The en-masse shedding of car dealerships by Chrysler and GM is about to profoundly deepen what was an already troubling trend: the fast decline of dealerships across the country, particularly those owned by minorities.
Since the first minorities started opening up dealerships in the 1970s, the number of minority-owned car dealerships across the nation peaked in the year 2002, at around 2,100. Since then, the figure has plunged by approximately 43 percent, to 1,200, said Damon Lester, president of the National Association of Minority Automobile Dealers.
And that's not even taking into account the dozens of minority-owned dealerships that will be casualties of the ongoing turmoil at Chrysler and GM, he said.
"It took 40 years to get to 2,100," Lester told HispanicBusiness.com. "It's taken a year and a half to get where we are. ... We are actually reverting backwards."
Meanwhile, the total number of dealerships across the country has also fallen substantially since 2002, though not as severely, from about 22,000 to 19,000, according to the National Automobile Dealers Association. In other words, minority dealerships accounted for 30 percent of the closures during that time period.
The disproportionate decline among minority dealers seems to indicate that, in addition to facing stiffer challenges in breaking into the industry, minority dealers also struggle harder than the rest during times of economic distress.
In short: "We are the last ones in and the first ones out," Lester said.
In mid-May, Chrysler announced that it would axe a quarter of its 3,200 dealers by June 9. Thirty-eight of those 789 dropped dealerships are minority-owned, nine of which are owned by Hispanics. (About 50 Hispanic-owned Chrysler dealerships remain, Lester said.)
That same week, GM announced that it is shedding 2,600 of its 6,200 dealers, or 40 percent, by the fourth quarter of 2010. Because GM did not release a list of companies to be shuttered, it is not known how many of them will be minority-owned.
In any case, NAMAD is fighting Chrysler's decision. On Wednesday, the organization's attorneys will argue before a bankruptcy judge that Chrysler should reduce the amount of minority-owned dealers that are shuttered, on the basis that so few of Chrysler's dealerships -- about 5 percent -- were minority-owned to begin with.
"We just think you should have a dealer body that is ethnically diverse, from a business standpoint," said attorney H. Todd Bullard, who will be representing NAMAD in Wednesday's hearing before the 2nd Circuit U.S. Court of Appeals in New York.
"If you have a dealer body that is 96 percent Caucasian-owned, and a population that is 30 to 34 percent ethnic minorities, maybe your problem is you have inadequate outreach to those communities."
Chrysler spokesman Michael Palese countered that the percentage of minority-owned dealerships actually increased slightly after the company's termination of the 789 dealership contracts.
Indeed, come D-day on June 9 -- when the number of Chrysler dealerships across the nation will be chopped to 2,400 from about 3,200 -- the proportion of those that are minority-owned will inch up to 5.4 percent from 5.0 percent.
Said Palese in an email to HispanicBusiness.com: "The new company will continue to promote and support minority ownership of dealerships and to look for opportunities to locate some of minority-owned dealerships in new areas that make better economic sense."
But Bullard, NAMAD's attorney, said the 5.4 percent figure is but a fraction of an earlier informal agreement between the company and minority groups to boost the share of minority dealers to 15 percent. That, he said, never came close to happening.
Bullard is also arguing that because Chrysler has accepted billions of dollars in federal bailout money, the company should have to play by the rules of a federal entity, which he said would require a higher share of minority stakeholders than just 5.4 percent.
"It's a creative argument, because this type of thing has never happened before," he acknowledged. "In essence, what we have is nationalized automotive companies. If you have a nationalized auto company, you have to be inclusive, and it looks like the dealership ranks are a pretty exclusive club."
As for GM, about 290 of the 6,200 dealerships are minority-owned, or 4.6 percent. Despite that company's even smaller share of minority-owned dealers, Lester, NAMAD's president, is less unhappy with how that company is handling the crisis.
"The GM winding down process is more reasonable," he said.
Chrysler's short notice -- the company's decision to shed the dealerships by June 9 was announced in mid-May -- means dealerships will not have time to sell off the inventory they have accumulated, he said.
Meanwhile, he added, those dealerships still must find a way to repay their lenders.
This, he said, could mean the end of not only their businesses, but also their collateral, which in some cases, could include peoples' homes.
