As Automakers Struggle, Car Dealers Suffer

Sales in the U.S. car industry are down 32 percent overall in October. GM said its sales dropped 45 percent; Ford's figure was 30 percent. Those numbers are expected to affect car dealerships with as many as 700 expected to close by the end of the year.

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The economy is issue number one for millions of voters today. And here's one indication of the state of the economy. Last month, auto sales reached their lowest level in nearly 20 years. That means thousands of jobs are at risk. Hundreds of dealers have shut their doors this year. NPR's Cheryl Corley visited a dealership in the Chicago area to find out how it's coping.

CHERYL CORLEY: Harlem Avenue is home to lots of car dealerships in the Chicago area, and that's where the Jack Phelan Chevrolet dealership is located in suburban Lyons, just outside of Chicago. John Phelan has been in the business for three decades. He says while some dealers have had problems throughout the years, he's generally been able to weather the industry's cyclical downturns.

Mr. JOHN PHELAN (Owner, Jack Phelan Chevrolet Dealership): But I will tell you this, emphatically. This is the worst I have ever seen it. This is the worst.

CORLEY: In good times, Phelan sells about 40 new and 20 used vehicles a month. Last month, he reached about half that number. And that is the worst he's ever seen.

(Soundbite of music)

CORLEY: On this day, in the show room, orange, black, and white balloons float above the Corvettes, Malibus, and big Chevy Tahoe SUVs on display. Phelan walks over to a couple of sales people gathered around a big desk in the room.

Mr. PHELAN: Looks like we do have a customer. Is that a customer over there?

Unidentified Man: Yes, yes. Hey, how are you?

CORLEY: The customer, Luis Saldiarna(ph), is interested in a 2004 GMC Envoy on the lot. He saw it in a magazine ad and wants to buy it.

Mr. LUIS SALDANA: There's a monthly amount that I could afford. So if I can stay within that monthly amount, it won't set me back that much. And of course, there's other stuff that, you know, we need to come across that, you know, might make or break the deal.

CORLEY: There aren't any other customers buying. Other sales people are making calls, trying to drum up some business, or chatting with other workers. Phelan has had to lay off some staff in every department: service, the call center, clean up crews. Instead of 18 to 20 sales people, there are now 12.

Mr. PHELAN: It was not a pleasant day when we made those terminations. And quite frankly, I shouldn't even call it a termination because I really am trying to be optimistic about this and say that the people will be brought back to work. But at this point in time, I don't see it happening, probably at least until next year sometime.

CORLEY: So far this year, about 600 car dealerships in the country have not been able to make it through the credit crunch that's troubling this industry nearly as much as it has the home mortgage market. It's been tough for some dealers to get the financing they need to pay for the inventory they have on their lots. It's also difficult for some customers. Even so, John Phelan and other car dealers say there's been too much media hype.

Mr. PHELAN: It is strictly a myth that you cannot get financing because the dealers will do whatever it takes to get a customer finances brought to their availability, I should say.

CORELY: Like turning to local lenders, community banks, and credit unions for financing. But it can still be difficult. Remember Luis Saldierna. He was at Jack Phelan's for five hours before he could trade in his jeep for that GMC Envoy. Business manager Phil Gomez(ph) worked on the deal.

Mr. PHIL GOMEZ (Business Manager, Jack Phelan Chevrolet Dealership): It has gotten a little bit harder. Yeah, I'm not going to lie to you. It has. Banks now have gotten a little bit more stricter. Their guidelines have changed a lot. Now they are looking for down payments. And then obviously, you know, when a lot of folks have been used to hearing all these low, low interest rates over the years, and those things have changed also.

CORLEY: So, it meant lots of wrangling to get the payments and the interest rates at a level Saldierna could afford. He was the only sale by late afternoon. The bleak outlook for domestic automakers has led GM and Chrysler to talk merger. John Phelan says he's not sure yet what that will mean for dealers. But with GM still offering incentives and rebates, he says now is a prime time for consumers to buy.

Mr. PHELAN: Obviously, dealers are - how would I say it, hell bent on selling vehicles right now. This is probably one of the best times ever because in a down market, people don't want to sit on their inventory. They definitely want to move their inventory.

CORLEY: And while the National Automobile Dealers Association predicts nearly 100 more dealerships won't be able to survive a market that's left so many of them reeling, John Phelan has a prediction too. He says his will not be one of them. Cheryl Corley, NPR News, Chicago.

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