Decline In New-car Dealers Expected

Industry Officials Say Number May Fall 20%

More Public Ownership Foreseen

April 22, 1997|By Ted Shelsby | Ted Shelsby,SUN STAFF

One out of every five new-car retailers will be out of the business by the year 2002.

That was the prediction of industry officials during a recent seminar in Greenbelt on the rapid changes taking place within auto retailing.

And a growing number of those that survive the biggest shakeout in 30 years will become part of another industry trend -- the emergence of publicly owned dealerships, dealers were told.

Maryland will likely have its first publicly owned new-car dealership by the end of the year, said Jacob J. Cohen. He is a partner and head of the automotive division at Walpert, Smullian & Blumenthal, the Towson accounting and management firm that sponsored the conference attended by nearly 75 mid-Atlantic dealers.

Cohen declined to identify the Maryland dealer that he is working with on a stock offering, but he said it is a large dealership, with two or three clusters of outlets, selling models by a variety of manufacturers.

Although a shaky stock market has put a damper on initial public offerings in recent weeks, another speaker at the seminar said there could be as many as four publicly traded auto dealerships in the mid-Atlantic region within two years.

"There is a great concentration of strong dealers in this part of the country," said Ned Wheeler, managing director of Friedman, Billings, Ramsey & Co. Inc., an Arlington, Va.-based investment banking firm. For the nation as a whole, Wheeler foresees only between 10 and 20 new publicly owned auto dealerships by the end of the decade, in addition to the handful operating now.

Wheeler also reminded the audience that the number of franchise dealerships in the United States has fallen to 22,000, from 36,000 in 1960. He predicted that it would drop to 18,000 or 17,000 over the next five years.

Following Saturn

Auto analyst Maryann Keller of Furman Selz Inc. explained to the gathering that manufacturers are seeking to reduce the number of their outlets, based on the experience of General Motors' Saturn division.

"Saturn has been incredibly illuminating to the auto companies in how to service the market with fewer dealers and serve it effectively," Keller said.

She said it is a lot less expensive for GM to manage 300-plus Saturn dealers than 3,000 Oldsmobile dealerships. She added, "It is also a lot more profitable for the Saturn dealers selling several thousand cars a year vs. Oldsmobile dealers selling several hundred cars a year."

Dennis J. Roberts, chairman of Hamilton Capital Partners Inc., warned those dealers who might sell out to take care in estimating the value of their businesses before making deals.

He said any attempt at simplified approaches in negotiating a sale and the value of a dealership can result in the owner's leaving as much as 25 percent of the value of a dealership on the table.

Keller also told the dealers that investors in dealerships are looking for operations with strong management. She said multifranchise operations, with outlets in more than one city, are preferred, and Investors look for a minimum of $400 million in annual revenue.

Pub Date: 4/22/97

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