• by Karl Greenberg , October 7, 2008

Plummeting car sales are putting a vice on car dealerships, of which there are some 20,000 in the United States.

 

Edmunds.com says auto dealers, who make up 18% of total U.S. retail sales, are suffering with a 25% decline in profits. Also, per the firm, which measured dealership profitability during the summer months, 30% of dealers saw new-vehicle sales drop from 55 in 2007 to fewer than 55 this year.

And of the 70% of dealers who reported a drop in total gross margin this year, 28% lost more than half of their gross margin.

"This year's double-whammy of economic shocks--explosive gasoline prices that stunned consumers, followed by the current financial crisis that is constricting credit at every level--has already begun culling out U.S. car dealerships at a rate far faster than General Motors, Ford and Chrysler brain trusts could even dream was possible by their methods," said Dale Buss of Edmunds' AutoObserver.com in a release.

Michelle Krebs, senior industry editor at Edmunds' Auto Observer, agrees that the Big Three need to reduce their dealership numbers. "They have way too many dealers for their sales and as painful as it is and as bloody as it is, this is much faster than [the automakers] can do it alone," she tells Marketing Daily-- adding that before property values declined, dealers were disinclined to consolidate with other dealers. "Now they want to but they are having trouble getting the credit lines to do it."

Krebs says during this summer versus last, Honda, Mini, Subaru and Jaguar were the most profitable dealers. "Subaru is a sleeper; they are having an awesome year. In fact, September was the first time their sales dipped."

Hummer, Volvo, Saab, Acura, Jeep, and Land Rover are among the least profitable dealers--those who have lost 40% of gross margins, per Krebs. In the middle--with 25% to 40% of gross margins lost--are GMC, Porsche, Cadillac, which has been selling with large incentives, and Mitsubishi. Krebs says Lexus is also suffering. "They have seen sales drop all year," she says.