As executive manager of the Calgary Motor Dealers Association, Jim Gillespie has talked to members who are having a great year selling cars.

Others are struggling just to stay open.

"What you're seeing out there right now is pockets of optimism," he says. "January is typically your softest month of the year (for sales) in any type of economy. But we've still had some of our members who had a record month compared with last year."

Manufacturers typically require dealers to purchase their new car inventory up front, ordering and paying for it months in advance.

Brennan O'Connor, Business Edge
Companies put a brave foot forward at the International Auto Show.

If sales are slow for the first few months of the year, many dealers resort to deep discounting or other incentives, which makes small profit margins even smaller.

Gillespie says that hasn't happened yet in the Calgary market. "Generally everyone is being successful by just sticking to their game plan.

"We have noticed it's been a bit more difficult for some customers to get credit, though. People who usually would have been approved for financing with no problem are getting declined."

Finance Minister Jim Flaherty announced initiatives in last month's federal budget to purchase $12 billion worth of car loans and lease agreements from finance companies. That would inject more liquidity into the system and allow firms, including Chrysler Finance and Toyota Financial Services, to extend more credit, which would hopefully help dealers close more sales.

But the Harper government backtracked after that budget announcement, saying the funds would not start flowing for at least two or three months. It also hinted part of that $12 billion might go to helping other businesses and their credit markets.

"That was certainly helpful, but time will tell really how helpful the government was with that announcement," says Gillespie. "A lot of it depends on how the United States does, too. I mean, they're our largest trading partner."

Blair Qualey, president and CEO of the New Car Dealers Association of British Columbia, says they were encouraged to see the budget line about automotive financial markets.

"The announcement was important, but it's also even more important to get those funds flowing as quickly as possible. We'd like to see them go even one step further and extend it to the dealers themselves," Qualey says.

"Right now it's easier for consumers to get credit financing than dealers, and they are the ones that need to have the vehicles on their lots."

U.S. car and truck sales, after spending most of the past decade hovering at about 16 million vehicles a year, are forecast by most analysts to plummet to about 10.5 to 12.5 million in 2009. A majority of foreign and domestic automakers already posted at least 25-percent sales declines in January.

Dennis DesRosiers, automotive industry analyst.

General Motors Canada Corp. reported a 49-percent sales drop for the month of January, its lowest level in 20 years. Meanwhile, sales at Chrysler Canada Inc. skidded 33.7 percent and Ford Motor Co. dropped 14.7 percent.

Japanese brands didn't fare much better. Honda Canada came in at 37.1 percent lower, Nissan Canada dropped 16.1 percent and Mazda Canada declined 12.3 points. Bucking that trend, however, Toyota reported its sales were down only 2.7 percent, Hyundai Canada said business was up almost 19 percent and sales at Kia Canada increased one percent.

In Toronto, auto industry analyst Dennis DesRosiers predicted 500 dealerships may close across Canada over the next decade. He said in a speech last month that GM, Ford and Chrysler were "highly over-dealered" with one on almost every corner.

In a client note sent out the next day, DesRosiers added the average return on sales for a new vehicle dealer is about 1.8 to 1.9 percent. That means the average dealer made an average after-tax profit of $362,000 per store, after carrying about $8 million per year in commercial debt.

"This, my friends, is a recipe for serious dealer attrition. Indeed, a more realistic total could be twice what I said yesterday. I don't think that would happen but if it did it wouldn't surprise me one iota," he wrote.

But Huw Williams, an Ottawa-based spokesman with the Canadian Automobile Dealers Association of Canada, was quick to play down DesRosiers' predictions. "There are a lot of things working in the favour of car dealers right now," he says. "You have the best selection of the year and the most affordable prices in history. The time to buy is now."

Gillespie says the Calgary Motor Dealers Association has 75 members across the city, with industry estimates showing an estimated 3,000 dealers across the country.

The British Columbia New Car Dealers Association has 360 members across the province, says Qualey, adding that was just enough for consumers. "There may be several dealers in one community and only one in another, but it's all about service and selection for the consumer," he says.

"People are still going to need to drive around in cars, no matter what the economy. They may hang on to those cars longer and it could mean added business for the dealer body shop, but at some point the car will need to be replaced.

"This industry will be around for a long time to come."

(David Hatton can be reached at hatton@businessedge.ca)