Urban Science: More Than 1,500 Dealers Closed Last Year

By Auto News Log • February 4th, 2010

DETROIT — Dealership closings hit an all-time high last year, as the attrition level was eight times as high as the normal rate, according to Urban Science’s Franchise Activity Report.

Specifically, the number of dealers in the U.S. dwindled down to 18,841, an 8-percent decline, or 1,605 closings. Comparatively, 1 percent is what’s typically considered a “normal” drop off in dealer count.

The previous record in Urban Science’s 19 years of monitoring this data was set in 2008, when the dealer count was reduced by 881 stores, just over half the number from 2009. Urban Science noted that it began gathering this information in 1991.

Analysts attribute these declines largely to automakers’ proactively slimming down dealer counts. For instance, perhaps not surprisingly, General Motors and Chrysler were responsible for roughly 90 percent of the reduction.

“While automaker 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 units in sales to somewhere around 11 million,” stated John Frith, vice president of retail channel solutions, Urban Science.

“Automakers and dealers have to reach a greater territory with fewer resources. It’s more critical than ever to work together for mutual, profitable growth,” he added. “With change comes an opportunity to build a stronger network of optimal size and makeup.”

Frith went on to emphasize that consolidation by itself isn’t the only thing necessary to boost “throughput” at remaining dealerships, as there are numerous other considerations in a successful reduction.

Just because a dealership is shut down in one area doesn’t mean shoppers will remain loyal to the brand or go to the next closest store of that particular automaker.

Automakers must consider convenience, competition, brand strength and market demand when evaluating a consolidation.

Continuing on, Urban Science noted that while shutdowns didn’t impact some dealers, the recession and credit crisis caused headaches.

Reducing costs and leaning on the highly profitable used-vehicle and parts and service operations helped the dealers who did acquire the necessary financing stay afloat.

And because consumers are keeping their rides for longer periods of time, non-warranty service work proved to be fruitful for many dealers.

“Dealers are resilient entrepreneurs who survived this year just as they’ve survived tough times in the past,” shared Randy Berlin, global practice director for Urban Science. “They reduce variable costs and focus on parts, service and used cars for revenue.”

Looking at some of the data in more detail, some of the cities with the highest attrition rates were Charleston, S.C. (16.3 percent); Stockton, Calif. (16.2 percent); Albany, N.Y. (15.5 percent); Poughkeepsie, N.Y. (15.2 percent); and Greensboro, N.C. (14 percent).

Just over half (50.97 percent) of the 932 markets included in the survey either had an increase in their dealer count or showed stability. That said, there was never an increase of more than one dealership.

Among individual states, Alaska, Mississippi, South Carolina, Arkansas and Missouri had the heaviest reduction rate.

Source: Urban Science

Discuss in the Victory Forums »

 

Leave a Comment

« | Home | »