Dealership Consolidation

Dealerships nationwide are feeling the pinch of slow vehicle sales and tightening access to credit. Quite a few have been deactivated from lender rosters, making it tougher for them to find funding for their customers.

The National Automobile Dealers Association expects consolidation of 500 to 800 dealerships this year — recession-level closures, said Paul Taylor, the organization’s chief economist. Currently, there are 21,700 franchise new-car dealers in the U.S.

What does this mean for lenders? I’m guessing that at least some of the consolidation will be good for the industry. If vehicles sales volume is expected to fall to about 14 million vehicles per year from 16 million, it only makes sense for the number of dealerships to drop off, too.

And with lenders taking a harder look at their dealer-customers, only those with strong performance will withstand the cuts. Lenders will improve their profitability per dealer, which should bolster their bottom lines.

Also, with fewer dealers in their networks, lenders’ field reps may start to offer better service — products more in line with consumer demand. The dialogue between lenders and dealers might improve too, further strengthening their relationship.

What do you think? Weigh in with your thoughts by posting a comment below.