DETROIT -- As pressures increase to thin the number of auto dealerships, a few Detroit area Ford dealers took matters into their own hands.
The decision to stop selling new Ford vehicles at Al Long Ford Inc. in Warren, Mich., was prompted by a behind-the-scenes buyout by principals from five local dealerships and brokered by Ford Motor Co.
One less dealer should help us, but we're still looking at volume that's down 40 (percent) to 50 percent, said Robert Thibodeau, president and general manager of Bob Thibodeau Ford in the Detroit suburb of Center Line, Mich.
Thibodeau confirmed he contributed an undisclosed amount of money for Al Long President Tarik Daoud to dissolve the franchise.
Also contributing were principals from Detroit area dealerships Bob Maxey Ford Inc., Roy O'Brien Ford Inc., Pat Milliken Ford Inc. and Mike Dorian Ford Inc., Thibodeau said.
The going rate to buy out a dealership is $1 million to $1.25 million, said Sheldon Sandler, founder of Skillman, N.J.-based Bel Air Partners, which brokers the sale of car dealerships. Sandler was not involved in the Al Long deal.
Daoud retains the dealership property, and he plans to remain in business at his current site selling used cars and trucks and running a service department and body shop. He may seek a retail tenant for some of the vacated dealership space. He will also continue operating Clinton-Tecumseh Ford Lincoln-Mercury in Clinton, Mich.
But he'll forfeit the 63-year-old Al Long name, the dealership's telephone number and Web site as part of the deal. The Al Long customer list was divided by region among the five dealers.
The dealers will use the lists, Thibodeau said, to attract repeat customers and also to draw business to the dealerships' service departments.
Thibodeau wouldn't comment on any other terms of the deal.
Daoud said he understood that the five dealers were involved in the buyout, but that his contact was with Ford.
I was assured that the dealers had something to do with it, he said.
The dealers, Daoud said, purchased roughly 250 cars from the Al Long inventory. The remaining stock will be liquidated or repurchased by Ford, Daoud said, as he begins to transition his business from new car sales to a used car shop with service, body and parts departments.
Daoud wouldn't disclose the amount of the buyout, but he said he's content with the arrangement and with his fellow dealers' involvement.
It is appropriate, he said. If they want to consolidate the market and give an opportunity for dealers to prosper, they should have a chance to be a part of it.
The notion of dealers coming together to buy out a competitor isn't unheard of, analysts say, but it's not common. When asked, several dealers and consultants couldn't remember a similar deal in metro Detroit.
But it's the kind of thing that's being encouraged by the manufacturers, and not just Ford, to get the dealer count down, said John Youngblood, an attorney who is leader of the Auto Dealership Section at Detroit law firm Abbott Nicholson P.C. It's an excellent exit strategy.
With sales dropping by more than 1 million units this year, and 85 percent of that from the Detroit 3, the number of dealers in the country needs to decrease in order for remaining dealerships to make money, said Paul Melville, a partner in the Detroit office of Grant Thornton L.L.P.
Nationally, there need to be 3,800 fewer car dealerships in 2009 for dealers to make the same amount of money they made in 2007, he said, based on an analysis.
There were 20,328 car dealerships in the United States as of Oct. 31, according to a census by Detroit-based Urban Science Applications Inc. There are 274 in the Detroit area.
Just three dealerships in the metro area have closed this year, according to the Michigan Automobile Dealers Association, and two area dealerships have consolidated.
The manufacturers want a smaller dealer network to cut the back-office staff costs associated with servicing the dealers, as well as transportation costs, Melville said.
If you have 100 cars, it's cheaper for the factory to ship them all to one place rather than break that up into four trips with 25 cars each to four different dealerships, he said.
William Golling, president of Golling Chrysler Jeep Dodge Inc. in suburban Detroit, said consolidation is needed so dealer operations can maintain the volume level needed to operate profitably.
It's the difference between having one profitable dealership or four dealerships that aren't profitable, not being able to provide an appropriate level of service to the customers, he said.
But dealers are independent entrepreneurs, Golling said, and the manufacturers can't merely take the franchises away.
It has to be done in a way that's fair for everyone, he said. How you do that is something above my pay grade.
So for now it's survival of the fittest, and it's not easy, Thibodeau said, especially deals like the Al Long buyout.
It's with a heavy heart to see a competitor go, he said. That's a family business that's been around for a long time. But, at the same time, you have to look for advantages.
Estimates on the number of dealers that will close are often exaggerated because many analysts aren't taking the resilience of car-sales entrepreneurs into account, said Randy Berlin, global practice director with Urban Science.
They're that good, he said. Auto dealers are tremendous businesspeople who have stood the test of time and have learned how to make money in tough times.
And there are a lot of good dealers out there who haven't forgotten how to do to that.