Good Question

(WCCO) Nowhere in Minnesota is the impact of the bankruptcies of General Motors and Chrysler being felt like on the Main Streets of small towns who are losing their car dealerships. But how does closing a dealership help the finances of the automakers?

"I want you to know," said President Barack Obama to the thousands of dealerships about to be closed, "you're making a sacrifice for the next generation."

That's because many analysts don't believe closing dealerships will make an immediate impact on the bottom lines of the automakers.

"I personally don't believe it does help the car manufacturer," said Steve Hewitt, the partner who heads the Dealer Services Group of WIPFLi, a Minneapolis accounting and consulting firm.

"Once the car leaves the dock of the manufacturer, it's the dealer's problem," explained Hewitt. "The dealer carries the cost of financing that inventory. The dealer carries the cost of advertising. And the dealer carries the real estate associated with selling that product."

He called the distribution system of the automakers "virtually no-cost" to them. However, carmakers do have some costs in dealing with dealerships. There are trainers who travel the country teaching technicians how to repair the cars. There are auditors who analyze all the requests for warranty reimbursement from the dealers. And there is a sales force that sells cars to the dealers.

General Motors has nearly 6,000 dealers, Chrysler has 3,200 while Toyota has just under 1,700 dealers.

"I do believe that's where the domestic manufacturers are headed," said Hewitt.

The foreign automakers have a system that is less reliant on small, rural dealerships. Instead they favor large, gleaming superstores.

It's more efficient to write fewer checks to reimburse dealers for warranty repairs.

Plus: "fewer dealers offers less competition," pointed out Hewitt.

Right now it's fairly easy to compare a Chevy at two different dealerships and then pit dealer versus dealer in an effort to get the best price. That is cutting into the profit margins of the dealers and some believe it's hurting the brand image of GM and Chrysler. It also makes it harder for dealers to pour money into upgrades and improvements of their own facilities.

"Very, very few profitable dealers are being asked to wind down," said Mark LaNeve, Vice President of Sales, Service and Marketing for General Motors "We had a very objective process based on sales and [consumer satisfaction index] performance and profitability."

"The remaining dealers will have a chance to have a terrific business and compete effectively. We will still have far and away to most extensive dealer network in the US," explained LaNeve.

According to General Motors, 400 of the dealers they are forcing to close sold fewer than 50 cars last year.

But Hewitt pointed out that the dealers bear the cost of cars that don't sell. He said dealers should have the right to make their own decision as to when they need to close their business.

But some believe bankruptcy is forcing individual business-owners to speed up the inevitable, closing business. Also, as the automakers close plants and make fewer cars, they do not need as many dealers.

"You'll see larger dealerships and fewer of them. Time will tell," said Hewitt, if that works out.

(© MMIX, CBS Broadcasting Inc. All Rights Reserved.)

More Special Reports

• New Economy
• Good Question
• Reality Check
• Don Shelby's Good To Know
• Finding Minnesota
• I-TEAM Investigations
• Project Energy