By JOHN A. SACKRISON
Over the past few months we all have been inundated with information about the future of Chrysler LLC and General Motors Corp.
During this time, one misconception has been repeated so many times that it has mistakenly become accepted as the truth?he notion that dealers somehow create a cost burden on manufacturers.
Nothing could be further from the truth.
Even worse, the president? auto task force is relying on this misconception to unnecessarily force the closure of 3,600 privately owned and operated GM and Chrysler dealerships, putting their 190,000 employees out of work. Orange County? and the nation? new vehicle dealers have strong concerns that the federal government is relying on flawed information and policy and thus forcing the closures of these independently owned dealerships.
This action by the White House task force is unprecedented and is fundamentally wrong policy for the following reasons:
?Dealerships are not a cost to manufacturers since each dealership is independently owned.
The cost of operating car dealerships is borne entirely by dealers, not manufacturers. Collectively, new car dealers have invested more than $233 billion of their own money to create a productive distribution system of independent entrepreneurs that directly benefits manufacturers, consumers and the communities where they are located. Dealers pay for their own inventory, employee costs, real estate expenses, computers, operating and administration costs, repair parts, service equipment, tools, training and diagnostic equipment.
?Lost dealerships equal lost manufacturer revenue.
Dealerships are the primary customers of automakers, generating more than 90% of their revenue. Eliminating dealerships won? save troubled automakers anything, and it most likely will add to their troubles by decreasing revenue, further eroding market share and heightening consumer concerns about buying a vehicle from a troubled automaker. According to GM executives, it takes 18 months to regain market share when a dealership closes, and that? a best-case scenario.
?Lost dealerships equal lost jobs and tax revenue.
Dealerships employ more than a million people in communities nationwide and generate 20% of domestic retail sales.
Forced reductions of dealerships by the White House task force also will have a devastating impact on dealership employees, local communities where dealerships operate, and state and local governments. If 3,600 dealerships are forced to close, our country will lose 190,000 jobs and annual tax revenue of more than $1.7 billion generated by those dealerships for the communities they serve. In OC, the economic impact from auto dealers is more than $8 billion a year. Among other things, it supports employment of 13,000 people who receive more than $1 billion in wages and benefits. Our dealers also generate more than $500 million in tax revenue annually with more than $60 million going directly to OC cities each year.
There is no question that in this economy?ith slumping car sales, sagging consumer confidence and tight credit?here has been a natural attrition of dealers. In fact, approximately 100 dealerships are closing each month due to the current challenges.
But it should be the invisible hand of the marketplace, not the heavy hand of the White House task force, manufacturers in Detroit or the bankruptcy court in Manhattan, that dictates which independently owned dealerships survive here or elsewhere.
It should be clear that automakers need dealers now and without the dealer? capable and enthusiastic support, one thing is certain: Chrysler will not emerge from bankruptcy and GM? efforts at rehabilitation will fail.
We need OC? congressional delegation to impress upon the president and the task force that eliminating dealers is not beneficial to the public interest and will surely undermine the automakers?and the economy? chances for recovery.
Sackrison is executive director of the Costa Mesa-based Orange County Automobile Dealers Association.
