Automakers' Speed Bumps Felt Locally
Wednesday, April 1, 2009
Washington area dealerships that sell General Motors and Chrysler vehicles have been trimming costs and reducing the number of cars on their lots for more than a year in expectation that the two American manufacturing icons might be forced into bankruptcy.
Dealerships said they have continued advertising in order to assure the public they will be in business, and at least one local dealer said a bankruptcy may hurt sales in the short-term but ultimately could have a positive effect.
"The bankruptcy would finally put an end to the speculation and let the healing begin for these two manufacturers so they can reorganize, shed excess costs, be more competitive with Japanese counterparts and start the road to recovery," said Abbas Khademi, a partner in the Ourisman Automotive Group, which owns 13 dealerships in the Washington region, including four Chevrolet and several Chrysler facilities. "In the short term, it would hurt sales because it would undermine consumer confidence."
President Obama on Monday announced that a swift, forced bankruptcy might be inevitable if the struggling companies cannot move to restructure their operations quickly enough. Both automakers have received billions of dollars in federal loans in past months and are seeking billions more.
Obama said he would give Chrysler 30 days and GM 60 days to figure out a way forward or would consider pushing them into bankruptcy as a condition for receiving federal bailout money. He urged Chrysler to finalize an alliance with the Italian automaker Fiat. And to reassure new-car buyers, Obama said that, should a bankruptcy occur, the federal government would back any service warranties.
Both GM's former chief executive, G. Richard Wagoner Jr. and Chrysler chief executive Robert L. Nardelli have argued against bankruptcy, saying it would create doubt in consumers' minds and hurt vehicle sales.
Jack Fitzgerald, who owns at least 10 local "auto malls," said he wasn't sure what effect bankruptcy might have, but it wouldn't be positive.
"There's no good news for anybody in a bankruptcy," Fitzgerald said. "We wrestled with this before when Chrysler was going to go bankrupt in 1979. If the government is going to guarantee the warranties on the cars, that will certainly make the cars more saleable that then would be otherwise."
Indeed, one of Fitzgerald's dealerships yesterday received a new vehicle warranty commitment from GM, stating that it would stand by the warranty service agreements on the cars in the event of a reorganization under bankruptcy laws.
"We have to educate customers on what reorganization means," said Tammy Darvish, vice president of Darcars Automotive Group, which has 26 dealerships in the region, including a Chevrolet and a Chrysler Dodge Jeep sales center in Silver Spring. "It's just like an airline. When they reorganize, they still fly every day, they still book customers, they still service their planes and they operate."
Depending on state law, even the best-prepared dealerships could be vulnerable to a bankruptcy if it allowed the manufacturers to void their contracts with certain dealers.
No dealer "is safe," said Jesse Toprak, an industry analyst with Edmunds.com, which specializes in consumer automotive information. "They are at the mercy of bankruptcy court. Some states have better franchise protections than others. It might be that the bankruptcy courts are going to cut dealerships, and in that case the trustee in charge will determine which ones will have to be cut. Those are going to be dealerships located in metropolitan areas because that's where there are other dealerships."
Others argue that healthy balance sheets would help sustain dealerships through further sales declines, making them less of a target to a bankruptcy court.
Darvish said she has halved the number of vehicles as the downturn has deepened and car sales have plunged. She has centralized the purchase of office supplies, Web services and other administrative costs.
"If a dealership is shut down, it's because of their inability to have enough capital to see them through the tough times, the ones who are not cash-stable," Darvish said. "The trustee would have no reason to close a dealership down if we are not an expense to the government or to the manufacturers."
Khademi said cuts at Ourisman have been big and small, from keeping fewer vehicles on the lots to downsizing the office cleaning crew from seven days a week to six.
"If it's not helping us sell a car," Khademi said, "we review the expense to see if we need it or not."