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Carmakers face questions about brands, dealerships
Thursday, December 04, 2008

The $34 billion bailout package the Big Three automakers are requesting from Congress includes the elimination of several brands, the closing of dealerships and an enhanced emphasis on hybrids and electric cars.

But industry observers caution that some tough questions could remain before the bailout package is approved.

For example, even after the number of dealerships is reduced, the Big Three still will operate far more dealerships than Toyota does -- and it has generally been a bigger sales success.

"There are three types of dealerships -- urban, suburban and rural," said David Cole, chairman of the Center for Automotive Research. "Those rural dealerships are added into the numbers, but those are dealerships that won't be consolidated. The primary ones that will be consolidated are in urban and suburban areas. If you take the rural dealers out of the picture, I don't think the numbers are that out of proportion."

Eliminating dealerships isn't without costs, he added. "In most cases, you have to buy them out. It cost GM almost a billion dollars to buy the Oldsmobile dealers out of their franchises when that brand was dropped."

General Motors says it will reduce its number of dealers from 6,450 today to 4,700 by 2012. Ford now has about 4,000 dealers, and Chrysler has about 3,300. Toyota has fewer than 2,000 car dealers. Toyota dealers, on average, sold 1,628 vehicles last year, according to a Grant Thornton study, while the average for all new car dealers was 322.

Even dropping brands isn't that easy, Mr. Cole said.

"Look at Mercury. People say 'Drop Mercury, drop Mercury.' Well, Mercury is allied with Lincoln dealers, and so if you take Mercury away, that takes away volume from Lincoln dealers. And the cost of developing Mercuries is zip because it is a derivative of Ford.," he said.

Another consideration, he said, is plant capacity. Building closely identical cars in a plant makes the best use of a factory without a loss of capacity.

GM's bailout request was by far the largest, at $18 billion, which includes $12 billion in loans, and an additional $6 billion in an emergency line of credit if economic conditions continue to worsen.

Chrysler wants $7 billion in loan money, and Ford, which is in better financial shape than the other two companies, wants a $9 billion line of government credit that it can use if the economy gets worse.

As of now, the Big Three sell 112 unique trucks and cars under 15 brand names in the United States, while Nissan, Honda and Toyota have 58 models with only seven nameplates.

GM's restructuring plan includes selling Saab and eliminating Pontiac, except for a few niche models. That suggests that only the highly acclaimed G8 performance sedan and Solstice sports coupe and roadster would continue in production, and the G6, Torrent, G5 and Vibe would be dropped. The future of the Saturn brand has yet to be determined. It could be sold or dropped completely.

Chrysler provided far fewer details about its future product portfolio in the public version of its plan than GM did.

Ford plans to move from having only 48 percent of its vehicle portfolio made up of cars and crossovers last year to 60 percent in 2010.

Ford also plans to produce two battery-powered electric vehicles in 2011, a year after GM produces its plug-in hybrid Chevy Colt.

Don Hammonds can be reached at dhammonds@post-gazette.com or 412-263-1538.
First published on December 4, 2008 at 12:00 am