Car dealers scaling back to survive downturn

By Soyoung Kim

NEW ORLEANS (Reuters) - A prolonged slump in U.S. auto sales has left many of the country's 20,000 new car and truck dealers hanging on by their fingertips.

And the government bailout of General Motors Corp and Cerberus Capital Management LP's Chrysler LLC in December doesn't mean the end to the plight of dealers -- whose revenue collectively represents 20 percent of U.S. retail sales.

With the world's single largest car market expected to shrink further in 2009 amid fragile consumer confidence and tight credit, more than 10 percent of dealerships are likely to shut their doors this year, analysts said.

Survival, not profitability, topped the agenda as thousands of dealers across the country gathered for the annual National Automobile Dealers Association convention in New Orleans.

"People really came here for serious business reasons," said Richard Llewellyn, a Chrysler dealer in Punta Gorda, Florida. "It's about how to survive a different market. We are reducing salaries, getting inventories down and becoming creative on where to cut costs," Llewellyn said.

Analysts and automakers have forecast that U.S. sales of cars and trucks could fall near 10 million units this year, from 13.2 million units in 2008. That would mark the lowest level in 27 years. Sales were 16.2 million units in 2007.

"A 10 million unit industry is an automotive hurricane," Ford Motor Co marketing and sales chief Jim Farley said on the sidelines of the convention being held in a city that still bears the scars from Hurricane Katrina in 2005.

Last year's slump forced about 900 dealerships out of the market. In 2009, an additional 2,500 dealerships are expected to go out of business, according to industry restructuring adviser Grand Thornton.