In a Difficult Environment, Scarff Auto Center Closes Its Doors

By Beacon Staff

Following a liquidation sale to dispose of its remaining inventory, the Scarff Auto Center in Kalispell has closed its doors, putting 16 people out of work.

“It’s typical of what’s happening throughout the U.S.,” General Manager Greg Scarff said last week. “The Main Street stores are disappearing everywhere.”

On their Web site, the owners, Greg and Doug Scarff, cited three key reasons for the closure that amounted to a kind of perfect storm for their dealership, which sold Pontiacs, Buicks and GMC trucks, after the brothers bought the dealership in 1993.

In May, General Motors Co. notified the Scarffs they were among the 1,124 dealerships nationwide whose franchise agreements would not be renewed when they expired in October 2010. GM is also phasing out its Pontiac line, and the Scarffs were unable to secure another franchise agreement.

Last week, GM and Chrysler agreed to reconsider decisions to close thousands of dealerships in an attempt to compromise on federal legislation that could require the automakers to keep dealerships open. It’s unclear, though, how this move could allow some dealerships to remain in business.

The Scarffs also cited an extremely tight lending environment from banks, which made it tough to arrange financing for vehicle loans and for securing “flooring,” the credit line dealers use to buy their inventory of cars from auto manufacturers.

Finally, the recession exhausted the dealership’s working capital, even after the workforce was trimmed from its peak of 23 employees down to 17 or 18 in May.

Greg Scarff said his Auto Center has been selling its inventory to other dealerships, and teamed up with Don K Chevrolet in Whitefish for the liquidation sale.

Citing the current lending environment, and the weakness of the broader economy, Scarff said it’s likely more large dealerships will be able to weather the storm, with smaller franchises sharing the fate of the Scarff dealership. In Montana, that’s happening already.

Dave Jackson, the dealer principal of Headwaters Auto in Livingston, also had his franchise agreement cancelled by GM. In business there for seven years, Jackson will continue to operate Headwaters’ parts and service facility, and sell used cars.

He described an extraordinarily difficult environment for small- and medium-sized dealers, particularly in rural areas, who can only afford to add a small number of new vehicles to their inventory, then find their franchise agreement cancelled because they’re not sufficiently profitable. On top of that, attaining a credit line to buy new cars from the manufacturer has become “impossible,” he added, because banks don’t want to expose themselves when so few new cars are being sold to the consumer.

“It’s always been an industry that manufacturers were always so solvent that no bank batted an eye at the new vehicles,” Jackson said. “Once GM and Chrysler filed bankruptcy, now you see all the banks run for the hills.”

Jackson also laments the lack of control over their franchises many small dealers have been revealed to have in the wake of the auto giant bailouts, which conflicts with his beliefs on how an independent business owner should be allowed to operate.

“I always thought that business stays open by the owner’s decision,” Jackson said. “I sure wish it would have been our decision to close, not GM’s.”

The result, as these smaller dealerships close, Jackson added, is less choice for the car buyer and potentially higher markups on vehicles at the remaining dealerships that face less competition.

But at Scarff last week, even as the dealership prepared to close its doors, Greg Scarff was upbeat, enjoying the energy of the sale.

“The shop is swamped,” he said. “It’s just fun when you have a big event like this.”

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