As the Big 3 automakers continue to develop and implement plans to restructure their operations, one common element that carries across the various plans, is a significant reductions in the number of dealers. Consider the following:
In a video conference with its dealers on April 28, 2009 General Motors (“GM”) announced that it will force up to 1,200 of what it deems to be underperforming locations to close their doors. This is part of a broader plan to reduce its current dealer network by 2,600 dealerships, or 42 percent, by 2010.
In 2008, Chrysler shed 287 dealers, or approximately eight percent of its dealer network. The automaker has also initiated efforts to pressure its dealers to consolidate brands under one roof, efforts which have been subsequently delayed as Chrysler has been forced to focus on its survival. The impact of its bankruptcy plan and impending sale of assets will likely exacerbate the pressure on dealerships.
In 2008 Ford reduced its dealer network by 269, or approximately 7 percent.
In many cases, these reductions are a function of the current economic environment, which is causing many dealers to voluntarily close their doors. However, particularly in the case of GM, the reductions are or will be a direct result of overt actions to trim the dealer network, through the sale or elimination of brands (i.e., Hummer, Saturn, Pontiac and Saab), or through closure or consolidation of smaller and less profitable outlets.
Automobile dealers hold the right to sell vehicles under franchise agreements with the manufacturers. Typically, these agreements do not contain provisions that enable the manufacturer to break the agreement at will. As such, dealers who are forced to close their doors will have contractual rights to compensation if they are forced by a manufacturer to close or consolidate with another dealer. The compensation will likely be significant. For example, when GM made the decision to phase out its Oldsmobile brand in 2000, it spent approximately $1 billion to close 2,800 Oldsmobile dealerships.
The Forensic Accounting and Litigation Services professionals at Parente Randolph have a great deal of experience in performing business valuations and lost profit analyses for automobile and other vehicle dealerships. For further information on how we can assist you, please contact David Duffus, Robert Gray, or Glenn Newman.
