Record Number of U.S. Dealership Closures

Dealer Networks Undergo Unprecedented Change in 2009
Increased Partnerships with OEMs and Dealers Needed

Global automotive retail consulting firm Urban Science has announced that 1,467 U.S. dealerships closed from January 1 to November 1, leaving 18,617 stores remaining. The closures are already the worst on record and reflect a 7.3-percent loss in the nation’s dealer count. Normal attrition is a 1-percent decline. The numbers are mostly a result of automakers taking proactive action to reduce dealer count, with General Motors and Chrysler driving approximately 90 percent of the consolidation.

“While OEM bankruptcies and bad economic times drove the closures, all dealers have to deal with a market that has dropped from several years of 17 million in sales to somewhere around 11 million,” said John Frith, vice president of retail channel solutions, Urban Science. “Automakers and dealers have to do more with less – reach a greater territory with fewer resources. It’s more critical than ever for automakers and dealers to work together for mutual, profitable growth. With change comes an opportunity to build a stronger network with the optimal size and makeup.”

Frith warns, however, that consolidation alone will not increase throughput at surviving stores. Closing a dealership in a market does not mean a customer will stay with a brand or travel to the next closest location. There is a mixture of factors to consider for consolidation to be successful, including convenience, competition, brand strength and market demand.

“Dealer networks are not static and all automakers must consistently tweak and optimize them as market conditions and customer preferences change,” said Randy Berlin, global practice director, Urban Science.

Dealers unaffected by consolidation faced challenges caused by the recession and credit crisis. However, as long as dealers maintained required financing, they survived by cutting expenses and concentrating on used vehicles and parts and service—traditionally the most profitable areas of a dealership. With consumers holding onto their vehicles longer, about 71 months, dealerships were able to gain profits from an increase in non-warranty service work.

“Dealers are resilient entrepreneurs, and they survived this year just as they’ve survived tough times in the past,” said Berlin. “They reduce variable costs and focus on parts, service and used cars for revenue.”

“From an automaker’s perspective, success means selling more vehicles and having profitable market share,” said Katherine Kress, vice president of customer marketing solutions, Urban Science. “All automakers want to increase market share, but it’s mathematically impossible for everyone to do so. The ones that win a greater piece of the pie will be those who leverage information about their customers to focus marketing resources on the customers most likely to respond. We’ve been seeing more automakers form a partnership with their dealers, sharing data that will help them keep existing customers and conquest new ones.”