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Dealers waiting to see if they get the axe

GM woes could affect Mississippi companies

Oh, how the mighty have fallen. Once an icon of American business, General Motors has laid out a plan to the federal government that would leave it nearly 90 percent owned by the government and the United Auto Workers.

The plan also calls for plant closures, a reduction in the number of dealerships and discontinuance of the Pontiac brand. All together, the plan would slash more than 20,000 jobs.

Mississippi has no GM manufacturing plants or parts suppliers, so the downsizing should have a limited effect on the state’s already battered manufacturing sector. However, the state is home to dozens of GM dealerships. The effects of the plan on the dealerships are yet to be determined.

This makes for some nervous Mississippi dealers.

“I’m hearing from GM dealers everyday, and, yes, they are concerned that their dealership may be affected,” said William Lehman, president of the Mississippi Automobile Dealers Association (MADA). “Unlike the mega-stores in large metro areas of the country, the majority of our 200 or so new car and truck dealers are small to medium-size ‘rural’ stores spread throughout the state. Their biggest concern right now is whether or not they’re on their manufacturers list of dealers to be eliminated or kept.”

Lehman added that the situation is especially stressful due to the lack of the usual safety nets provided by state law.

“In a bankruptcy situation, federal bankruptcy law trumps state law that provides numerous protections for franchised dealers. If a bankruptcy filing takes place, manufacturers can literally pick and choose whom they will continue to do business with and whom they will terminate. Because volume is one of the several criteria being utilized to make those determinations, rural dealer are very concerned.”

One of those is Walt Massey, owner and president of Walt Massey Automotive in Lucedale. He called the situation “spooky.”

“We’re in a who-knows atmosphere,” said Massey, who is also chairman of the MADA. “What do you do?”

He said the only information he and other dealers have received from GM was via a satellite teleconference. GM said it was cutting its dealers, gave some of the criteria it would use in making the cuts and that was about it.

The criteria include customer satisfaction scores and geography, and Lehman said Mississippi’s GM dealers hold an edge there.

“Rural dealers have exceptionally high customer satisfaction ratings with their factories and make up for volume with warranty and service work,” Lehman said. “I would think that some may exit on their own, but most will be retained because in a state like ours, we don’t have mass transit to get around. We need the freedom of mobility to travel longer distances, and need service facilities within close proximity to the rural areas.”

Massey said he understands GM’s dilemma. GM dealerships sprung up everywhere when the automaker held a 50 percent market share. Now, its slice of the pie is 22 percent. A number of GM dealers have been in business long enough that their facility is paid for and they can sell few cars and still survive. Massey said these underperforming dealers are a problem.

But, he said, “I’m a GM customer. In essence, they’re saying they can’t serve all their customers, so they’re going to cut them. I don’t see how that will benefit them in the short term.”

While there has been plenty of bad news out of the automobile industry of late, there is some good news, even for GM dealers. New car sales may be down dramatically, but pre-owned car sales are healthy. Lehman said used car sales amongst his members are outstanding. Even luxury car dealers report a healthy volume.

Edwin Vickery, general manager of Higginbotham Automobiles in Jackson, which sells Mercedes-Benz and Porsche, said pre-owned sales are more than exceeding expectations.

“Our certified pre-owned car sales are better than ever,” Vickery said. He said the factory is offering 100,000-mile warranty on relatively low-mileage vehicles that cost half as much as new vehicles and hold their value well.

In the end, Lehman said Mississippi dealers may not be greatly affected, and that, long-term, there may be some pluses. However, the worry may be the last straw for dealers.

“One of the legs of the proposed Obama Administration proposals is that Chrysler and GM need to dramatically reduce their dealer numbers as part of the equation needed to be competitive in a global economy,” he said. “In my opinion, Mississippi dealers are not the direct target of those cuts. To give you and example of what they’re really saying, in Chicago and the surrounding suburbs, there are 67 Chevrolet dealers, 54 Ford dealers, 43 Chrysler dealers but only 28 Toyota and 25 Honda dealers. What that signifies is that there probably are too many domestic dealerships compared to what they are now calling ‘transplants,’ and the ‘overdealering’ is in Chicago, Philadelphia, Houston, Los Angeles. It’s not in Mississippi.

“We may lose some dealers here, but it will most likely be because the dealer is tired of dealing with uncertainty and factory pressure, doesn’t have an heir willing to take over and just decides to exit to preserve whatever family assets remain.”

Contact MBJ staff writer Wally Northway at wally.northway@msbusiness.com.

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