Fewer but bigger dealerships expected to boost car prices

By Megan Woolhouse and Erin Ailworth
Globe Staff / June 8, 2009

The shakeout in the US auto industry will mean fewer but larger dealerships - decreasing competition among dealers and pushing up consumer prices on some cars by several thousand dollars, according to auto companies and analysts.

Chrysler LLC and General Motors Corp., which have filed for bankruptcy protection, are expected to adopt a model similar to their Japanese counterparts - offering fewer brands and marketing them through fewer dealerships. Toyota, which surpassed GM as the world's largest automaker, has about one-fifth the number of US dealerships as GM, but sells almost three times as many cars at each location, according to industry publication Ward's Dealer Business.

Such streamlining - Chrysler's trimming of dealerships is expected to begin tomorrow - will create more profitable businesses, say dealers and analysts, because surviving dealers will be able to sell a higher volume of cars per location. What's more, fewer brands will allow dealers to focus on improving customer service.

"We're in an evolving business where the strong survive and the weak go away," said Sean McCarthy, sales manager at a Mastria GM dealership in Raynham, which expects to outlast industry turmoil.

But what is good for dealers may be bad for consumers.

Remaining dealerships will be able to charge more for cars, analysts say, because fewer dealerships make it harder for buyers to spark bidding wars. And as auto companies scale back factory production, heavy discounts and dealer incentives will dry up.

Tom Wilkinson, a GM spokesman, said once the "current glut" of car brands disappears, prices for GM cars will increase anywhere from $2,000 to $6,000 for a new vehicle.

Chrysler expects to see a price increase on new cars in the range of $1,000 to $2,000 over the next year or two, said Kathy Graham, a company spokeswoman. She cautioned, however, that prices are ultimately "market-driven."