The double-digit decline in auto sales has been a disaster for carmakers—but it has been especially nightmarish for the dealerships. At Chrysler, U.S. sales are down so much (53 per cent last month) its dealerships are barely managing to sell a car a day, on average. Things are starting to look a bit like the auto industry version of Glengarry Glen Ross.
Dealer profits have actually been falling for some time now. In 2007, they dropped to $1.1 billion in Canada, from a high of $1.6 billion in 2004, according to a report last year by DesRosiers Automotive Consultants. The problem now is two-fold: not only are people reluctant to buy cars in these dark economic days, but the credit crunch has made financing hard to find even if they want to buy.
Last year, GM and Chrysler were both forced to halt their leasing programs, and lending is harder to come by too. It’s having a huge impact, says industry analyst Dennis DesRosiers, because “85 to 90 per cent of vehicles are bought with a debt instrument.” Andrew Lennox, director of sales at Roy Foss Motors, a GM dealership in Thornhill, Ont., says the lack of a leasing option “has impacted our ability to sell vehicles, but how much is the unknown quantity.”
The auto industry says that’s why the government bailouts, which now total about $20 billion, are so crucial. They’re needed not just to reorganize the car companies, but to extend credit to consumers. The hope is that once consumers again have access to easy credit, they’ll start buying.
The silver lining for dealers is that manufacturers are now resorting to hefty incentives to lure reluctant car buyers. Such deals reduce the carmakers’ profits, but don’t hurt the dealer markup, says Lennox. “I’ve been in the business 20 years and have never seen incentives as good as they’ve been,” he says. “The deals have never been better.”