October 17, 2008

Batten Down the Hatches

News in recent months has been dominated by reports of economic turmoil. The economic situation has had broad reaching impacts and for many companies has proven to be impossible to overcome. With the automotive industry experiencing especially difficult times, automotive dealership bankruptcies have been mounting. The largest Chevrolet dealership in the U.S., Bill Heard Enterprises, Inc., was forced to file for Chapter 11 bankruptcy protection in late September.1 Others succumbing to bankruptcy have included Johnston Shield, Inc., Dave Croft Motors, and Jerome Duncan Ford in 2005. John Evans, owner of Stu Evans Lincoln-Mercury, was also forced to file for Chapter 7 bankruptcy in September.2 The National Automobile Dealers Association projects that out of the 21,461 total dealerships existing in the U.S. as of January 1, as many as 700 could close before the end of this year.

Dealerships have been especially vulnerable for a number of reasons. Credit markets form the lifeblood of operations for many dealerships, and the recent credit crisis has proven detrimental to their financial health. Credit is necessary for many customers to purchase vehicles from dealerships. However, the current economic situation has meant less credit availability for both dealerships and their customers. These factors and others have combined to create the struggles currently being experienced. For many dealers, the outlook may be bleak and the impending storm may seem unbearable. However, with the right preparations, dealers can put themselves in position to endure what may be a brutal storm.

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