For Twin Cities auto dealers, 'a quiet crisis'

  • Article by: H.J. CUMMINS
  • Star Tribune
  • December 11, 2008 - 9:33 PM

While the Senate debates the future of a bailout bill, Minnesota's battered auto dealers are gathering in Bloomington today for what promises to be a somber annual meeting.

Down 13 dealerships in three months -- more than the annual average for the past five years -- the 420 members of the Minnesota Auto Dealers Association have asked Congress to approve $14 billion in short-term loans aimed at staving off bankruptcy for the car manufacturers that fill their lots with vehicles.

"This is a quiet crisis, but a big problem," said association Executive Vice President Scott Lambert, who estimated the collapse of Detroit's Big 3 would ripple through his industry's 19,000 jobs to affect another 50,000 to 70,000 in Minnesota -- from industry suppliers to the grocery stores where dealership employees spend their paychecks.

Detroit's troubles took their toll last month when one of the state's largest dealers, Denny Hecker, closed six lots in the metro area and laid off 400 employees. The rest of the closings are spread across the state, "and more are coming," Lambert said. He blamed tight credit, making loans hard both for car shoppers and for dealers who routinely need to borrow $1 million to $7 million to buy inventory.

"They went to places like GMAC and Chrysler Credit, that got beat up in the subprime [mortgage] mess," he said.

At the same time, some Minnesota dealerships closed as the declining market share of American cars have carmakers consolidating more brands per lot.

Minnesota suppliers to carmakers also have a stake in Detroit's survival, said Fred Zimmerman, manufacturing professor emeritus at the University of St. Thomas. "Even those who have been wise enough to diversify to industries like agriculture equipment and aircraft were already experiencing the slowdown in those industries before this hit," Zimmerman said.

Fridley-based Kurt Manufacturing, whose products include quality-control gauges used in the manufacture of cars, worries about a Big Three bankruptcy. "If we ship product, and they file, we're not going to get paid," said Steve Carlsen, executive vice president. The auto industry is only about 5 percent of Kurt's business, but another customer -- the outdoor recreation vehicle industry -- is also in tight straits, Carlsen said. Any Senate deal is likely to put more conditions on the money, and Senate staffers called the situation "very fluid" Thursday night.

Both of Minnesota's U.S. senators, Democrat Amy Klobuchar and Republican Norm Coleman, said their support of any bill would depend on the final terms. The money would go to General Motors and Chrysler, with the less-desperate Ford opting out. Opponents have complained the car makers are in a crisis of their own making, and that bankruptcy is the best way for the industry to cut costs and retool in line with foreign manufacturers. Proponents say the country can't handle the effects of any failure among the Big Three.

Zimmerman agrees: "I don't think people really realize what's at stake here. So many people are employed not just in making cars but in the financing of new cars and the insurance and the licensing -- even car washes. I don't think bailouts are good in any general sense, but GM and Ford are a thousand times more worthy than the Bank of America or AIG, which have gotten billions of dollars."

In the meantime, much like in the depressed housing market, good deals are out there for car buyers now, Lambert said. Zero financing is often available, and he's seeing discounts of $6,000 to $10,000 on 2008 trucks and minivans. "It's great for consumers; it's just hard to be in business in this atmosphere," he said.

H.J. Cummins • 612-673-4671

© 2018 Star Tribune