Long-term pain for car buyers?

May 21, 2009 4:34:13 PM PDT
The auto industry is in crisis. Dealerships across the country and in Houston are closing, and all the cars on the lots must go. However, the good deal you get comes with a cost: thousands of people are losing their jobs. Senator Kay Bailey Hutchison Thursday said closing Chrysler dealers are becoming road kill in the company's massive bankruptcy. Nearly 800 dealers are trying to sell months worth of inventory in just three weeks. It is driving prices down now, but few understand how it will help in the future, especially dealers being shut down.

It's a great time to buy a car, but Eyewitness News has learned the short-term gain could become a long-term pain for buyers.

"They gave me a wonderful deal," said customer Betty Hunter.

Particularly if it's a Chrysler, Jeep, or Dodge.

"Anyone who comes on the lot or comes in the door, we grab their hand and sell them a car," said Nicholas Parks of Rogers Dodge in Alvin.

In many cases, dealers are barely breaking even or losing money. Nearly 800 Chrysler, Jeep, and Dodge dealers are closing early next month. Six of them are in Houston. Bob Archer owns three of the closing dealerships.

"It just makes no sense to me," said Archer.

Archer and Parks both took time to explain the car business to us this week, so we could understand how closing dealerships and forcing hundreds of Texans into unemployment would help either the company or you the consumer.

"They know it's not going to save them money," said Parks.

Dealers own their own buildings. They own the flags, desks, and parts inventory. The dealer owns the cars too. They already bought them from the car manufacturer.

You do your deal with the local guy, not with Detroit. So closing the dealer, even an underperforming one, doesn't necessarily save Detroit that much money. So there must be some other reason.

"When they had a lot more market share, it made sense to have a lot of dealers. That's not the case anymore," said Bruce Belzowski of the University of Michigan Transportation Research Institute.

That's it.

The Feds and Chrysler agreed to cut dealers to reshape the company for the future. Fewer dealers who sell more cars may make more profits for Chrysler, potentially offer better service to the customer, but could drive up prices.

Down the line, some experts told us it may make dealers less competitive with one another, thereby giving you fewer places to bargain with for a new car.

"It hurts. There's no doubt about that," said Parks.

For now, dealers set to close on June 9 must unload hundreds of cars. Losing money isn't easy for them, but it's good for you. For now.

"I feel bad, but I like the good deal," said Hunter.

You can't blame her.

Chrysler said many of the dealers they're terminating were underperforming, but the ones we talked to said that is not the case.

Here's their reality: The closing dealers cannot sell new cars beyond June 9, and in bankruptcy Chrysler cannot buy them back. The automaker said it is trying to help closing dealers make deals with continuing dealers, but swap meet pricing may not help the closing dealerships.

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