Detroit automakers have struggled for years to right-size their dealership networks to match their market share. Experts estimate they need to eliminate 20-70% of dealerships to align with Japanese rivals, but state franchise laws, contracts, and dealers' unwillingness to close make this difficult. Automakers are trying strategies like encouraging dealership mergers and acquisitions, but making dealers unprofitable and hoping they fail is a slow process that angers customers and dealers. A buyout program was tried once before but was very expensive and legally complicated. Most experts agree that substantial dealership reductions are still needed, but will take a long time given legal and practical challenges.

1. KC M Y
10A MONDAY, JUNE 18, 2007 N DETROIT FREE PRESS | WWW.FREEP.COMDEALERSHIP OVERLOAD
For years, Detroit’s auto-
makers have struggled to re-
shape their dealership network
to match their retail stores with
their market share.
Experts say Detroit’s auto-
makers need to shed thousands
of dealerships — with esti-
mates ranging from 20% to 70%
— to get the stores on par with
their Japanese rivals.
But given the complications
of state franchise laws, dealer
contracts and the will of many
dealers to stay in business, the
path is neither fast nor easy.
“We’re going to migrate
there as aggressively as we
can … working out every deal,
one at a time,” said Joseph
Chrzanowski, General Motors
Corp.’s executive director of
dealer network planning and
investments.
Last year, GM, Ford Motor
Co. and the Chrysler Group re-
duced just 322 franchises, or 2%
of their locations. But without
paying the dealerships to go out
of business, it’s difficult to see
how they can go faster.
Every time a dealership fails
financially or an owner retires,
automakers have an opportuni-
ty to eliminate one.
But most retiring owners
want to sell the business they
spent years developing. Since
automakers have some right to
approve a franchise transfer,
they can sometimes force a
store to go out of business by
blocking the sale.
In the past, some dealers
sued over this tactic, saying
they had the right to sell. Now,
many states have placed limits
on the discretion automakers
have in granting or denying
transfers, said Richard Sox, a
Florida-based attorney who
represents auto dealers.
So automakers are trying to
reduce stores by getting deal-
ers to buy each other out and
merge complimentary brands
under one roof. Today, GM is
merging Buick, Pontiac and
GMC under one roof, as well as
its Cadillac, Hummer and Saab
franchises. Chrysler is merging
Chrysler, Dodge and Jeep
stores. And Ford is now merg-
ing many Ford, Lincoln and
Mercury outlets.
But some dealers have been
trying for years to get the com-
plementary brand nearby to
sell to them, with little hope
that will happen. Many dealers
just don’t want to sell, no mat-
ter how tough the market.
Joe Serra, a Michigan mega-
dealer who owns 33 franchises,
has been working for at least
five years to buy a Dodge store
for his Chrysler-Jeep store in
Jackson, Tenn., but “it’s not go-
ing to happen,” he said.
A buyout program, in which
dealers are offered a lump sum
to quit, seems like one of the on-
ly ways to get around the issue
of too many dealerships. But
nobody’s attempted one since
GM announced it would elimi-
nate Oldsmobile in 2000.
GM established a formula
for buying out more than 2,800
stores, and it showed how ex-
pensive and complicated that
could be. While most of the
Oldsmobile dealers took the
standard offer, hundreds of
dealers sued under state fran-
chise laws, entangling GM in
years of negotiations.
In 2001, GM reported that
the phaseout of Oldsmobile
cost $939 million, including
$583 million set aside for future
payments to dealerships.
Bill Stacy, GM’s director of
strategic operations in dealer
network planning and invest-
ments, would not say whether
the cost to eliminate those
stores was more than expected,
but “it was a difficult thing to
implement,” he said.
Considering that dealer-
ships are worth about $2 mil-
lion apiece, it could cost up to
$13 billion to get rid of 6,600
dealerships, the number that
would have to fold to leave De-
troit automakers with a healthy
average of 1,000 sales per store.
Some dealers say they think
Detroit’s automakers are wait-
ing for many of them to go out of
business, an option that doesn’t
cost money but has a price as
consumers snub stores.
“They’re making us die on
the vine,” said John Santilli,
who owns import and domestic
franchises near Boston.
Many of these dealers think
U.S. automakers are picking
some dealerships as winners
they want to keep and giving
them favorable treatment, such
as ample supplies of hot vehi-
cles. That leaves the others as
losers more likely to fold.
But it would take a long time
to right the retail networks.
“Dealers are very proud peo-
ple,” Sox said, “and they will
lose money for many, many
months before they will bring
themselves to having to close
their doors.”
And the National Automo-
bile Dealers Association is
throwing its members a lifeline
through its “Every Dealer Mat-
ters” campaign.
A traveling workshop teach-
es dealers how to stay afloat in
tough times, such as focusing
on used-car sales and parts and
service operations, which can
help them survive for years
even when new-car sales suffer.
The group doesn’t want to
lose members, it wants the au-
tomakers to make them
healthy. Or as Chairman Dale
Willey told the Free Press:
“We’re not over-dealered,
we’re under-profited.”
Contact SARAH A. WEBSTER at
swebster@freepress.com.
FIXING THE PROBLEM
Many obstacles hinder closing shopsContracts, state
laws and owners
can slow process
By SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
May photo by HUGH GRANNUM/Detroit Free Press
General Motors Corp. executives Joseph Chrzanowski, left, and Bill Stacy discuss GM’s dealer network at GM’s
Detroit headquarters. GM will be “working out every deal, one at a time” with dealers, Chrzanowski said.
PATRICIA BECK/Detroit Free Press
Joe Serra,
president of
Serra Automo-
tive, has spent at
least five years
trying to buy a
Dodge store for
his Chrysler-Jeep
store in Jackson,
Tenn., even
though it’s un-
likely to happen.
Nearly from their inception
a century ago, automakers rec-
ognized they could not afford to
invest in a massive distribution
system for their vehicles when
they were spending so much of
their money on developing and
manufacturing cars.
So the automakers adopted
a franchise system, in which
they would give licenses to sell
their products to entrepre-
neurs who were willing to make
the investments in land, facili-
ties and people needed to sell
vehicles.
Many of those first contracts
signed about a century ago
went to businessmen who also
sold bicycles, horse buggies or
farm equipment.
Because automakers record
their auto sales when their ve-
hicles are delivered to the deal-
ership — not when they are sold
to a customer — Detroit auto-
makers built a system that cen-
tered on manufacturing as ma-
ny cars as possible to send to as
many dealers as possible. That
so-called push system has
proved to be a problem today.
Under those early franchise
agreements, automakers could
dump more cars on dealers
than dealers wanted and termi-
nate franchises at will, a situa-
tion that encouraged dealers to
try to sell the vehicles rather
than complain.
“A lot of vehicles were
forced out there,” said Jim
Moors, director of franchising
and state law at the National
Automobile Dealers Associa-
tion, or NADA.
And automakers started
ambitiously adding dealer
showrooms across the United
States in an effort to distribute
their products to every city,
town and neighborhood.
But by adding so many deal-
ers who sold the same brands,
often in close proximity to one
another, Detroit automakers
were often causing hardships
for the dealers. Since their busi-
nesses required so much capi-
tal to get started, many dealers
couldn’t handle the intense
competition on top of the high
costs, and many folded.
In the early 1950s following
the Korean War, the situation
reached a boiling point. A re-
cession caused customer sales
to drop by 2.5 million vehicles,
but automakers kept forcing
unneeded cars on dealers,
pushing many into bankruptcy,
according to AutoExec maga-
zine.
Four years later, with the
help of NADA, dealers persuad-
ed Congress to enact the Deal-
er’s Day in Court law, which
gave dealers some of their first
protections against automak-
ers. For example, they could
sue automakers over contract
disputes or for termination of a
franchise.
But dealers were not satis-
fied with the legislation, taking
their cause to state legislatures
across America. All 50 states
now have laws governing auto
franchises, Moors said, and the
laws regulate the addition and
termination of franchises.
Under those laws, General
Motors Corp., Ford Motor Co.
and the Chrysler Group “don’t
have the ability to unilaterally
terminate a franchise simply
because they want to,” Moors
said.
Jack Kain, a central Ken-
tucky dealer who was chairman
of the NADA in 2005, added:
“The dealers are well protected
by NADA and their state asso-
ciations — and I mean really
protected.”
Joseph Chrzanowski, GM’s
executive director of dealer
network planning and invest-
ments, said those laws are just
one of many challenging obsta-
cles Detroit faces in its effort to
restructure its dealer network.
“If we were able to go in
there and work with dealers
without constraints of the state
statutes,” he said. “We could
work through those issues in a
more efficient manner.”
Contact SARAH A. WEBSTER at
313-222-5394 or
swebster@freepress.com.
LEGAL ISSUES
Automakers’ past
success hurts today
Push to expand
created obstacles
By SARAH A. WEBSTER
FREE PRESS BUSINESS WRITER
On freep.com: What dealers
have to say about
overcrowding.
For Tamaroff Buick in
Southfield, that meant selling
the flagship family franchise in
April to dealer Art Moran, who
has long had the Pontiac and
GMC dealership across the
street.
In a heartfelt letter on the
company Web site, Marvin Ta-
maroff, 81, wrote to his custom-
ers: “In this unfortunate age of
brand consolidation, it’s no se-
cret that the domestic automo-
bile industry is struggling to
survive and the factory has
forced its dealers to make some
difficult decisions. … I am eter-
nally grateful to each and every
one of you, my Buick custom-
ers, for 38 years of business and
loyalty.”
In an interview, Marvin’s
son, Jeffrey, said the family did
not want to sell the store, but it
decided there was no choice.
In recent years, GM added
with a fraction of the new vehi-
cles to sell, Garber acknowl-
edged. So far, he hasn’t been
able to acquire a GMC or Ponti-
ac franchise.
“It’s bad for us, but it’s the
right thing probably to do for
General Motors,” Garber said.
For now, he plans to do what
is necessary to keep his store vi-
brant, just as his father and
grandfather did. That includes
boosting his used-car sales and
parts and service business,
which could keep his store prof-
itable for years.
“We think our best days are
ahead of us,” he said.
Letting go
Trying to remove emotion
from the deliberations on a
long-held family store is diffi-
cult, but some dealers are doing
it the best they can and making
tough choices.
Gerard Schmid, the late
founder’s son, owns the store
with his 77-year-old mother,
Audrey. About 70 employees
work there, including Gerard’s
twin sister, Gail, brother, Ed,
and a handful of other relatives.
Today, Gerard sits in the office
that belonged to his dad, who
died seven years ago. Like
Daoud, he can’t imagine ever
selling or closing.
“I started when I was 12,” he
said. “It’s what I do.”
The generations who run
family-owned dealerships to-
day weren’t bred to quit.
Most dealer families in busi-
ness today survived Detroit’s
down cycles of the past. Their
guiding principle, and often
their family legacy, is that hard
work and resilience pay off.
Even though many dealers
readily admit that a downsizing
is necessary, few want their
stores to be eliminated.
“We want to be here forever,
if we possibly can,” said Jack
Kain, who has owned Jack Kain
Ford outside of Lexington, Ky.,
for 50 years. “I have a genera-
tion of my kids who really want
to take the reins.”
The family legacy
Some family dealers are try-
ing to prepare for the difficult
choices they might face in the
future.
Dick Garber runs Garber
Buick in Saginaw, which was
founded by his grandfather,
Guy, 100 years ago. It’s one of a
growing list of Detroit-brand
dealerships that are celebrat-
ing centennials, and Garber
said it’s difficult to express the
store’s value to his family.
“I have a 12-year-old son
whose dream when he grows up
is … to run Garber Buick,” he
said.
Garber understands that
Detroit’s automakers need to
consolidate dealers, and he
knows his family’s stand-alone
Buick store might be vulnera-
ble in the future, even though
it’s healthy today.
GM has adopted a strategy
to combine the Buick, Pontiac
and GMC brands into single
dealerships across America. So
it’s streamlining the lineup of
vehicles each brand offers so
they will complement one an-
other in one showroom.
That means stores left with
just one or two of the brands,
like Garber Buick, will likely
have a tough time surviving
three Buick franchises in metro
Detroit to round out its Buick-
Pontiac-GMC concept, which
put pressure on the Tamaroffs
to either buy Moran’s franchis-
es or sell their Buick franchise.
Then, there were the num-
bers. In 1985, Tamaroff Buick
sold about 4,000 vehicles. Last
year, it sold 475.
“You have to make the best
business decision,” Jeffrey Ta-
maroff said.
And so the Tamaroffs let go
— just like Erika Thomas is do-
ing in Cuyahoga Falls, Ohio.
She started working in the
Thomas Chrysler-Jeep store
founded by her grandfather
when she was 10 by scrubbing
floors.
Her father, Tim, ran the
store while she worked in New
York as an actress. He told her
to sell the store if he died. But in
2004, when that happened, she
took over the business. In May,
she agreed to sell it to Falls
Chrysler-Jeep, less than 5 miles
away.
Rather than be sad about it,
Erika Thomas said she is proud
and thinks her father would be,
too.
“I think he would have been
shocked to his boots to know
that we ran that company for
three more years,” she said.
“And I think he’d be proud we
sold it to a good company that’s
going to take good care of his
customers and our employees.”
Contact SARAH A. WEBSTER at
313-222-5394 or
swebster@freepress.com.
DEALERS R Closing often means end to family legacy
From Page 1A
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75
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75
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275
696 696
94
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94
75
96
153
102 102
14
3
1
3
29
59
53
19
24
59
15
24
24
24
97
12
10
24
Lake
St. Clair
WEST
BLOOMFIELD
NOVI WARREN
MACOMB COUNTY
OAKLAND COUNTY
10 miles
DETROIT
LIVONIA
PONTIAC
DEARBORN
CLINTON
TWP.
TRENTON
Ford is the best-selling brand in metro Detroit, with 20% of the market
share last year. But dealers still say that there are too many Ford dealers
in the area, many located just a few miles apart. For instance, here are
the locations of the members of the Metro Detroit Ford Dealers
association. There are almost two dozen other Ford dealerships in the
tri-county area.
1
3
4
5
6
7 8
9
2
10
11
12
13
14
15
16
17
18
22
23
24
25
26
27
28
19
29
20
21
A flurry of Ford dealerships
Sources: R.L. Polk & Co.; research by SARAH A. WEBSTER/Detroit Free Press KOFI MYLER/Detroit Free Press
94
94
59
1
23
24
75
75
96
1. Al Long Ford
2. Avis Ford
3. Bill Brown Ford
4. Blackwell Ford
5. Bob Maxey Ford
6. Bob Thibodeau Ford
7. Dean Sellers Ford
8. Dorian Ford
9. Ed Schmid Ford
10. Elder Ford
11. Fairlane Ford
12. Gorno Ford
13. Huntington Ford
14. Jack Demmer Ford
15. Jorgensen Ford
16. North Brothers Ford
17. Pat Milliken Ford
18. Roy O'Brien Ford
19. Royal Oak Ford
20. Russ Milne Ford
21. Southgate Ford
22. Stark Hickey Ford
23. Suburban Ford of Sterling
Heights
24. Suburban Ford of Waterford
25. Superior Ford: Flat Rock
26. Taylor Ford
27. Tom Holzer Ford
28. Village Ford
29. Wolverine Ford Truck Sales
WAYNE
COUNTY
STEVEN SIMPKINS/Special to the Free Press
Richard Garber’s family has run
this Saginaw dealership for 100
years. “I have a 12-year-old son
whose dream when he grows up
is … to run Garber Buick,” he said.