They’ll be shucking oysters by the barrel, at the Acme, this weekend, and serving up plenty of crawfish gumbo at The Court of Two Sisters. But even the most lavish feast, on Bourbon Street, won’t do much to brighten the mood when thousands of the nation’s dealers gather in New Orleans.
There’s always a blend of camaraderie and confrontation at the annual conference of the National Automobile Dealers Association, but this year’s event is likely to have a distinctly elevated stress level. According to the NADA, the number of new car retailers in the U.S. is falling off at the fastest pace in decades. As 2008 came to a close, at least two dealers a day were closing up shop. And since most own more than one showroom, the storefront decline is even more rapid.
Typically, the NADA convention attracts the nation’s more prosperous retailers, yet this year, even they recognize there’s no guarantee of survival. “The fact is,” warns Chrysler Vice Chairman Jim Press, “when you take one-third of the market out, the number of dealers has to be reduced.”
The fact that even Toyota expects attrition in its dealer base is noteworthy. But the big cuts are going to come on the domestic side of the industry. In decades past, having a large retail network was a competitive advantage, and in certain rural markets, it still is, says General Motors Chairman Fritz Henderson, “We have a higher penetration in those areas. So, we have no interest in doing anything other than support them.”
It’s a different story entirely in the urban markets, interjects Mike Jackson, CEO of the massive AutoNation dealer network. In cities like Detroit, Chicago and Los Angeles, “There needs to be a major fallout in the number of retail outlets,” he contends, and Big Three executives, like GM’s Henderson agree.
Part of the problem is that with sales and market share down, existing dealers simply can’t move enough metal to support their operations. And hungry dealers cut deals, often bidding against retailers selling the same franchise’s products just a few miles away. GM wants its retailers to compete against Ford and Toyota and Mercedes-Benz, not against other GM stores.
The U.S. giant aims to trim its dealer count from 6,901, in 2007, to just 4,700 by 2012. Ford and Chrysler are targeting similar cutbacks.
How to get there is a subject that’s likely to be the topic of heated debate in the so-called “make” meetings at the NADA convention. Tough state franchise laws make it difficult for a manufacturer to simply shutter a retailer. Usually, it requires some tough negotiations and can result in a multi-million-dollar buyout.
The economy is doing some of the work for Detroit’s makers, with 100s, perhaps even 1000 or more dealers likely to go broke before the economy – and the car market – recover. But that’s a mixed blessing, as Jim Taylor, until recently head of the Cadillac division, and now in charge of Hummer, notes. The economic meltdown is killing off not only some of GM’s “worst dealers, but also some of our best,” because they’re the ones investing heavily to upgrade their stores and carry a full inventory.
And so, if you’re heading to New Orleans, this weekend, don’t be surprised to see a fair number of folks in loud sports coats and NADA convention nametags walking down Bourbon Street slurping down those oversized Hurricane drinks normally reserved for Mardi Gras revelers. The problem is that the subsequent hangover may not go away anytime soon.