Tipsheet: Car dealers

Car dealerships are often the economic engines of their communities. When they can't make sales, they're not the only ones who suffer.

Toyota's announcement that dealers must suspend sales of eight popular models due to accelerator problems leaves those dealerships in "uncharted waters," one dealer told the Detroit News.

The freeze affects new and used models that represent 57% of the company's U.S. sales last year, according to the Wall Street Journal, which means dealers could lose more than half their business.

Toyota's move comes amid conflicting reports about car sales this month. As the Los Angeles Times reports, most predictions are for a better January than in 2009, but sales could still be down sharply compared to December.

When cars don't sell, dealers aren't the only ones who lose. Communities do, too. In some cities, dealerships are the largest single source of revenue from sales taxes. Now, some communities are moving to bail out their auto dealers. The Journal reports that two California towns have approved loans to local car dealerships to keep them afloat. And not everyone thinks that's such a good idea.

Some are worried that the loan puts the city on a slippery slope, similar to the one playing out in Washington, where numerous industries are now seeking federal assistance. Victorville Councilman Terry Caldwell, who voted against the loan, wonders how the city will react when the next request comes from a floundering business owner. "Once you start the process of government lending to the private sector, it's a spigot that you have a very difficult time turning off," he said. Other owners in town have "indicated a very strong interest in the city's ability to lend money and will probably make similar requests," he said.

Is anything like this happening in your area?

One more possible story involving car dealers: Remember when General Motors and Chrysler announced last year they were shutting down almost 2,800 dealerships across the country? Turns out more than half of the dealers on the list are appealing the decision. USA Today quotes the American Arbitration Association, which is handling the appeals, as saying the number could go higher. How many of those dealers are in your area?

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