Close car showrooms? Dealers don’t buy it

Jack Fitzgerald has been selling cars for 43 years. And he isn’t buying the idea that closing thousands of auto dealerships is the way to save struggling Chrysler and General Motors.

“Manufacturers make a profit on the dealer even if he doesn’t sell a single car,” said Mr. Fitzgerald, who operates 11 Fitzgerald Auto Malls in Maryland, employing more than 1,000 people.

It’s a point dealers say they’re having a hard time getting across.

“Car dealers do not cost the manufacturer a dime,” said Peter Kitzmiller, president of the Maryland Auto Dealers Association, though automakers dispute that.

Dealers from across the country lobbied desperately on Capitol Hill on Wednesday on the eve of bankrupt Chrysler’s expected announcement that it will close 800 of its 3,200 dealerships. GM is expected to close 2,600, or 40 percent, of its 6,300 dealerships.

The manufacturers and the Obama administration’s auto task force argue that such deep cuts are necessary to make the industry more viable by weeding out poorly performing and poorly maintained dealers and those that pose a credit risk. The auto dealers will meet with the auto task force Thursday.

Dealers say the cuts are driven more by the administration than by the manufacturers. The administration has conditioned loans on deeper cuts than the automakers originally proposed and has even gone so far as to restrict the amount of money it will allow Chrysler to spend on advertising, according to Advertising Age.

“Has anybody on the task force been in the car business? They are modeling after Toyota, but the problem is GM doesn’t sell Toyotas [which have higher consumer ratings],” said Mr. Fitzgerald.

Mr. Kitzmiller said the administration is focused on the fact that Toyota has just 1,800 dealers and higher sales per dealer.

“But that’s not why Toyota’s successful,” Mr. Kitzmiller said.

GM spokeswoman Susan Garontakos said the company can’t maintain its current dealer network given poor sales.

“The infrastructure that’s now in place is too big,” she said.

“If they are not ordering cars, we can’t thrive on that. Most dealers are unable today to borrow money to maintain their inventory.”

The dealer network is a cost to the manufacturer, she said, in administrative expense, incentives and rewards programs, and technology infrastructure.

“They pay for some of it; not all of it,” Ms. Garontakos said.

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