000 over the next year or two, said Kathy Graham, a company spokeswoman. She cautioned, however, that prices are ultimately "market-driven."
Chrysler and General Motors plan to cut the number of dealers by more than 3,100 nationwide. Chrysler will trim 25 percent, and GM will slice 40 percent by the end of next year. In Massachusetts, several dozen GM and Chrysler dealerships face closure. Despite the big decrease, Chrysler and GM will still operate significantly more dealer franchises in the United States than their Japanese competitors, according to Ward's Dealer Business.
Paul Bertoli, co-owner of Pride Motor Group in Lynn, which sells Chevrolets, said that after GM emerges from bankruptcy - which is expected in 60 to 90 days - customers will flock to him.
"The Chevrolet competition is going to be the Ford dealer, the Toyota dealer, the Honda dealer," he said. "Not another Chevrolet dealer."
Sales figures bear it out. GM dealerships across the nation sold 440 new vehicles per month on average in 2008, compared to Toyota's 1,150, according to Ward's Dealer Business.Continued...
Chrysler sold 480 a month on average, compared to Honda, which sold 760.
Ernie Boch Jr. sits atop the Toyota empire in New England, with his Norwood store selling more than 10,000 Toyotas last year.
He says the Japanese automakers have been successful in part because they tightly manage the number of dealers that sell their cars and how they sell them.
Japanese manufacturers, for example, do not allow Japanese car dealerships to sell competing brands under one roof.
"That's one of a million stupid things they allowed," he said of American manufacturers.
Boch said American automakers like GM and Chrysler build "some of the best cars on the planet," but they've botched the way they've handled sales and distribution. "Management is the whole key to the problem, and the Japanese are better managers," he said.
Wilkinson said he hopes a reinvigorated GM will be a more formidable player.
"That's the dream: to have an extremely efficient company and still get a premium price," he said. "We're chasing Toyota as hard as we can."
Graham said it's unfair to compare the Japanese auto business to its American counterpart. Some American auto dealers have to sell competing brands in order to stay viable, especially in rural areas. Other dealers have been around so long that they haven't been able to adapt to shifting markets.
"We have some dealers that have been in the network for close to 100 years," she said. "A lot of things change in 100 years."
How quickly GM and Chrysler can reinvigorate themselves remains to be seen. Their bankruptcy filings will push more people to buy other brands such as Ford, Honda, Hyundai, Nissan, and Toyota, according to Lexington forecasting firm IHS Global Insight.
While GM will stabilize its losses, its own forecast estimates that its market share will shrink from 19.5 percent to 18.5 percent between 2009 and 2014.
IHS Global Insight is less optimistic because of the bankruptcy.
The biggest obstacle for GM and Chrysler is overcoming a perception among younger generations, from Baby Boomers to Gen Y, that American cars are of poor quality, some analysts say.
"The only way to get around it is to continue producing high-quality vehicles," John Wolkonowicz, an IHS Global Insight auto analyst, said of American car makers. "Eventually the news will get around."
________________________ ________________________ ________________________ _______________________
Great - less competition and higher prices.
Sorry - my next car will be either a BMW or Honda.
