Some local auto dealers urge lawmakers to rescue industry

State auto dealers have seen a major consolidation in the industry. (Gene J. Puskar/Associated Press)

Some local car dealers are aggressively lobbying politicians to help rescue the auto industry, saying a bankruptcy of any major American automaker could wipe out more than 20 percent of the dealerships in Massachusetts.

With General Motors Corp. warning it may run out of cash by the end of the year, lawmakers are scrambling to come up with a financial package to help prevent a collapse of the auto industry. On Wednesday, House Financial Services Committee chairman Barney Frank, a Newton Democrat, unveiled a proposal that would authorize $25 billion in loans from the Treasury's financial rescue plan for GM, Ford Motor Co., and Chrysler LLC.

"Everybody is working very hard in getting employees to call legislators to get this done and done fast," said Ray Ciccolo, the president of Village Automotive Group, which includes GM brands such as Hummer, Saab, and Cadillac. "Without a bailout, this could affect millions of jobs across the country and hurt dealers here. And sales would probably grind to a halt."

Ciccolo, a board member for the Massachusetts State Automobile Dealers Association, said a GM bankruptcy would put at risk hundreds of thousands of dollars owed to individual dealers for cash back offers, advertising expenses, and other programs - at a time when many dealers cannot afford to absorb such costs. Car sales have dropped sharply over the past year, with many local dealers reporting 20 percent declines or more.

Over the past few years, Massachusetts auto dealers have seen a major consolidation in the industry, with the total number of dealerships shrinking to 461 from 533 in 2006, according to the Massachusetts State Automobile Dealers Association. Currently, there are about 70 dealerships that have one or more domestic GM brands statewide, and Ciccolo estimates that at least 25 percent would go out of business if the Detroit automaker filed for bankruptcy protection.

"Each of the Big Three carmakers have too many dealers," said Stephen Selbst, a bankruptcy lawyer with Herrick Feinstein in New York. "The consensus is GM would have to reduce the number of dealers, and in that scenario, the smaller dealers are going to be the ones to go, and the bigger dealers are likely to be the ones to survive."

Consumers concerned about warranties or the resale value of the car would likely avoid bankrupt brands, said auto analysts. Indeed, a national study of 6,000 consumers this summer by auto research firm CNW Marketing found that nearly 84 percent said they would not buy a GM product if the company were to file a bankruptcy petition.

"In today's marketplace, bankruptcy for General Motors [or any major automaker] is a death knell. While still the biggest automaker, GM already has a dwindling market share," the CNW report said. "Admitting defeat, as bankruptcy would do in the minds of consumers, sends shoppers other places. There is no loyalty to the brand."

Jerry Chase Jr., the owner of Framingham Ford, said bankruptcy just isn't an option.

"Government loans for the auto industry is something that's desperately needed," said Chase, who said he has pressed lawmakers in calls and letters to support a package. "If GM goes down, it will take Ford and Chrysler down with it and suppliers and other small businesses."

But not everyone believes a Chapter 11 filing would be so damaging. Auto magnate Herb Chambers, whose chain of dealerships includes seven GM franchises, said he believes a bankruptcy would allow the automaker to shed some of its costly labor contracts and get on "even footing with the European carmakers."

"No matter what happens - whether it's a bankruptcy or bailout - GM is going to be building cars, and I'm going to be servicing them," Chambers said.

In an effort to immediately boost auto sales, Senator Barbara Mikulski, a Maryland Democrat, proposed a tax incentive on Wednesday for new car buyers, allowing them to temporarily deduct sales and excise taxes - and interest on auto loans - from their income taxes.

Meanwhile, Treasury Secretary Henry Paulson yesterday urged Congress to come up with money for automakers that is separate from the $700 billion financial rescue plan, saying it was designed for financial institutions, not manufacturers. Paulson said any rescue plan for GM or its rivals should also ensure a long-term future for the firms.

Nonetheless, Ernie Boch Jr., head of dealership giant Boch Automotive, says he strongly opposes a government bailout for the industry. Boch, who used to carry GM's now-defunct Oldsmobile brand, said the automaker should take responsibility for its position.

"GM has put themselves in this situation. Why give the same bad management money? You're just delaying the inevitable," Boch said. "You can't throw good money at a bad situation."

Jenn Abelson can be reached at abelson@globe.com.