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Penske: Too many dealers, not enough customers hurt automakers

November 18, 2010

Domestic automakers suffer from dealer networks that are too big and bogged down by weak performers, said Roger Penske, the racing legend and billionaire businessman who heads one of the largest chains of auto dealerships. 

In a Jan. 3 interview with The Associated Press, Penske, chairman and chief executive of United Auto Group Inc., also predicted that the Big Three would soon look to foreign markets for the bulk of their income.


The U.S. automakers are struggling with sliding market share and increasing health care and pension costs. Industry leader General Motors Corp. lost $3.8 billion in the first nine months of 2005 and plans to cut 30,000 jobs and close 12 facilities over the next two years. 

No. 2 U.S. automaker Ford Motor Co., which saw its net income slide 45 percent in the January-September period, is to announce its restructuring plan later this month. DaimlerChrysler AG’s Chrysler Group has fared somewhat better, improving its market share last year with new products.


Penske, who bought a controlling stake in UAG in 1999 and owns a separate chain of foreign-brand dealerships called Penske Automotive Group Inc., said that from his perspective at the retail level, U.S. automakers need a leaner distribution network. 

GM, which through November had a market share of 26 percent, had 7,384 dealers as of Nov. 30, spokeswoman Susan Garontakos said. Toyota Motor Corp., with a market share of 13.3 percent, has about 1,400 dealers, spokesman Xavier Dominicis said.


Garontakos said domestic automakers have ended up with more dealers because they have been selling vehicles in the United States much longer than foreign companies. But she said GM officials do not believe they have too large a distribution network, especially since the company has eight brands. 

"We may have underperforming dealers, but we provide lots of counsel," she said. "We work with them to help them become successful."


Garontakos said the company encourages dealers of one GM brand to pick up others that are a good fit. 

Penske’s own dealerships are heavily skewed toward the Big Three’s competitors. El Monte, Calif.-based Penske Automotive Group sells Toyota, Lexus, Scion, Mercedes-Benz, Maybach and Honda. Bloomfield Hills-based UAG, the second-largest publicly traded auto retailer after AutoNation Inc., operates 166 dealerships in the United States and 103 abroad, with foreign brands accounting for 86 percent of its revenue.


Nevertheless, Penske said he believes the Big Three have largely caught up with their competitors in terms of quality. The bigger problems, he said, are consumer perception and resale value. The U.S. automakers have struggled with low resale values in part because they sell a large percentage of vehicles to corporate and rental-car fleets at lower prices. 

Penske said he was confident the U.S. automakers would recover from their current doldrums.


"This is not about survival," he said. "You hear all these crazy words—bankruptcy and things like this. These companies have huge assets in brand recognition. They’ve got a lot of good people, there’s tremendous technology." 

The trick will be to look toward global markets, said Penske, who has made a career of taking over and turning around once-ailing companies, such as UAG. At home, the Big Three face enormous health care and pension burdens, as well as union wages critics contend the companies can no longer afford. But there are plenty of markets where such issues don’t exist, Penske said.


"GM, Ford and Chrysler are global companies today, and they’re smart people," he said. "And what they’re going to do is not have the majority of their business in the U.S."