Car dealers left out of Detroit buyouts

Detroit —- News flash to auto dealers, from the floor of the North American International Auto Show: If you think General Motors, Chrysler or Ford will rescue your franchise, you might be in for a rude awakening.

Executives with the nation’s Big Three automakers say they love you. They sympathize with you. But they think there are too many of you out there, and they’re not about to come to your rescue if you’re hanging on by a thread.

When pressed about the plight of dealerships during media sessions before the show opened to the public, executives from the Big Three were resolute about what they saw as the need to reduce the number of dealerships as the recession grinds on.

The restructuring plans of all three companies include reducing the number of dealers in communities across the country. But rather than forcing the reduction through corporate strong-arming, which could lead to costly lawsuits or buyouts, executives this week suggested it would be achieved through natural selection: The weakest would go; the strongest would survive.

“When you take a third of the market out, a third of the dealers don’t really have a business to go forward with,” Jim Press, vice chairman and president of Chrysler LLC, said Jan. 11, referring to how the Big Three have lost sales to foreign competition.

Striking what was perhaps a diplomatic note, Press said Chrysler was trying to “thin the dealers out in a natural way that really is a win-win for both the dealer that’s leaving and the dealer that’s going to continue the business.”

General Motors chairman and chief executive Rick Wagoner expressed empathy, along with a similar conviction that some dealers, after nearly a century in business, had reached a crossroads.

Wagoner, whose Detroit-based GM told Congress it hoped to eliminate a quarter of its dealerships by 2012, said he hated to see them go. But he said the financial model had changed. Gone are the days when selling and fixing up cars and maintaining a moderately profitable operation could keep a dealer in business for years.

Now, dealers need cash on hand to satisfy the creditors whose loans finance millions of dollars of inventory on dealer lots. And as automakers move toward electric-powered cars, dealers will need to upgrade their service bays, buy new equipment, and train their mechanics. All that will cost money.

Dealer distress has taken a backseat this week to the automakers’ talking up fuel economy and fielding tough questions about their dependence, in the case of Chrysler and GM, on taxpayer funds to stay afloat.

But the Big Three goal of cutting the number of dealers remains strong, albeit elusive.

Each dealership holds a contract with manufacturers that cannot be broken at will by the automakers. Dealerships hold franchise agreements and have invested millions. Many state laws are protective of their contractual rights.

But some dealers bemoan the fact that Ford, Chrysler and GM —- burdened by their own financial woes —- have not been forthcoming with buyout funds.

As a result, those struggling the most right now are having a hard time paying their bills.

The manufacturers welcome the unassisted thinning out, if only because it allows them to achieve their goals without paying what in some cases are millions of dollars to shut down a dealer.