According to a forecast released on Wednesday, as many as 3,800 U.S. car dealerships could fail this fall and into 2009 because of weak sales, increased operational costs and the credit crunch.
Paul Melville is a partner with Grant Thornton LLP, the company that issued the forecast, and he says that many dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines.
Melville also
said that the domestic automakers who badly need retail consolidation are not spending much of their scarce capital on the problem because the economy is doing it for them.
On Sunday one of the biggest General Motors Corp Chevrolet dealerships, Bill Heard Enterprises Inc., filed for bankruptcy because of decreased demand for vehicles and lack of credit.
According to the bankruptcy filing, Heard's revenue was about $2.5 billion per year when it was at its peak.
U.S. light vehicle sales are predicted to drop to the 13.7-million-unit range in 2009, according to the study, and that means that about 3,800 dealerships will need to close.
Next year U.S. vehicle sales are expected to be flat with any recovery in demand expected only in 2010, as consumers struggle with high gasoline prices, a housing slump and tight credit.
Automakers GM, Ford Motor Co and Chrysler LLC. are being hit hard because of the drop in demand. GM's sales were down 18.5 percent in the first eight months of 2008 while Ford's sales went down 16 percent and sales at Chrysler dropped 24 percent.
Thornton said that other sources of revenue for dealers, such as used car sales and financing profits, are also failing, apart from new car sales.
Nearly 1 in 5 car dealerships could fail: study
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