Cut Dealership Ranks by Half, Analyst Says

Special Coverage

NADA Convention & Exposition

LAS VEGAS – Shrinking dealership ranks, always a hot topic at National Automobile Dealers Assn. conventions, gets even hotter at this year’s gathering here as one finance expert suggests cuts for troubled brands should be as much as 40%-50%.

In 1997, there were about 25,000 dealer points. Today, there are 21,500, NADA data shows.

While the issue has been delicately discussed at past NADA conventions, always with a certain vagueness as to how many dealerships should be shuttered, Stephen Girsky breaks with tradition by offering a specific percentage, and a high one at that.

“If you look at dealership reductions running about 4%-5% a year, you have a long way to go if you need to cut 40%-50%,” Girsky, president of Centerbridge Industrial Partners LLC, says at a J.D. Power and Associates conference being held in conjunction with the NADA convention that starts today.

Too many same-brand stores competing for fewer customers are causing problems with throughput, or the number of customers per dealership, he says.

“If you are telling me (higher) throughput is not the answer, what is? I’m just doing the math,” Girsky says.

GM executive says consolidation up to dealers.

Domestic auto makers such as Ford Motor Co. have indicated that as they streamline their operations, dealership ranks should be trimmed accordingly.

Girsky sees dealership consolidation occurring in three likely ways: auto makers “buying back shingles;” investment firms, such as his, buying dealer points and merging them; dealer groups acquiring weaker competitors and closing their operations.

But not everyone agrees with Girsky’s assessment.

Troy Clarke, president of General Motors Corp.’s North American operations, tells the conference that while the auto maker “over-dealered” in some parts of the country, “we’ve chosen not to take a heavy hand with that. We don’t see the upside of laying out mandates.”

Clarke says much of dealership consolidation is the consequence of “interaction among dealers,” with one buying out the other. “There is more to do, but we’re satisfied with the progress made so far.”

GM is happy with that arrangement, partly because it saves the auto maker the expense of buying and closing stores, Clarke says.

Asked when GM plans to get aggressive in trimming dealerships, Clarke says, “I don’t know. Not tomorrow. We know how much it costs because we did it with Oldsmobile. If I had a couple billion dollars for (cutting dealerships), I’d rather put the money into product.”

Meanwhile, Girsky is more forgiving when it comes to blaming Detroit’s Big Three for building too many fullsize trucks at the same time the market is shifting to smaller, fuel-efficient vehicles.

“Things happen quickly in this industry,” he says. “You can’t say, ‘you buffoons built large trucks.’ The fact is that’s what consumers wanted, and the profit margin on those vehicles is higher than on small vehicles.

“Now, with gasoline prices higher, smaller vehicles are becoming popular.

But the big trucks were selling; consumers wanted them; and the manufacturers were giving them to consumers,” says Girsky, who served as a special financial advisor to GM in 2005-2006

“In hindsight, the vehicle mix could have been better balanced,” he says.

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