According to the Auto Dealers Association (ADA) of Greater Michigan, 81 percent of the region’s dealerships are highly leveraged and continuing to lose money, despite the average dealer reporting gross profit of $128,519.3, and 93.8 percent reporting a loss.
AAA predicts the number of vehicles sold in Michigan will climb to 2.25 million by 2022, with more than 180 dealerships in the Great Lakes state.
As a result, approximately 60,000 dealerships across the nation are expected to close in the next five years, according to the association’s study.
“To keep up, the current trends of operating increasingly complex and expensive facilities needs to change,” said Robert O. Hainsey, president of the association and owner of Chrysler Group, Chrysler of Flint and Chrysler of Michigan in a press release. “The industry has largely been ignoring the changing consumer landscape and needs of today’s buyer for years. When this study was first initiated seven years ago, approximately 90 percent of dealerships made a gross profit from their auto-related businesses. That number has now dropped to 58 percent.”
The ADA study further reveals that one in six dealerships has a negative profit margin in 2012, which correlates to a loss of $1,133.25 for each of the 42,000 cars sold through that dealer over a year-long period.
At least two million cars were sold through dealerships that reported a negative net income in 2012, according to the study. That equates to an additional deficit of $5.2 billion on top of the losses from all auto companies nationwide.
The agreement between GM and Chrysler could significantly reduce the negative effects of the declining auto market, however, according to the Auto Dealers Association of Greater Michigan.
Under the agreement, Chrysler will invest up to $405 million to renovate its five Detroit-area auto dealerships, as well as install new state-of-the-art tools and technology, said a joint statement from the companies. Dealerships in Detroit’s metropolitan area, northern Michigan and Warren, Mich. will be eligible to receive more than $150 million in new financing incentives from Chrysler and GM to bring in new employees, the statement said.
General Motors and Chrysler will also agree to a deal to spend up to $150 million each year on technological advancements for their brands and their dealerships, the statement said.
GM and Chrysler will also donate up to $50 million to establish a philanthropic fund to help restore the Great Lakes region and the Auto Dealers Association of Greater Michigan.
“Many of our dealerships are struggling. This is a growing problem for everyone. Consumers want innovative experiences, retailers want adequate financing and automakers need to create affordable vehicles for the new auto buyer,” said Todd Hallman, vice president of automotive operations for Auto Dealers Association.
According to the association, new vehicle purchases are growing more slowly than overall vehicle sales. Additionally, auto dealer gross profit has decreased by 25 percent over the past six years, due to higher costs for buildings, stores and equipment.
Among the eight Michigan cities ranked in the top 10 of the hardest cities to buy a new car in, according to Auto Insurance Marketplace, according to a report by Businessweek, is Flint, ranked No. 1.
According to the Detroit News, Flint residents have to make an average payment of $364 on a lease or loan for a new automobile, while the national average payment on a lease or loan is approximately $195.
Michigan’s unemployment rate is 9.2 percent, with the state’s jobless rate climbing to 12.8 percent in January. At least four people have reportedly been killed in Flint over the past month from auto-related incidents.