I'm not a doom and gloom kind of guy. But here in Detroit, it's hard to stay positive. The truth is, in the midst of all of the news surrounding failing banks and government bailouts, there is reason to be optimistic — at least, for some of you.
The question is: How well-capitalized are you? We all know what the bad news is. The industry is on pace this year to lose approximately 1,200 dealership rooftops to consolidation, bankruptcy or dealers simply turning off the lights because they can't pay the bills.
This year might go down as one of the biggest downturns in the number of dealerships since the 1950s. The biggest problem for dealers, other than what will be a likely 2 million drop in new-car sales, is the inability to get capital to invest in their businesses.
This is the single biggest factor driving dealers out of business. The separation between the “haves” and the “have-nots” is growing increasingly bigger.
And, now, some dealers are saying certain manufacturers are seizing the opportunity to force several retailers out of business by enforcing stringent operating capital requirements.
Chrysler appears to be the most active with this strategy. The fear is General Motors and Ford Motor may soon follow suit.
As one dealer e-mailed me, responding to a question about a new retail strategy, “The question on my mind is whether it's a new ‘retail’ strategy or a break-up/liquidation model designed to make a very short list of top dogs very, very wealthy.”
To be fair, there are two sides to the story. Dealers who run efficient operations, watch their inventory and maintain healthy operating margins, likely will say, “Good riddance.”
One such dealer quickly rattles off the names of several similar-branded dealers close to him whose facilities “are dumps and are lousy dealers.” He's right. They are lousy business people that probably should not be in business. He'll be much stronger if they go away.
For him, and others like him, all of the bad news is good news. He may pick up a franchise or two, extend his market area, and when sales rebound in a couple of years, might be wealthier than he ever imagined.
It's no fun saying this, but if you're one of the dealers short on operating capital, now might be the time to get out, because the price will only get lower the next nine months. There are dealers waiting to swoop in when you have no options left.
On another note, albeit, about capital, will the domestic auto makers get the $25 billion in federal guaranteed loans they are lobbying for? By the time you're read this, we'll know the outcome.
It's hard to handicap their chances because the signals out of Washington D.C. are so disconcerting. The Big Three have few friends in the capital and even fewer friends among their automotive brethren, so it's doubtful.
It's clear they need the money. It would be a worthy investment — not a bailout — in a vital industry. Congress hasn't asked for my opinion. Still, I say, “Give them the money.”
