Auto dealers, like Honda City in Liverpool (above), have struggled this year. (Liam Migdail-Smith)
On a bright December afternoon, light floods through the floor-to-ceiling windows of Honda City’s showroom in Liverpool. Eight autos dot the showroom floor. Taped to their windshields and windows are the white stickers with options and prices.
What’s missing?
Customers.
Decembers are always slow because customers are more interested in Christmas shopping, said George Townsend, Honda City owner and head of the Syracuse Automotive Dealers Association.
But 2009 has been especially tough for automotive dealers, Townsend and other auto experts say. Nationally and locally, sales have dropped. Detroit manufacturers— General Motors, Ford, Chrysler — have sent out closure notices to scores of dealerships. Scores of others have gone out of business without a nudge from Detroit — double victims of the long, slow decline of the American auto industry and of the latest recession.
“Nationwide there’s a decline. It’s affected everyone,” said Townsend.
Just the statistics alone paint the picture of the dealers’ troubles:
- Nationally, car sales are off by an average of 30 percent this year.
- Locally, car sales are lagging by up to 20 to 40 percent, according to Townsend.
- Nationally, about 800 Chrysler dealerships have closed this year, and GM announced plans to shut down more than 1,300 dealerships by next October, according to the National Automotive Dealers Association Web site.
- Locally, Townsend estimates at least six dealers have closed.
The reasons, experts say, for the sales drop are simple: The credit crisis has dried up lending for car buyers. And, with rising unemployment, demand for autos has disintegrated.
The latest sharp drop in sales is speeding up the long, slow decline of the industry. In the 1970s, the Big Three dominated the North American car industry. GM alone accounted for 40 percent of the U.S. auto market, said Tod Rutherford, an auto-industry expert at Syracuse University.
In that heyday, dealerships expanded, opening new showrooms across America. Money rolled into dealers, salesmen, workers and the corporations as the autos rolled off the showroom floors. The United Auto Workers union employed about 750,000 workers, Rutherford said.
The decline began when foreign automakers began dominating more and more of the American market. Now, American consumers perceive foreign brands as stronger than their domestic counterparts. And in 2009, the UAW has about 150,000 workers, Rutherford said.
Now the industry is rocked by the credit crisis that started in 2008. Sales have plummeted. In 2007, the industry sold 15 to 16 million cars in North America. This year, dealers will be lucky to sell 11, 500,000 million vehicles, Rutherford said.
The nation’s credit crunch is at the forefront of the dealers’ problems. Credit is used at three levels of the car industry, said Jeff Crouse, president of Breese Chevrolet and vice-president of the New York Automotive Dealers Association. The auto manufacturers need credit to pay bills and build cars. Dealers need credit to get the autos from the manufacturers, paying the makers when the cars are delivered. And consumers need credit to drive those cars off the showroom floor.
“When the credit markets disappeared, it hurt the industry at all three levels in slightly different ways,” Crouse said.
To solve some of the dealers’ problems, the latest federal plan will allow closed GM and Chrysler dealers to go to a third-party arbitrator. The dealers can argue that they should’ve remained open and that they should keep their contract with the manufacturer.
U.S. Rep. Dan Maffei, D-DeWitt, was part of the taskforce that headed the push for the legislation. His spokesperson, Abigail Gardner, described the measure as a “middle point” between letting the dealers close and giving them tax-payer money to buy their unsold autos. The measure gives the dealers some clout with the manufacturers, she said.
“If the arbiter finds that the dealership was in the right, then the manufacturer has to give them their contract back,” Gardner said.
But some surviving dealers say reopening closed dealerships won’t help those still in business. The market has shrunk, and it won’t be able to accommodate any new competition, said Crouse, vice-president of the New York Automotive Dealers Association.
“This is not the thing to do,” Crouse said.”We cannot make money with too many mouths at the table. You just can’t do it. There’s just not enough food to feed them all.”
Any dealers who did successfully regain their contract would be left in a difficult position, said Rutherford, the auto-industry expert at SU. They would be left trying to sell cars that consumers associate with a poor brand. Consumers don’t trust GM and Chrysler any more, Rutherford said.
Among other proposed solutions to the dealers’ problems:
- Fund more government bailouts
Additional bailouts could be an option if GM and Chrysler can’t improve their businesses. Ford has declined to take government money. But even with bailouts for GM and Chrysler, the two companies still closed many dealerships.
Aside from potentially spending millions of public tax dollars, dealers say the bailouts manage only to make the customers nervous of buying vehicles manufactured from bailed-out companies. And more bailouts create a bad precedent, said John Casesa, a New York City auto-industry expert and former GM executive.
“In the 1980s, the U.S. government bailed out Chrysler and that probably set a bad precedent. It says, ‘At the worst case, we’ll always bail you out.’ Chrysler, for many decades after that, limped along and then required a second bailout,” Casesa said.
- Create a second Cash for Clunkers program
The Cash for Clunkers program was a nationwide federal program that allowed car owners to trade in older vehicles for a rebate. It averaged between $3,500 to $4,500. The program lasted from July to September, according to the program’s Web site.
The program did cause a jump in auto sales. About 700,000 cars were sold during the Cash for Clunkers program, according to the program’s Web site. But even that program helped foreign car makers more than the American Big Three.
Of the top ten cars sold under the Cash for Clunkers program, eight were foreign imports. Toyota and Honda accounted for 35 percent of all sales using the Cash for Clunkers program, according to the Web site. For the American car makers, Ford had two cars in the top ten, while GM and Chrysler had none, according to the Cash for Clunker Web site. The two companies that received government bailouts, GM and Chrysler, did not have any cars in the top ten.
Locally, dealers say the sales increased. But in the end, they say, the program helped little. “It spurred some traffic,” said Townsend, president and owner of Honda City. But business dropped again, he said, as soon as the program ended. He and other dealers also complained that the program required much paperwork and delayed refunding the dealers for the rebates, who had to give the money up front to customers.
“The government didn’t make it easy at all,” Townsend said.
- Wait and see
Dealers could just simply do nothing and hope the economy bounces out of the recession. The industry has typically been a cycle of boom and bust, experts say. The dealers might simply wait for the next boom period.
That’s the approach favored by Roger Burdick, the owner of the largest dealership in Syracuse, Drivers Village. He’s been in the business since the 1970s. He expects, he said, to wait for the economy to improve enough for the dealers “to crawl out of the hole” they’re in.
“I think we just have to ride it out and wait for our overall economy to improve, for the job market to stabilize, for car sales to recover over a multi-year period,” said Burdick. “I think it’s a four- to five-year period for auto sales to recover.”
At Honda City in Liverpool, George Townsend agrees that the best plan is to ride out the economic storm. His dealership is about 18 percent behind last year’s sales, Townsend said. Autos are staying on the floor far longer than in the past. One example: an auto that’s selling on this December afternoon has spent 175 days on Townsend’s lot. In better economic times, Townsend says, it would have sold 60 to 90 days after it arrived.
Still, Townsend says, he’ll remain optimistic for the future. “I’m feeling enough good vibes,” Townsend said. “But by optimistic, I mean stop the bleeding.”
(Abram Brown is a junior and has dual majors in history and magazine journalism.)
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