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Failing US car makers get bailout cash but dealership glut means trouble ahead
GENERAL Motors Corp and Chrysler LLC were due to get US$4 billion each in United States loans yesterday to keep them from running out of cash. But they are still looking for help.
A US dealership glut is damping profits, crimping spending on marketing, facilities and vehicles, GM and Chrysler say. GM set a goal of closing 1,750 showrooms, or 27 percent, over four years while Chrysler said it wants to trim its 3,300 dealerships, without setting a target.
Franchise laws and possible legal action by dealers may make it difficult to achieve the cuts, which were a pillar of the survival plans the auto makers gave to the US Congress on December 2. GM had to spend more than US$1 billion when it shut its Oldsmobile unit in 2000, partly due to lawsuits over forced closures.
'In a number of states there (are) very elaborate procedures that you have to go through to shut dealerships,' University of Chicago professor Douglas Baird said in an interview with Bloomberg News. 'In some states you just can't do it at all.'
Sales crash
In the year up to November, GM, the biggest US auto maker posted a US sales decline of 22 percent. Chrysler, the third biggest, saw US sales fall 28 percent. Industry-wide sales tumbled 16 percent through November, dragging the market to a 17-year low.
Negotiations are underway on a market-by-market basis, especially in urban areas, in which dealers are being urged to combine with other retailers, according to the auto makers. Cash payments are among the typical inducements.
'You need dealers to be profitable, so they can invest in their store, so they can afford more sophisticated marketing, so that they are not competing with another Dodge dealership down the street,' said Stuart Schorr, a spokesman for Chrysler.
The ultimate tool for forcing closures is the one the auto makers say they won't use: filing for bankruptcy, which would let them skirt state protections for franchisees.
The US$4-billion bailout each of the auto makers has secured may give them time to work on dealership accords, along with other parts of their survival plans.
A US dealership glut is damping profits, crimping spending on marketing, facilities and vehicles, GM and Chrysler say. GM set a goal of closing 1,750 showrooms, or 27 percent, over four years while Chrysler said it wants to trim its 3,300 dealerships, without setting a target.
Franchise laws and possible legal action by dealers may make it difficult to achieve the cuts, which were a pillar of the survival plans the auto makers gave to the US Congress on December 2. GM had to spend more than US$1 billion when it shut its Oldsmobile unit in 2000, partly due to lawsuits over forced closures.
'In a number of states there (are) very elaborate procedures that you have to go through to shut dealerships,' University of Chicago professor Douglas Baird said in an interview with Bloomberg News. 'In some states you just can't do it at all.'
Sales crash
In the year up to November, GM, the biggest US auto maker posted a US sales decline of 22 percent. Chrysler, the third biggest, saw US sales fall 28 percent. Industry-wide sales tumbled 16 percent through November, dragging the market to a 17-year low.
Negotiations are underway on a market-by-market basis, especially in urban areas, in which dealers are being urged to combine with other retailers, according to the auto makers. Cash payments are among the typical inducements.
'You need dealers to be profitable, so they can invest in their store, so they can afford more sophisticated marketing, so that they are not competing with another Dodge dealership down the street,' said Stuart Schorr, a spokesman for Chrysler.
The ultimate tool for forcing closures is the one the auto makers say they won't use: filing for bankruptcy, which would let them skirt state protections for franchisees.
The US$4-billion bailout each of the auto makers has secured may give them time to work on dealership accords, along with other parts of their survival plans.
