Thursday, May 14, 2009

Auto Dealer Consolidation

While the economy will take another jolt this week with the announcement of large number of dealer closings at Chrysler and General Motors, this move is necessary. Long before this current recession, the American automakers had far too many dealers. Top American brands have 3-5 times as many dealers in the U.S. than Honda and Toyota. The dealer network is incredibly inefficient and has to be rationalized.

One thing to watch... closing dealers has typically been a very expensive proposition for automakers due to state franchise laws. However, GM and Chrysler will avoid those excessive costs this time around due to their conditions of financial distress. However, what will happen to Ford? Can they rationalize their auto dealer network while also avoiding excessive closure costs? If not, then the federal help for GM and Chrysler will provide them an advantage over the healthier Ford.

For some time now, experts have worried that Ford will be disadvantaged in key ways by the fact that they are actually healthier than their domestic rivals and do not need federal assistance. The government has to be mindful of this potential inequity, and take care not to harm Ford through this bailout, bankruptcy and reorganization process... after all, Ford deserves better since they have been the best-managed to date in the domestic auto industry.