Month: March 2009

In January, the Wall Street Journal ran a page one story about the troubles facing two dealerships in southeastern Kentucky.  One of them, Johnny Watkins, had filed for bankruptcy.

At the time, we predicted that there would be a lot more dealership closures in 2009, especially in smaller towns. 

Then, a couple of weeks ago, we received an auction notice to liquidate the assets of Maysville Ford.
 
Why is this happening to dealers in small towns?  There are a few key reasons:

• There really isn't enough critical mass of car sales to support a dealership in a small town.  So dealers have to draw customers from nearby cities, usually with discounts that squeeze their profitability.
• The most profitable part of the dealerships come from service to vehicles after the sale.  When out-of-town customers purchase from a small-town dealer, they tend to have their cars serviced somewhere else, as the dealer is too inconvenient for frequent maintenance.  So small-town dealers lack the service customers that larger dealers have.
• The heavy reliance on car sales (and the lack of substantial service sales) means that small-town dealers are much more sensitive to economic downturns.  As car sales plummet, the service business is what has sustained many big-city dealers.  The smaller dealers just don't have that cushion.

The economic realities of being a dealer in a small town mean that a lot of them won't survive over the next couple of years.

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