Car dealers -- sponsors of Little League, fixtures of Main Street, vibrant symbols of the American entrepreneurial dream -- could now prove to be the biggest threat to the future of the very industry they built.
For much of the last century, in exchange for selling Detroit's new models and providing a public face to distant industrial giants, dealers were richly rewarded with a steady, lucrative business and received community respect.
Now, with the industry in crisis, it's clear that there are too many outlets for the two most desperate carmakers, General Motors Corp. and Chrysler, economists and industry analysts agree.
Thinning the dealer ranks -- there are now about 9,500 locations combined for the two companies -- is key to cutting the two automakers' costs, helping to ensure that those dealers that do survive are more profitable and provide better service.
Car manufacturers don't own their dealerships. Instead, they grant franchises to businesses that buy vehicles at wholesale prices and mark them up for sale to the public, keeping the difference.
Although even some dealers concede that there are too many car lots, the trade has been profitable enough over the years that few are willing to give up their own franchises.
Contracts with dealers, meanwhile, make it nearly impossible for automakers to simply put these independent business owners out of commission, the way they can lay off employees.
"We think the marketplace should determine which dealers stay in business," said John McEleney, chairman of the national dealers association and owner of GM, Toyota and Hyundai dealerships in Iowa.
In fact, the market is forcing some contraction. The National Automobile Dealers Assn. said this week that 271 dealerships closed up shop in the first quarter alone, victims of the brutal slump in car sales. But experts say attrition isn't happening fast enough.
"A lot more people are going to have to pay this price," said Tom Marx, a business professor at Lawrence Technical Institute and former GM economist.
Last year, roughly 1,000 dealerships closed nationwide, about 680 of which were under GM or Chrysler flags. The national dealers group expects an additional 900 dealerships to close by year-end.
Toyota Motor Corp. has only about 1,400 dealers nationwide, compared with about 6,200 for GM, despite the fact that the Japanese automaker sells nearly the same number of cars. Honda Motor Co., with sales rivaling Chrysler's, has fewer than half as many dealers.
That means the average GM and Chrysler dealership sells fewer cars, has smaller profit margins and can't afford to invest as much in showrooms and customer service as its Japanese rivals, which experts say leaves a bad impression about the American brands on consumers.
GM, in the restructuring plan submitted to the government in February, said it hoped to reduce to 5,750 dealers by year's end and 4,100 by 2014. Chrysler, which has about 3,300 dealers, said it too planned to reduce the number, though it did not specify by how much. Its plan said 27% of its dealers were in financial distress.
Ford Motor Co., the third of Detroit's Big Threeis also working to reduce its roughly 4,000 dealers, but it has not received a U.S. bailout and is not under pressure to make such cuts.
The possibility of bankruptcy looms for GM and Chrysler after President Obama rejected their latest financing requests last month and sent them back to the negotiating table. Reducing billions of dollars in obligations to debt holders and unions was singled out as the most immediate goal, and the administration has been working intensively with the automakers to help work out a deal.
Yet the administration has also strongly urged the automakers to come to terms with dealers. And with their coffers all but drained, they have never been less prepared to make their most loyal partners a reasonable offer to get out of the business of selling cars.
State franchise laws make it difficult and expensive for a carmaker to shut down dealers unless they fold on their own -- or the carmaker files for bankruptcy protection. With little leverage and the clock ticking, GM and Chrysler must find a way to navigate the complicated economics of the American car dealer.
"GM and Chrysler have this mandate to get rid of dealers, but the costs and complexity involved are mind-boggling," said Randy Berlin, practice director at Urban Science, which tracks auto dealers. "Bankruptcy might be the only way."
In its assessment of the automakers' situation, the Obama administration's autos task force said that "pruning" of dealers by GM and Chrysler wasn't going far enough. The administration didn't give specific targets, but GM Interim Chairman Kent Kresa said the message was clear: "The government wants it to happen faster than we had planned."
