Capitalism is said to be governed by cycles of creative destruction, and last week the cycle rolled over nearly 2,000 GM and Chrysler car dealers.
Chrysler informed 789 of its 3,181 dealers that it was ending their franchise agreements and GM did so to 1,100 of its 6,000 dealers. Even though the GM dealers were informed through an ominous use of the passive voice — "You have been identified as an underperforming dealer" — the company gave them a better break than Chrysler did to its dealers. They have until October 2010 to wind down their businesses; the Chrysler dealers basically have until June 9 to unload 44,000 unsold cars and close their doors.
And there’s more to come. GM plans to further reduce its 6,000 dealerships to fewer than 4,000 by the end of 2010 and it plans to shed about 500 Saturn, Hummer and Saab dealers.
Whatever these closings do for the individual companies, the effect on the auto industry as a whole is likely to be muted. Neither company is the big player it once was. GM had over half the U.S. car market in the ’60s; only 22 percent last year. And the dealerships being shuttered represented only 7 percent of its sales.
But the GM and Chrysler closures are likely to hurt their communities, especially smaller and medium-size towns, where the dealerships are usually the most visible locally owned retail business and supporters of everything from the local Little League through sponsorships to the local newspaper and broadcast stations through ads. The auto dealers’ trade organization estimates that this convulsion will cost 100,000 jobs.
This isn’t the first cycle of destruction, creative or otherwise, to hit the auto industry. Dozens of makers failed to survive the Depression and others failed to survive the postwar years. Once, every city had "automobile rows" adjacent to the downtowns, but those are long gone in favor of much larger, less constricted dealerships ever farther out in the suburbs.
This contraction is necessary, perhaps inevitable, but that doesn’t mean we have to like this loss of a piece of Americana.