The Nation Will Shed Auto Dealers Faster, Report Says
The decline in the number of new car dealerships will accelerate this fall and into 2009 as weak sales, increased operational costs and the credit crunch continue to take their toll, according to Grant Thornton LLP Corporate Advisory and Restructuring Services.
Earlier this year, Grant Thornton said more than 2,700 dealerships would need to close in order to maintain sales per dealer at last year's level of about 750 units. Now, with light vehicle sales on average predicted to drop to the 13.7-million unit range in 2009, the firm estimates that 3,800 dealerships will need to close.
Not only are new car sales down, other sources of revenue for dealers, such as used car sales and financing profits, are also falling, Grant Thornton says. For example, CarMax, Inc. reported that its average used vehicle-selling price declined six percent in the second quarter ended August 31, with double-digit declines in comparable store unit sales. Property values also have taken a hit.
Among the trends Grant Thornton sees are the following:
Consolidation accelerates: Domestic automakers have been encouraging their dealers to consolidate, especially in metropolitan markets like Chicago, Boston and Los Angeles. However, credit availability for potential buyers, the increasing cost of floor-plan funding, lack of financial support from automakers, the general reluctance of dealers to sell at depressed values and the unrealistically high price demands by sellers has slowed the orderly progress of voluntary consolidation. But, the deal-making environment will improve in the early part of 2009 as prices come down, the weak market continues to erode franchise values and liquidity returns.
An increase in sale/leaseback transactions: Dealers who need to raise cash to fund operations or make facility improvements may want to consider entering into a sale/leaseback arrangement for their real estate. However, the credit crisis could make a sale/leaseback strategy difficult to execute in the near term.
Dealers subdividing real estate: Many dealers own more real estate than their potential sales justify. Those in prime retailing corridors, they may be able to subdivide their land, selling part to investors for redevelopment.
WWJ e-newsletters sign up WWJ Newsradio 950 e-newsletters bring automotive, business, technology, entertainment, and home news and information to your desktop. Interested in a complimentary subscription? Please register as a new reader by clicking here.
Sponsored Links:
WWJ Newsradio 950 is Detroit's only all-news radio station and is the leader in Detroit radio news. Listen online to WWJ-AM 950 for live, local Detroit news, up-to-the-minute Detroit traffic, Detroit sports, Detroit business and Detroit community information. WWJ Newsradio 950 is an award winning radio station and you can listen online and podcast on demand Detroit news, Detroit Construction Alerts, Detroit School Closings, Winter Survival Guide and learn more about our Business Breakfasts. www.wwj.com.
