Dealers greeted todays Chapter 11 filing by General Motors with a mixture of sadness and relief, but some worry that the government has misjudged how much the economy will be jolted.
The administration is underestimating the collateral damage that is going to ripple through the economy, said Scott Smith, president of Sonic Automotive Inc., of Charlotte, N.C.
Many dealers see todays action as the first step toward GMs comeback.
If this is what we have to do to get back on course, I am pleased that we are at a point that we can be optimistic rather than pessimistic, said Wisconsin megadealer John Bergstrom.
The CEO of Bergstrom Automotive in Neenah, Wis., said 13 of his 21 dealerships are GM stores and account for 60 percent of the groups annual sales. Bergstrom has closed four Saturn stores and operates two other Saturn dealerships.
He doesnt think the bankruptcy filing will affect sales of GMs brands.
We have a Chrysler store, too, and we did not see a significant drop-off at that store, Bergstrom said. The general public is almost numb to all the negative stuff. I do not think it will have a major new reaction.
Bergstrom said getting enough GM product to sell is not a concern.
Inventory isnt a problem, he said, its consumer confidence.
Penske Automotive Group spokesman Tony Pordon said it is too early to say whether the bankruptcy will hurt sales.
I suspect things will get slow for a short period of time until people understand what is happening, said Pordon. Then business could pick up.
He said the Penske Automotives five GM dealerships and nine GM franchises represent only 3 percent of the groups annual sales. Penske, of suburban Detroit, has 143 franchises in the United States.
Pordon said the groups Chrysler sales are still decent, but that is probably because of high incentives.
I cant forecast what we expect to happen, he said.
Joe Serra, president of Serra Automotive Inc. in Grand Blanc, Mich., doesnt expect major tremors in the days and weeks to come.
The bankruptcy has been so highly anticipated, said Serra. A lot of the impact has already been felt.
Thirteen of Serras 21 dealerships are GM stores.
Government assurances help
He said customers initially were worried that their warranties would not be honored. But Serra said that issue has been resolved by the governments assurances.
The network and consumer have been in a holding pattern for the past 60 days, and rightfully so, said Serra. That is a normal and understood reaction. Maybe this will help clarify things. It is time to move on.
Judging by the minimal impact at its Chrysler stores, Group 1 Automotive Inc. does not expect GMs bankruptcy to have much effect on sales.
We dont think it will be significant for our group, said spokesman Pete DeLongchamps. If we had Hummer and Saab, it would be different because all of those dealerships will close. The majority of our business is the Chevy stores.
Group 1, of Houston, has seven GM dealerships among its 99 stores. The automaker represents 4 percent of sales at the publicly traded dealer group.
DeLongchamps said GMs bankruptcy and its plans to close poor-performing dealerships could benefit Group 1.
If they decide to close dealerships that are contiguous to our current location, then it could increase the throughput at the dealerships we have, he said.
Sonics Smith said GMs bankruptcy will have little impact on the dealer groups business. Thats because the franchise value of four Sonic dealerships slated for closure by GM already has been written off.
The publicly traded group has an additional 29 GM dealerships. Smith said 16 percent of Sonics sales are from the GM stores.
Geoff Pohanka, president of the Pohanka Automotive Group in Marlow Heights, Md., says hes concerned about the two Saturn stores his company owns. GM is trying to sell the brand.
I am not sure bankruptcy will change that immediately, said Pohanka. They have a deadline until the end of summer.
Pohanka fears that GM will accelerate plans to close the more than 1,100 dealerships that have been notified that their franchises will be terminated in late 2010.
My concern with the government owning the majority of GM is what will they do differently that hasnt been done before, Pohanka said. I am concerned how well they can influence and run an organization like GM that is so big and complex.
Meanwhile, business at Detroit area GM dealerships was not just slow today -- it was almost nonexistent. At three stores within five miles of GM's downtown Detroit headquarters, not one customer could be seen in a showroom.
At Jefferson Chevrolet, just one mile down the road from GM headquarters, General Manager Brian Tellier said May sales ended with a flourish.
"We had a pretty good surge toward the end of the month," he said as he watched GM CEO Fritz Henderson on TV fielding questions from reporters.
Tellier said he doesn't know what effect GM's Chapter 11 filing will have on sales.
At James Martin Chevrolet-Buick on Woodward Avenue, about three miles away from GM headquarters, no one was in the showroom at midday except the receptionist and two salesmen. One of them said it's the lack of available credit, more than GM's financial situation, that is hurting sales.
At a Cadillac store across the street from the Chevrolet-Buick dealer, the showroom was stuffed with blinged-out new cars and SUVs, a few salesmen and a porter who was picking the lint and dust off a CTS-V. But no customers entered the showroom during a 30-minute span.
The worst is over?
Despite the bad news, the head of the nation's largest auto dealer group predicted better times ahead.
I expect the worst is over, said AutoNation CEO Mike Jackson. It is a positive in that this is a government-sponsored bankruptcy and the government has clearly said GM will survive. They are going to see GM through this.
Jackson said AutoNation, the nations largest car dealership chain, saw an immediate improvement in traffic after Chrysler filed for bankruptcy.
We expect nothing less with the President as chief car salesman saying these companies are going to go on, he said.
Forty-one of AutoNations 329 dealerships are GM stores. Five have received notification that they will be closed.
It is not a material issue for us, said Jackson. If I take the combined impact from Chrysler and GM, it affects less than 1 percent of our profitability.