So GM and Chrylser are dumping dealerships left and right. These dealerships (Like Dominion Dodge) have already purchased the very cars you see on their lot. (You thought the Dealer Discount was just a marketing ploy?) Now they are stuck with them, and will have to sell them for whatever they can get basically. Profit or Loss - they need to get rid of those cars.
In the case of GM vehicles, apparently- the Fed is going to back the warranties (no word on recalls or that sort of thing). So what's the risk in buying one? You can get it cheaper than cheap, and you know it will be serviced. Let's look at the dealership across the street. They are not losing their contract - so they are still selling new cars. The same cars that are nearly half price across the street. So now Dealer B (the one no losing it's contract) has to cut it's prices, and compete against a dealership that just wants to get rid of the cars. This is an ugly situation. But it gets worse.
Down the street is a Used Car Dealer. Been there for years, since the time of the Hupmobile. Actually so has the Used Car Salesman. He has always prided himself on selling exactly the car the person needs. And at a great price. Sure, they are not new - but they are good affordable cars. And he is more than happy to send you to his favorite service center who might give you a discount. It's not quite a warranty, but it's close.
Dealership A (loss of contract) has cut it's prices so they are showing a $10 profit on every car on the lot. Some of the cars they are more than willing to take a loss on. They are using every last drop of advertising budget to get the word out - so they can clean up and get out quickly.
Dealership B (with contract) has cut their prices too, but they are still showing a profit - maybe $100 per vehicle. It's going to make things tight, but they can make it back with service plans and optional add-ons that Dealership A can't offer. And it says so right in their ad. They are even offering toasters and gas cards with the purchase of a new vehicle.
Used Car Dealership is sitting there - no one looking at it's cars. Most of the lot averages 5-15 years old, and anywhere between 40-120K miles. It has been days now since anyone has even stopped - except to get directions to A & B. They have nothing more to offer, other than quality used cars. No warranties, no gas cards, no toasters. They don't even have true "vinatage" cars - just some real good lookers.
For each customer they would normally see - 20 rush by to Dealerships A & B. Sure - there's no credit available at A, and B is restricted in it's lending - but at the prices they can afford to charge, what does it matter?
Used Car Dealership closes, and it's cars go to auction, where they bring a pittance.
Extrapolate that. GM is dumping 2,000 dealerships (roughly), and so is Chrysler. 4,000 dealerships + with unsold inventory, and even if each of them only has 50 cars on the lot - thats 200,000 cars (+) that need to go, immediately. That means 200,000 used cars (+) that will not be sold.
God only knows how many used car dealers will go out of business because of this.
This is not going to help the recovery, and what happens to the physical buildings these dalerships occupy? Sell to a competitor who did not lose the contract? Creating more Berglunds - only on a nationwide scale? And what about communities who rely upon car registration taxes for funding?
Nope - this is not a good situation, not at all.
