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For many auto dealers, the wheels are falling off

In a can-you-top-this tone, AutoNation CEO Mike Jackson tells the story of a "good customer" at one of his 317 auto dealerships, a regular with a healthy 680 credit score who likes to lease his cars. Only this time, the bank said no.

"The guy says to the bank, 'I'll write you a check right now for the whole four years of the lease,' but the bank still said no," says a frustrated Jackson. His Fort Lauderdale company — the largest auto retailer nationwide — operates as AutoWay in a Tampa Bay market that's been especially hard hit by weak sales. "Banks are looking for every excuse in the world to say no."

Anecdotes — some might call them eulogies — like this one from stressing car dealers and auto executives are the coin of the gloomy auto realm these days. As someone roaming used car lots looking for a deal this past month, I can vouch firsthand: It's very quiet out there.

Last month's sudden shutdown of the so-called "Mr. Big Volume" Bill Heard Enterprises caught a lot of industry folks off-guard. The Chapter 11 bankruptcy of one of the nation's largest Chevrolet dealers with 14 Chevy dealerships, including one in Plant City, sent a shiver through many auto dealers. The economic ice of making and selling vehicles just keeps getting thinner.

About 3,200 people were put out of work when the Heard dealerships, which at their peak generated $2.5-billion in revenue, closed. And used-car dealer CarMax last week added to the nervousness when it said weak demand was forcing it to trim 600 workers at its 99 locations, including 25 job cuts at its Tampa and Clearwater locations.

It's just the start. "An increasing number of dealers are simply closing their doors because sales have plummeted, credit has dried up, the overall retail environment is increasingly challenging and potential investors are sitting on the sidelines," said Paul Melville, a partner at Grant Thornton LLP.

Melville's firm released a report last week indicating new-car dealerships will go out of business at a faster pace this fall and into 2009. About 3,800 dealerships need to close this year just to allow stores to maintain the same sales rate of a year ago, the study added. Yet the National Automobile Dealers Association said last week that the number of U.S. dealers will shrink by only 300 to 600 by the end of 2008.

At AutoNation, the credit crunch is slowing already hard-to-get sales. Creditworthy customer a year ago who got auto loans 90 percent of the time are now qualifying only 50 percent of the time. Subprime borrowers, half of whom got loans last year, are now down to 10 percent.

CEO Jackson's worried it will get worse because of spiking short-term interest rates — represented by Libor, the London InterBank Offered Rate — that's put a huge crimp in lending. He blames the squeeze on a widespread failure of confidence and trust in the nation's economic leaders, who are only now busy figuring out how to put into play their new $700-billion federal bailout for Wall Street and the mortgage industry.

"We are something beyond the worst-case scenario," Jackson told CNBC on Friday. This is no whiner. He's the same guy who argued gas prices should be raised in order to motivate stuck-in-the-mud automakers to accelerate plans to build more fuel-efficient vehicles.

The auto crisis — shared hand in hand by manufacturers and dealers — is forcing a lot of old hands to try new things.

Last week, President Bush signed off on $25-billion in low-cost government loans that will let automakers borrow money to retool plants to build vehicles that are at least 25 percent more fuel efficient.

And tucked in Friday's approval by the House of the Wall Street bailout package was a new measure: a new tax credit of $2,500 to $7,500 for future buyers of plug-in electric vehicles. That includes the Chevrolet Volt, a planned plug-in Toyota Prius and newly announced vehicles from Chrysler.

Toyota, unaccustomed to the need to lure customers, hopes to stem its steepest sales drop in 40 years by the unprecedented move of offering 0-percent financing on 11 models.

French carmaker Renault last week said it may be interested in returning to the U.S. auto market after a 20-year absence — if Chrysler's principal owner, Cerberus Capital Management, can't stop the automaker's bleeding and is interested in selling.

In a recent interview, AutoNation president Mike Maroone said people are sitting on their wallets in these remarkably uncertain times. And that's hurting everybody.

A few cars — those with the most fuel-efficient reputations — are still in big demand, Maroone said. The Toyota Prius. The Mini? "They're still hotter than hot and we can't get enough of them."

Smaller trucks are still selling, modestly, but heavy-duty trucks and diesels are struggling.

He also describes the sticker shock for those in the luxury leased-car market now that lenders are no longer subsidizing the leases.

Industry forecasts look rough. New-car sales for 2007 came in at 16.1-million. J.D. Power sees only 14.2-million sold in 2008, but if the sales numbers for 2008's last three months are the same as September's, the industry will barely sell 13-million cars.

Robert Trigaux can be reached at

Tough times in auto sales? It's so bad that …

U.S. auto sales cratered last month to their lowest level in 15 years.

September sales were down a breathtaking 36.8 percent at Nissan, 34.5 percent at Ford, 32.8 percent at Chrysler LLC, 32.3 percent at Toyota and even 24 percent at fuel-efficient Honda.

"We are beyond the worst-case scenario," said Mike Jackson, CEO of AutoNation, the biggest U.S. auto retailer, on Friday.

At the start of this year, there were 21,500 dealerships in the

country. Two-thirds of them sell Detroit brands.

CNW Marketing Research in Bandon, Ore., which studies traffic in showrooms, said the last 10 days of September was the worst showing since it began keeping track in 1986.

In 2007, the average U.S. new-vehicle franchise reported 322 new-vehicle registrations. Toyota accounted for 1,628 units per franchise. Ford's domestic brands reported 236 registrations, followed by GM's domestic brands at 202 and Chrysler at 169.

For many auto dealers, the wheels are falling off 10/04/08 [Last modified: Monday, October 6, 2008 2:02pm]
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