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AUTO DEALERS URGED TO CUT INVENTORIES

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As automakers fight to hold their shares of a shrinking automobile market, the nation's dealers - the companies' first customers - are being urged to toughen their act.

U.S. auto dealers have been watching their profits slide. Industry estimates indicate that one of every two dealers is either losing money or just breaking even.And now the president of the nation's largest dealer organization is urging the businesses to make drastic cost-cutting moves.

It appears to be another step in a growing militancy among the 20,000 members of the National Automobile Dealers Association since Ron Tonkin took over earlier this year as the organization's president.

Weeks ago, as automakers prepared for the Oct. 1 beginning of the 1990 model year, dealers said they would cut their orders, perhaps by as much as 30 percent of last year's.

Tonkin, through an advertisement in automotive trade magazines, is turning up the heat.

He is urging dealers to take cost-cutting action, especially in "flooring." Flooring is the money paid, mostly in interest, to hold unsold automobiles on dealership lots. It is one of the biggest expenses for dealers, Tonkin said.

Cutting inventory will cut stock-carrying costs, he said.

Before the advertisement appeared, dealers had begun cutting their orders. On Thursday, when the companies reported sharply lower third-quarter earnings, officials with each of the Big Three automakers confirmed that recent dealer orders were lower than a year ago. They declined to say by how much.

Ward's Automotive Reports, a weekly industry newsletter, said domestic automakers' dealers had a 59-day supply of cars on hand at the end of September.

The Fast Track News, a sales-oriented newsletter published every 10 days by Integrated Automotive Resources Inc. of Wayne, Pa., said dealers had a 66-day car supply on hand as of Oct. 20.

Tonkin suggested that a dealer who had considered a normal supply to be about 60 days slash that to 15 to 30 days.

"Let's face it," he said. "If every dealer in this country decided that they had 50 percent too much inventory, if it all happened at once, it's going to impact production."

While helping dealers cut their costs and improve their profits, such a move could further hurt manufacturers who already have taken these hits:

-The companies have said that incentive programs, which gnawed away at profits during the first three quarters of this year, probably will continue into the fourth quarter and 1990 but at lower levels.

-Vehicle sales this year are predicted to be somewhere between 14.5 million and 15 million cars and light trucks. That would be down significantly from the 15.6 million sold in 1988.

-The sales downturn likely will result in more production cuts, analysts have said, mostly coming in short-term downtime for "inventory adjustment."

-Third-quarter profits for the nation's Big Three automakers, reported last week, were 27.3 percent below last year's earnings. And executives with each company have said the pressure on profits won't let up for at least a year.

"The outgrowth of this," Tonkin said, "has been a flexing of strength, a feeling on the part of dealers that they no longer have to fear stating their real feelings directly to the automakers and their (sales) representatives.

"Maybe it's time that they joined us," he said of the automakers. "We have been in the red for some time."