Angry Dealers Fight Closings

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GM's market share hovers between 18% and 22%, and this will sink further when the company cuts Pontiac, Saab, Hummer, and Saturn. GM's dealer network is sized for a company with a 40% market share—roughly what the company enjoyed in the 1970s. Chrysler's market share is around 10% and may shrink even further. To sustain its current number of dealers, Chrysler would need a market share of some 25% to 30%.

"You have a situation where Chrysler dealers are competing against Chrysler dealers in the same markets for the same customers, and the same goes for Chevy dealer vs. Chevy dealer," says Earl Hesterberg, CEO of Group 1 Automotive (GPI), which owns dozens of dealerships, including those of Chrysler and GM. "Toyota has a bigger share of the market than Chrysler and has half the dealers…It doesn't make sense, though it is painful for the people being selected for elimination." Houston-based Group 1 is not losing any GM or Chrysler franchises.

automaker layoffs cut Michigan buyers

Richard Mealey, whose Chrysler dealership is in Birmingham, Mich., a 15-minute drive from Chrysler's Auburn Hills headquarters, has also been singled out. Mealey says he has no choice but to close his dealership, and 75 of his 89 employees will be laid off this week. He will keep a few to operate his body shop as an independent business, but Mealey says closing will be "devastating" for his family, business, and community. "We feel totally rejected, dejected, and very, very concerned about the future," he says. His loss is his customers' gain: He must sell more than 230 vehicles in the next 10 days at drastically reduced prices.

One reason that Chrysler and GM are reducing the number of Michigan dealers is because they have cut tens of thousands of their own employees—who used to get incentives to flip their cars every year—so those dealerships have lost a lot of regular and captive customers.

Car dealers usually cast a big political shadow in their states, and are also big fund-raisers and political donors at the federal level. But as the White House moves to restructure GM and Chrysler with billions in taxpayer money, the dealers' political clout isn't being felt. One Obama Administration official with knowledge of the White House auto industry task force deliberations said the fallout on the dealers was one of the hardest parts of the rapid restructuring. "These are good people, but these companies are choking on too many dealers, and we can't waste this opportunity—where so much is being done to bring them in line with Toyota and Honda—to leave these bloated dealer networks out of it," said the official, who spoke only on the condition of anonymity.

James Dollinger, a real estate and automotive industry consultant from Flint, Mich., who once sold more Buicks than any other car dealer in the country, says the automakers and the White House are making a big mistake. "Let the marketplace, not the companies which have made a hash of their businesses, decide who lives and who dies when it comes to the dealers," says Dollinger.

Yet both Detroit and Washington offer a similar reply: GM and Chrysler can't wait that long.

Kiley is a senior correspondent in BusinessWeek's Detroit bureau.

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