CarBuyersNoteBook

Chrysler and General Motors are expected to announce car dealership closures in the coming days and many are awaiting the impact that this would have on local communities.

Chrysler has communicated to 789 of its 3188 dealerships that they will have to close by June 9. Most of the affected dealerships are located in densely populated areas where there are multiple Chrysler dealerships currently competing for the same business. It is estimated that approximately 38,000 people will lose their jobs. It is rumored that tomorrow, General Motors will announce 1,000-2,000 dealership closings.

Local communities who are losing dealerships will clearly see a rise in unemployment. Sales tax is often cited as another area of loss, but this is actually not an overall risk.

“Dealerships may be going away, but customers are not. In other words, when a dealership closes, its customer may buy a competitive product, or buy from another Chrysler dealership. The sales tax is still being paid. The risk for communities is that the tax may shift to a different town,” explained Edmunds.com CEO Jeremy Anwyl.

The closing of dealerships will change the competitive landscape for buyers. Currently, shoppers in saturated markets can essentially instigate “bidding wars” for their business, encouraging dealerships to undercut each others’ prices in competition for each car sale. With fewer dealerships in each area, that will become much harder to do, and buyers will pay more as a result.

Some people mistakenly believe that car companies will somehow save a significant amount of money by having fewer dealerships. In truth, there are only minor savings gained by cutting the regional staff and the streamlining of certain processes required to serve a smaller dealer body.

“As these dealers are more competitive against other brands, sales could increase, at least in theory,” commented Anwyl. “However, in practice, there is risk: One path to profitability for a dealer is through higher profit margins achieved by charging higher prices. As prices rise, other brands become more competitive and consumers may flee. In this way, dealerships may benefit, but manufacturers suffer further sales declines.”

“This move allows Chrysler to eliminate dealerships that did not embrace the opportunity to extend their franchises to include Dodge and Jeep vehicles, which are also owned by the Chrysler LLC parent company,” noted Edmunds’ AutoObserver.com Editor Michelle Krebs. “Chrysler didn’t play favorites in making the decision; a handful of the stores being closed are owned by well-connected industry ‘hot shots.’”

(Source) Press