Mazda Quietly Cuts Stores

While other auto makers struggle with inflated dealership ranks, Mazda North American Operations quietly has reduced its retail outlets by nearly 30%.

The auto maker has gone from a peak of 900 U.S. stores in 2000 to 640 now.

“That positions us well to weather this tough market and be in good shape when the market rebounds,” MNAO President and CEO Jim O'Sullivan tells the Automotive Press Assn. in Detroit.

Reducing dealerships has become a big industry issue, with some auto makers, notably domestic brands, scrambling to cut stores in an effort to increase sales per outlet, a measure of dealer profitability.

For example, financially troubled General Motors Corp. plans to slash its dealership ranks from 6,200 to 4,700 by 2012 and then down to 4,100 by 2014.

Some of that is being done through consolidations, with dealers buying out dealers. But several GM dealers - and others - have been driven out of business, unable to deal with the harsh economy or secure sufficient credit to buy inventory.

But reducing dealerships by survival of the fittest can get ugly and lead to undesired results, says Gary Dilts, senior vice president-global automotive for J.D. Power and Associates. “That's not a solution.”

Dealers stretched in the good times are most vulnedrable now, O'Sullivan says.

Overall, Mazda dealership cuts were done cleanly and relatively cheaply, he says. “It's not like we went in with a bag of money and bought dealers out.”

Instead, Mazda, a Japanese auto maker that is 13% owned by Ford Motor Co., worked with dealers, encouraged consolidations in key markets and rethought its presence in smaller markets.

“Some dealers wanted in, some wanted out,” O'Sullivan says. “It's not something we forced.”

Some of the Mazda dealership cuts were the result of other auto makers insisting their dealers run exclusive operations. Consequently, many of those “dualed” dealers gave up their Mazda franchises.

“We didn't push exclusivity so much, but some brands did,” O'Sullivan says.

The irony is that not only helped Mazda trim down its retail points, but also led to more Mazda-only stores going from 19% to 51%.

“We're not looking for further dealership reductions,” he says. “We feel we're right-sized now. When the economy comes back, there is going to be huge throughput and profitability for our dealers.”

Mazda, with eight vehicles in its lineup, sold 166,892 units last year, off 11% compared with 2007.

In October, Ford Motor Credit Co. stopped financing Mazda customers. Chase Auto Finance is now doing that. “Chase is a good partner” that is buying deeper and giving loans to people with lower credit scores, O'Sullivan says.

Speculating on a post-recession future for the auto industry, he foresees not just fewer retailers but fewer brands and suppliers.

“Right now, every manufacturer is in a fight for survival, whether they are American, European or Asian,” he says, citing the nation's liquidity crisis as the main culprit.

He describes this year as a test of endurance. “The good news is that the auto business will be back.”

He applauds recent legislation that will give consumers tax deductions on new-car purchases. Better still would be if lawmakers reinstated tax deductions on auto-loan interest, he says. “It's estimated the new-car tax deduction will lead to an additional 100,000 unit sales, but tax deductions on auto-loan interest would boost sales by 336,000 units.”

Not until consumer confidence returns to higher levels are auto sales expected to return to a semblance of normal, O'Sullivan predicts.

“Analysts say there are 1 million consumers out there ready to buy but staying on the sidelines. A tremendous number of young people are holding off until they see a light at the end of the tunnel.”