Chrysler dealership cuts hit family-owned shops hard

The economic slowdown has hit the auto industry like a brick. Sales have been below the 10 million annualized rate all year. Just two years ago, they were topping 16.5 million. But even when times were good, the domestic automakers were trying to trim their dealer ranks. Toyota, Honda and Nissan have far fewer dealers than the Detroit 3, meaning there is less competition among them for customers.

A study done by Grant Thornton found a typical Toyota dealer sold 1,628 vehicles in 2007; Ford stores averaged 236. The average for all new car dealers: 322.

Chrysler says many of the stores on its cut list sold fewer than 100 vehicles a year.

"They clearly have too many dealers in the system," says Pat O'Keefe, a turnaround expert at O'Keefe & Associates. "They don't need as many dealers as they have, and they won't for some period of time."

Even AutoNation, the country's largest chain of car dealerships, was affected. Five of AutoNation's 234 stores will close: two in Florida, one each in Colorado, Alabama and Texas.

But they represent just 1% of AutoNation's revenue, the company said. CEO Mike Jackson says he's fine with the consolidation and that it's overdue. "Domestic market share went from 60% to 40% in the last decade, but the rationalization of the dealer network has not kept pace with this," he says. "They were already behind."

Domestic automakers have tried buying out dealerships or encouraging them to consolidate, but now they're out of time and money, Jackson says. He says Chrysler should use the power of bankruptcy court to get rid of the franchise agreements.

"The track record has shown over the past decade that it's extremely difficult to deal with," Jackson says. "It's an intractable problem."

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