Commentary

How many times have you read that Detroit auto makers have too many dealers, and how they need to do something about it?

I have been hearing "too many dealers" since I started reporting in Detroit in 1958.

Back then, the problem was everyone who could was moving to the new suburbs, and all the showrooms were in the city.

Go back farther to the 1920s and not only was there no Internet, but there were few telephones. The roads were pretty bad, too.

Car shoppers couldn't drive 30 miles (48 km) in 20 minutes to the big showroom off the expressway by the shopping center because there were no expressways or shopping centers.

Big auto makers such as General Motors and Ford wanted a retailer every 50 miles (80 km) to reach customers, so each brand ended up with thousands of dealers.

It's a different world today, and you probably could cover the country with no more than 500 big operations and some satellite service garages. Detroit-based auto makers also have lost half their business to foreign brands, so they don’t need as many dealers.

And last, but not least important, you just can't get rid of dealers; they wield too much influence with state legislators and in their communities. You can buy them out, but you can't fire them. Why would it be better to have fewer dealers? Because they compete with each other within the brand. One Ford dealer competes with the Ford guy a few miles away, rather than with Toyota or Volkswagen.

This intra-brand competition always is on price. The customer runs from one dealer to another dickering for a lower price, which hurts profitability. Fewer but stronger retailers could invest more in their properties and spend more to win customers.

Weak, struggling dealers cannot. That's why Toyota, always growing, is happy with its 1,250 dealers, and its dealers like it that way. Overall, dealer numbers are going down. In 1947, there were about 46,000 auto dealers in the U.S.

Now there are fewer than 22,000 dealers.

But this decline has taken place over more than 50 years. Car dealers do give up, quit, merge or go bankrupt, but generally they want money to just give up their franchises.

So if you want to shut 100 dealers, and each wants on average $1 million buyout for the franchise, it's $100 million. GM paid hundreds of millions to dealers when it shut Oldsmobile.

But note that GM isn't shutting down Buick, even though its sales are tens of thousands fewer than Oldsmobile's were when its closing was announced. The best system seems to be to just invent a new car line and start fresh. That's why Asian and European brands have the advantage. They didn’t enter the marketplace in the 1920s, so they’ve had fewer franchises from the start. Even so, that doesn’t mean all Detroit-brand dealers are starving. Many have picked up Toyota, Mercedes, Hyundai or numerous other franchises along the way and are doing just fine.