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Record number of dealerships close

Urban Science confirmed that 2009 holds the record for automotive dealerships closed in the United States in one year. The company’s Franchise Activity Report showed the nationwide dealership count for the year fell by 1,605, or 8 percent, to 18,841. Normal attrition is 1 percent. The decline was double the 2008 record of 881 dealers, the largest since 1991 when data was first collected by Urban Science.

The numbers were mostly a result of automakers taking proactive action to reduce dealer count, with GM and Chrysler accounting for approximately 90 percent of the consolidation.

“While automaker bankruptcies and bad economic times drove the closures, all dealers have to deal with a market that has dropped from several years of 17 million units in sales to somewhere around 11 million,” said John Frith, vice president of retail channel solutions, Urban Science. “Automakers and dealers have to reach a greater territory with fewer resources.  It’s more critical than ever to work together for mutual, profitable growth. With change comes an opportunity to build a stronger network of optimal size and makeup.”

Frith warns, however, that consolidation alone will not increase throughput at surviving stores. Closing a dealership in a market does not mean a customer will stay with a brand or travel to the next closest location. There is a mixture of factors to consider for consolidation to be successful, including convenience, competition, brand strength and market demand.

Dealers unaffected by consolidation faced challenges caused by the recession and credit crisis. As long as dealers maintained required financing, they survived by cutting expenses and concentrating on used vehicles and parts and service — traditionally the most profitable areas of a dealership. With consumers holding onto their vehicles longer, dealerships were able to gain profits from an increase in non-warranty service work.

“Dealers are resilient entrepreneurs who survived this year just as they’ve survived tough times in the past,” said Randy Berlin, global practice director, Urban Science. “They reduce variable costs and focus on parts, service and used cars for revenue.”

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