You need to think in terms of production vs. sales.
Since the end of WWII, all the domestic automakers have been focused on is production. Build more, produce more, sell more, gain more market share, make more money. It's been a never-ending desire for more. Really, it's been an addiction. They been out of control in their desire for more, and they've built their business models around production. You can't make more money until you can produce more product. It's that simple.
More production (supply)is great as long as you have customers to buy your product (demand). That has worked for the entire industry until recent years. Even as little as 2 years ago, the US market was able to buy 17 million new cars and truck annually, by far the largest market in the world. I read a market report from Lexus stating they predicted the US market to grow to 20 million in sales by 2010. Obviously that won't happen but the US market has always had a voracious appetite for new cars and trucks.
A big part of this appetite has been driven by manufactured demand. The automakers have changed the way products are promoted and sold by creating consumer demand. One way to do that is with marketing, advertising and promotion. Another way is to flood the market with supply, like car dealerships. There is a business theory that if you build it, promote it, and sell it, people will buy it. Look at shopping malls in this country. Do we really need all that retail shopping? Is it really necessary? No, of course not. But, it's been proven over and over that if you build it, people will go to it and spend their money. It's American Consumerism at its finest. The car business works the same way.
OK, everything is great when demand is met with supply, and supply can keep up with demand. What happens when demand drops? Like, maybe there is more competition, meaning everyone gets a smaller slice of the pie. Or the economy tanks and there simply isn't enough customers demanding new cars and trucks?
Now, you have all these locations for people to come and buy what you are selling. But, they aren't buying anymore. Those locations cost you money to build. You have to promote them, advertise, maintain them, keep them viable..... until the business says they are viable no more. Now your dealerships become a huge cost liability. They begin stealing sales from one another, driving down prices and eating up profits.
In the end, you can let your dealers slowly kill off each other or you can close stores, cut expenses, and refocus your business on a smaller but more profitable sales model. All the automakers need to change their focus from production volume (making a little money on a lot of sales) to profit per unit (sell fewer units but at a higher profit). Look at how well Apple Computer does vs. Dell Computer. Apple is all about profit margin while Dell is about high volume and low margin. Who has been more successful over the past 10 years?