[kaisen]

Many of you know my background in the auto industry, both with dealers and manufacturers. I have run a few large dealerships in the Minneapolis area and have many friends and associates in dealerships across the country.

It hit me when I read through the 789 dealers recently axed by Chrysler. Roughly twenty names of friends who own these were on the list. Some were multi-franchised so losing one brand isn't closing the entire store. A couple of the stand-alone full-line Chrysler stores will be devastated.

Many see the closings as pruning a tree. Get rid of the dead or dying for the health of the remaining. It seems most Pelicans see it this way. In most cases I agree. GM will announce over 1000 more today.

I wonder, though, whether we fully grasp the impact this has.

What will happen to the buildings? The average franchised dealership is a 30,000 square foot facility on 5.5 acres worth roughly $6 million (although it varies wildly depending on location). The property taxes are huge. I was part of a $5M project in Burnsville, MN where the taxes were well over $100K per year. These are not big-box spaces that are reconfigurable for a different retail use. If they aren't used for autos, powersports, boats, or RVs they will likely be dozed. But who will build another commercial retail building on that site anytime soon? I think the banks will own a lot of vacant dealerships.

What will happen to the employees? The average franchised dealership employs about 60 people split between sales, service, parts, management, and administration. Technicians have invested their careers in specialized training for their brands. When you know Jeeps inside and out, its not like you can go to Toyota and be efficient. And it's not like Toyota is hiring either. There are simply too many salespeople, but they'll find other jobs outside the car biz. Managers will take huge paycuts switching industries. Admin functions are very specialized to the car biz, so many will have trouble making the adjustment. There will be tens of thousands of people wondering what to do for careers.

What happens to the newspapers? The average franchised dealership spends $350,000 per year on adverising, mostly in local newspapers. Those papers are already struggling. As 25% of their dealer customers disappear, so does that revenue. It may be a death blow.

What happens to service customers? In many cases, these were small-town dealers. When they close, the next closest dealer may be far away. There are many people who choose what car they buy based on local service. Maybe they bought a Dodge in town because the nearest Honda dealership was 40 miles away. Now the nearest Dodge dealer is also that far. Also, the remaining dealers will be happy to absorb the service business, but are they capable of providing the same level of service when their workload is increased? Do they have enough bays? Loaner vehicles?

What happens to the cars? Where do you cram all the excess inventory. It's not like the remaining dealers can handle more cars. Many of them are too full now. And they don't need the additional expense of carrying more inventory (most carry about $4 million in new cars).

There are more questions ..... none with good answers.

Oh, and before you say "just sell used cars" think of the overhead of a huge facility, and more importantly, that many local ordinances will not allow those dealerships to do business without the franchise.

Necessary, but painful.