December 7, 2008 / 1:19 PM / 11 years ago

Car dealers hit hard by Detroit's uncertainty

DETROIT (Reuters) - As lawmakers and the White House close in on a deal to extend aid to U.S. automakers, concerns about the survival of the companies and their brands are compounding problems for their cash-strapped dealers.

A General Motors car dealership is seen in Roslyn, New York November 19, 2008. REUTERS/Shannon Stapleton

General Motors Corp’s decision to sell its Saab and Hummer SUV lines has their dealers fearing they will be stuck with part of the cost when showroom traffic and sales are vanishing in a recession-mired economy.

“Dealers are loaded with inventory. What are we going to do with that?” said Raymond Ciccolo, who has GM dealerships including Saab and Hummer in Boston.

Ciccolo said he has an inventory of Saab vehicles worth $10 million that could take a year and a half to clear.

“I’m just hoping that between now and when they finally sell it, they are going to come up with something to help us clear inventory, encourage consumers,” Ciccolo said.

Between them, GM, Ford Motor Co, and Chrysler have nearly 13,550 dealerships scattered across the United States, independent businesses run by franchise.

More than 90 percent of them are privately owned, and the average dealer depends on financing to be able to park nearly $5 million in new cars and SUVs on a lot.

But the slowing economy and tight credit have pushed U.S. auto sales to near 26-year lows, threatening the survival of hundreds of dealerships.

The risk of a bankruptcy by GM and Chrysler has also scared off buyers, and the prospect that several of Detroit’s car brands may soon go away is adding to the uncertainty for shoppers, analysts and dealers say.

‘CONSUMERS ARE VERY SPOOKED’

“What the dealers are dealing with right now is that consumers are very spooked,” said James Ziegler, an auto dealer consultant based in Atlanta.

GM has said it will turn Pontiac into a niche brand with just a few vehicles, as it concentrates on just four brands: Chevrolet, Cadillac, GMC and Buick.

It also will negotiate with its 400 Saturn dealers about scrapping that line of cars and crossovers despite investing heavily in an attempt to turn it around in recent years.

Talks between GM and Saturn dealers could prove costly. GM’s decision to eliminate the Oldsmobile brand in 2000 cost it an estimated $2 billion in dealer payouts.

“I certainly believe that any time when there is this kind of information out there and bad news, it’s going to affect sales,” said Carl Galeana, a Saturn dealer based in Warren, Michigan.

“There’s no definitive answer yet to what they’re going to do with Saturn,” Galeana said. “It’s also clear to me when you’re looking for money from Washington and you provide a plan, that’s just a plan and the action takes place later. More time to think things out. That’s my hope.”

The U.S. automakers have collectively asked for $34 billion in aid. GM and Chrysler say they need loans immediately.

Ford, considered the strongest of the three, has asked for a standby credit in case either of its rivals fail. Ford is also considering a sale of its Volvo luxury car brand after selling its Jaguar and Land Rover brands earlier this year.

Despite the severe downturn, dealers in some markets say they are managing to eke out profits.

Alan Helfman of River Oaks Chrysler Jeep in Houston said his dealership would be profitable this year with revenue from servicing cars and SUVs offsetting a decline in new car sales.

“There is a little bit of a tight squeeze right now,” Helfman said. “It is a little tougher to get the marginal customer.”

Editing by Xavier Briand

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