Car dealers face troubles together

AVON, Ind. (AP) - No customer voices competed with the harmony of "Silly Love Songs" flowing from the showroom speakers at Danville Chrysler Dodge Jeep.

A competitor's blue-cross emblem beckoned through the windows from the dealership across the street. But Dugan Chevrolet Pontiac didn't see many customers on that lazy afternoon either.

Downtime like this has become more common for the two suburban Indianapolis dealerships, which have waged a friendly competition for more than 40 years. Their sales have slid, their inventories are down, and now they both face dire warnings that their carmakers may not survive past this year without a government bailout.

"You feel for the guy across the street, the same as you do yourself," said Danville Chrysler co-owner Gary Houser.

General Motors Corp. and Chrysler LLC say they burned through a combined $34.6 billion of cash in the first nine months of this year, as U.S. auto sales have plummeted to the lowest level in more than 25 years.

Both dealerships' owners have seen the downturn firsthand, and they've shared plenty of grief as frozen credit markets have made it harder for customers with average or poor credit to buy. Those with good credit are worried about the economy and curbing their spending. Tougher terms and higher rates also have hampered the financing dealers use to stock their lots.

GM said its sales last month, if adjusted for population growth, were the worst since World War II.

"It's nuclear winter," said Sheldon Sandler, managing director of Bel Air Partners, a New Jersey investment firm that advises car dealers. "There's absolutely nothing going right."

Dugan Chevrolet used to carry about 450 new and used vehicles on its lot. Now, its down to between 250 and 275, said co-owner J.R. Dugan.

"I would say over the last two years, our sales have declined over 60 percent," he said.

Danville Chrysler spent several million dollars building a new home across busy U.S. 36 from Dugan. The dealership moved to the corner lot in January, when rising gas prices and weakening consumer confidence started pulling sales toward today's abysmal levels.

"I don't see how they stay in business myself," Avon resident Jeff Rhodes said as he and some golfing buddies ate lunch at a nearby Wendy's restaurant. "I don't see 'em selling many cars, I really don't."

Houser said slow sales have forced him to trim inventory on his Chrysler lot and have strained his cash reserves.

"Our sales are not anywhere where we would like them to be, but it's not dead," he said.

The surge in pump prices, which peaked above $4 a gallon in July, pinched dealers as demand spiked for smaller, fuel-efficient cars and created inventory mismatches. Some dealers reported having a seven-day supply of the Toyota Prius when they should have had a 60-day supply. Meanwhile, SUVs were piling up and quickly losing value.

"Nobody did well in this marketplace where consumer sentiment had shifted so dramatically in just a few months," said Paul Taylor, chief economist for the National Automobile Dealers Association, which represents about 92 percent of U.S. car dealers.

But dealers started facing pressure before they saw that sentiment shift. Chrysler owner Cerberus Capital Management LP has been pushing single-brand dealers to consolidate. GM and Ford Motor Co. also want dealers to merge for efficiency's sake.

"The domestics have been trying to figure out how to thin the ranks of the dealers that they think aren't carrying the flag well or underperforming," Sandler said.

Earlier this fall, the weak economy helped force the largest Chevrolet dealer in the country, Bill Heard Enterprises Inc., to close its 13 remaining dealerships.

All told, the auto dealers association expects as many as 900 franchised new car dealerships to close this year, while about 200 open. The net result of about 700 fewer dealers would rank close to the sum from 1991, the middle of the last recession. Next year, the association forecasts as many as 900 net closings.

"This is a draconian way of clearing out some of the weaker players," Sandler said. "But when you do, and the economy turns back to stability ... the surviving dealers are going to be stronger and more stable."

Those that have survived so far are cutting as many corners as they can.

Houser has scaled back advertising and community sponsorships. He froze wages and decided to have an employee wash windows instead paying a contractor $800 to do it.

Dugan Chevrolet also adopted the do-it-yourself theme.

"We're anywhere from emptying our own trash cans to mopping the floor when we need to," J.R. Dugan said.

His dealership has cut its staff in half over the last three years, trimming from 102 employees to 48. Last month, it laid off nine people.

Houser has added more fuel-efficient cars like the Jeep Patriot and Dodge Caliber to his inventory. He also joined other Chrysler dealers in e-mailing Congress to support the Detroit Three automakers' request for $25 billion in federal loans to