The closure of dealerships will be bad for the economy, but not nearly as bad as some fearmongers are making it out to be
I recently read an estimate from a fearmonger who believes that 250,000 people will lose their jobs as a result of General Motors and Chrysler dealership closures. Here's how they arrived at that estimate:
In the next 12 months...America is likely going to shutter 5000 car dealerships. If each dealership averages 50 employees accross [sic] sales, service, management and finance.....we are looking at 250 thousand employees just from closing those businesses.
These closures will be very painful and bad for the economy, probably much more so more than many people currently realize, but the above "estimate" is waaaayyy off. I estimate that it overstates the impact of dealership closures by at least 300%.
Here's how I arrived at this conclusion:
First of all, I suspect that the estimate of 5,000 dealership closures is high...but for the sake of simplicity we'll go with it for now.
As of last year, the average new vehicle dealer in the United States had 53 employees.
The majority of the stores that are going to be closed by General Motors and Chrysler are smaller, underperforming locations not the big mega stores that have better economies of scale. So for the sake of this analysis one could probably safely assume that the average number of layoffs per dealership will likely be in the mid 20s.
Add to this that a number of the people at these dealers, such as the good service techs, will be picked up by larger dealers who will need more employees as their volume increases and we're likely talking about a net impact of the dealership closings of somewhere in the teens of jobs per point.
Let's say there's a net loss of 15 jobs per store closure
15 net job losses x 5,000 stores = 75,000 total jobs lost
That's bad, but not nearly as bad as a quarter of a million jobs lost. Also, it's going to take a lot more than twelve months to close all of these stores, more like two years at a minimum.
So instead of 250,000 jobs lost over the next 12 months, or an average of around 20,800 per month we're actually looking at around 75,000 jobs lost over 24 months, an average of 3,125/month.
That's the real, objective truth from someone who works in the industry.