Report Shows 2009 U.S. Auto Dealership Closure Rate the Highest Since the 1950s

A new report from Urban Science consulting firm finds that 2009 has been the worst year for U.S. auto dealerships closures since the 1950s.

According to the report, a total of 1,476 domestic auto dealers closed during the first 10 months of the year. Urban Science, which provides retail consulting services to automotive manufacturers, says that the number of viable U.S. auto dealerships is now at 18,617 but that an additional 200 closures are likely by year’s end.

The firm says that the decline of 7.3% is the worst, both in terms of the number of closed dealerships and in terms of the percentage of dealerships to shutter their businesses. Historically, the annual attrition rate for auto dealers has been about 1%.

According to the firm’s vice president of retail channel solutions, John Frith, Almost 90% of the closures were General Motors and Chrysler closures.

This past June brought the closure of 789 Chrysler stores as a condition of the automaker’s federally-backed bankruptcy restructuring.

As General Motors prepared to enter bankruptcy, notice was given to 1,350 of its dealers that they, too, would be stripped of their franchises no later than October 31, 2010. GM also called for the closure of its Saturn dealership network when Penske withdrew from acquisition talks last September. At that time the Saturn dealer network included 350 stores located throughout the country.

Automotive industry publisher, Automotive News, confirmed that dealership closures for this year exceed those reported in its annual dealership count dating back to 1957. Prior to that year, Automotive News did not include foreign auto dealerships in its annual surveys. In 1956 the publication reported a 7.4% decrease in the number of domestic auto dealers in the U.S.

The Urban Science report also finds that average sales for the remaining dealerships have also fallen in 2009 to its lowest level in 27 years. In 2007, domestic auto dealers averaged 771 sales annually. Average sales for 2008 dropped to 660 units. This year, that at number has fallen again to 551.

From year-end 2007 through the projected year-end totals for this year, domestic auto sales will have declined by 37%. According to Urban Science, that’s the most severe two-year decline in the past 50 years.

Frith is confident that sales will rebound, but he doesn’t expect the turn-around to be quick or easy. He says it’s essential for automakers and their dealers to work closely together to reach a broader audience with fewer resources. Mutual profitability, he says, must be their common goals and he warns, Just reducing the dealer network doesn’t help.

Despite the cautionary note, Frith expects to see further closures beyond the planned closings announced by Chrysler and GM. However, he also remains confident that annual dealership closure rates will eventually return to around 1%.

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