Poor-quality car dealers. You know the score: dodgy facilities, salesmen you wouldn't trust with your pet rock, F&I guys who nickel and dime your paycheck into oblivion and service departments for whom "bilk" isn't just a word- it's a way of life. Industry analysts and desk-chair pundits alike condemn many (if not most) auto dealerships as a cancer on the industry. Believe it or not, car manufacturers share your distaste. Hence the reason the newly excised Chrysler LLC flashed its private equity muscles, threatening to close "underperforming" dealerships. Is that legal?
The short answer is: there is no short answer. Franchising laws come in 50 flavors. These state laws are extremely complex and vary enormously from jurisdiction to jurisdiction. If there's an overarching theme to these statutes, it's that they tend to favor (i.e. protect) the franchisees.
For example, in many states, a franchisor may not terminate or refuse to renew a franchise agreement without legally demonstrable "good cause" for doing so. Franchisees may also sue franchisors for injunctive relief (e.g. a court order prohibiting franchise termination) or rescission (undoing the franchise sales agreement), PLUS damages. Oh, and the Federal Trade Commission can step in to enforce state laws.
So, in business terms, Chrysler can shutter its underperforming dealerships, but their legal bill is bound to be on the Orion's Belt side of astronomical. In fact, any automaker considering cutting dealer deadwood has one word on its mind: Oldsmobile. GM's December 2000 termination of its Oldsmobile franchise is example no. 3 in the OED under the phrase "cataclysmic meltdown." When all was said and done, this little exercise cost General Motors about $1b- not including various intangibles that corporate PR folks might call "good will" or "public image."
Still, it's got to be done. Toyota has 90 American dealers for every percentage point of U.S. market share. General Motors has 300 dealers for every point and Chrysler is nominally better at 270. There is nowhere near enough space to detail all the reasons why this state of affairs is toxic for the American manufacturers. Suffice it to say, the end result is that the dealer bloat is stomping the life-support machine attached to Chrysler's sales numbers and wrecking what's left of Chrysler's battered consumer image.
Chrysler's decision to prune its dealer network can only go two ways. The manufacturer can either simply pay the dealers to shut down or fight them in court. Although the word extortion comes to mind, a pay off would be the quickest and easiest way to make the problem go away. Alternatively, Chrysler's lawyers could say screw you, see you in court; lots and lots of courts. If Chrysler's army of high-priced lawyers loses at trial, it'll cost them a ton of money. If they win at trial, it will still cost them a ton of money.
Chances are they'd win some and lose some and pay through the nose for the privilege. Either way, the bottom line is the bottom line: there's no inexpensive way for Chrysler to trim its dealer network.
There are more devious alternatives. Chrysler could reduce the amount of dealer "holdback." That's the money– roughly two to three percent of a vehicle's retail price– held by the manufacturers prior to sale. Dealers depend on this post-sale cash to book paper profits and make money. Chrysler could make the size of the holdback performance related, or simply drag their heels.
Chrysler might also say "Hang on; we've got some production issues. We've got to allocate our 300Cs very, very carefully. At this point, only five star Chrysler dealers can have Hemi-powered cars." There is precedent: SRT-8's are doled-out by corporate caveat.
While any such moves brings the threat of lawsuit, pretty much everything does. Chrysler can make life hard enough for "bad" Chrysler dealers that they'll have no choice but to send their dealership to the land of Plymouth, Eagle, AMC, De Soto, Nash, the New Yorker, Imperial, Cordoba, Daytona, Cirrus, Concorde, LHS, 440, Dart, Breeze, Spirit, Reliant, Omni and… well you get the idea.
There was one legal development of late, a silver-plated lining to the grey cumulus clouds filling The Big 2.8's sky. In Leegin Creative Leather Products v. PSKS, Inc., the Supreme Court overturned a 96-year old precedent that made any kind of vertical (manufacturer-set) price rules illegal on their face, without any other examination.
Under the old rule, dealers could make patently senseless decisions with prices, like fleece customers for $10k over sticker on a Solstice or mark Trailblazers down so much as to utterly pulverize their residual values. Now that General Motors or Chrysler or Ford can call dealers out on the carpet, they have much stronger control over some of the more foolish moves they make. It can't hurt, but it won't really help.
Good insights about the ability to renegotiate the holdback payments based upon CSI scores. There’s precedence for that, too — BMW and Land Rover do that already. (And psst, Audi does it, too, even though unlike the other two, they won’t admit it.) Sure, the surveys are bogus, but they still probably increase the overall level of service because the customer can use the survey as leverage over the dealer’s head.
Another area where manufacturers have leverage is with co-op advertising fees. These are reimbursements that retailers receive from manufacturers to advertise their products. Manufacturers have used these as leverage to prevent deep discounting and to reward favored retailers with higher payments, giving them an additional area for profit.
So there is a lot that Cerberus can do. As the 300-pound gorilla, it can afford to do a lot to squeeze down the size of the dealership network, and to give the heave-ho to the dealers that it hates the most. A small dealership isn’t going to have the money and staying power to win, no matter what the laws may say, and Cerberus knows it.
I wonder what happens if a company simply trims it’s product line down to next to nothing. GM could easily strip Pontic, Buick and GMC down to one unattractive model each and then let the dealers go away through starvation. Does franchise law require a company to keep making products?
Chrysler doesn’t really have this option as their brand lineup isn’t as crazy as GMs.
Here is my take. Let me preface this with fact that I hate dealers, I hate the whole car buying experience as it is and I blame the whole lousy franchise dealer system.
Having said and vented that though I still feel very strongly that the former big three should avoid going down the path of simply flipping off their existing dealers.
In my opinion the underlying reason that they are where they are today on the brink of bankruptcy is due to their long standing corporate culture of screw anyone and everyone as long as it benefits them. Damn the consequences. Whenever possible pay no heed to and do not honor warranty work even if it is a longstanding customer. Anytime you can extort and force your long term suppliers into cutting their prices even if it forces them into bankruptcy.
All screwing over their own dealer network will prove is that the former big three can’t be trusted. Why the hell would I buy a car from a company that won’t honor their legal commitment to their business partners? If they try and screw them over they deserve to be put out of business also in my opinion
The main reason they are overdealered is that Detroit once upon a time thought it was to their advantage to have those dealers. I remember reading almost 30 years ago that it was Detroit’s belief that the more dealers they had , the more money Detroit would make. The complaint then was that there were too many dealers but that it was the dealers problem.
Now compare that to Toyota and Honda. They actually wanted their dealers to make money. They didn’t sell 10 franchises into a small city simply because they (Toyota and Honda) made more money in the short run. Toyota and Honda are where they are because they have not lived by the F*** everyone else mentality.
Now its affecting Detroit and they want to cut dealers. Isn’t that special. Anytime the solution is how do I screw this person over, tells me that Detroit has not changed.
Hows this as a solution start making your cars like the old Neon. It was the exact same car for Dodge and Plymouth.
Corporations that go bankrupt, and reincorporate overseas will no longer have to deal with entrenched dealer networks. Do you think the dealers are starting to hear the water in the bowl swirl yet?
How many successful businesses are almost literally at war with those who build and sell their products and vice versa?
I believe the consolidation of dealer groups will shake out most weak dealer points. At least here in the midwest, the number of independently run points is dwindling. Multi-brand groups (Penske, etc) are scooping up all the high volume stores.
The scraps won’t be worth fighting for as they are starved by the mfgrs.
Is it not GM’s fault for not having clearly understood termination criteria in its franchise agreement? It would seem that large stale inventories would be the problem not the dealer network itself. They could just pull an Isuzu and quit selling cars and just have a few rebadged vehicles till the dealer network dries up.
They could just pull an Isuzu and quit selling cars and just have a few rebadged vehicles till the dealer network dries up.
That would be more difficult for Chrysler Group, given that much of the dealer network has already largely been consolidated into three-brand stores.
Great editorial. The local Dodge dealer totally destroyed my chance of ever buying another Mopar. Obviously, there are many others with the same feelings.
What I want to know, is how GM (when it bought Daewoo for pennies on the dollar) managed to just shut down Daewoo USA by not selling them any cars, and got away with it?
With that precidence in mind, couldn’t Cerebrus just say “well now we have Chrysler-Fargo dealers, and Dodge-Jeep dealers, and we’ll hand out franchises to whomever we wish, and to hell with the rest of you” and then 6 months later, “lose” the Fargo brand (which would be – historically speaking – simply rebadged Dodges).
For me it’s a moot point. I refuse to buy from the 2.8. Burn me once? Nope. I got burned about 15 times maybe more. I guess I’m slow to learn, but now I buy Toyota, Hyundai and maybe Honda.
I wonder if this is a chance for Chrysler to make better use of the Internet to give buyers an alternative to dealerships, even Internet-savvy dealerships.
I would drive some extra miles to pick up my Chrysler vehicle at some kind of corporate distribution spot if I could effectively shop, buy, and finance on-line. (Choosing a Chrysler over other brands is another story…)
If Chrysler gets rid of all those dealers where are they going to store their excess inventory? Surely dealer lots are cheaper than local airpots.
Sherman had a very good point, how did this franchise/dealer problem originate? These difficult franchise laws didn’t just sprout out of no where, there was most likely some catalyst(from the manfucturers) that put the dealers on the diffensive ages ago.
As much as I also hate the dealer car buying experience, this constant screwing over of people by the Big 2.8 has got to end. Where have all the honest business gone?
If I go to a corporate distribution spot to get my car, can I test drive there, too?
glenn126: GM got rid of the Daewoo dealers by having Daewoo USA go bankrupt and out of business. GM doesn’t own the Daewoo Korea that owned Daewoo USA that franchised those dealers; they own a large percentage of GM Daewoo, which bought certain assets (but not all) from Daewoo Korea when it went bankrupt. Something like that.
In any case, it’s not something that Chrysler or anybody else can replicate to reduce thier dealer body.
We can do better than the manufacturers by getting the word out about crappy dealers and their practices. It would be nice if there was a special section on this site about dealers that was broken down by state so the we can report things. I bet dealers would change pretty quick if they started seeing things from people rating the experiences that they have.
“how did this franchise/dealer problem originate?”
that’s an easy one………
car dealers are BIG contributors to state legislators, much like realtors and insurance agents
indi500fan that depends on what you are defining as the problem. I don’t think that I would place blame on our legal political system or on the dealers for defending their interests.
I define the problem as the former big 3 have too many dealers. That problem originates right with GM. Ford and Chrysler for selling dealerships simply because they thought it was to their advantage to do so.
Another way to look at it is this. GM went from 50 percent market share to 25 percent or less and they are supporting too many brands. Compare that to Chrysler/ It is my understanding that they have pretty consistently been at around 10 percent market share for 30 years. They have already eliminated Plymouth from the mix. So what is the problem now if Chrysler still has around 10 percent market share? So Chrysler is saying we have too many dealers now even though we had more dealers 30 years ago with the same market share and yet back then we were still selling dealerships.
I suspect the problem is that when GM, Ford and Chrysler ruled the roost that it was no big deal that they had too many dealers since they all did it and what did they care if the dealers were under capitalized and that many were not profitable.
However, Toyota and Honda didn’t play by the F*** everyone else mentality. They only sold enough dealerships as needed and they made sure their dealers could be profitable.
Now it is a big deal that well capitalized Toyota and Honda dealers are modern state of the art and true partners in selling the cars while the former big three dealers are old dingy and are at a disadvantage helping their respective parent companies sell cars.
Well whose fault is that? Its GM’s, Fords and Chrysler. Thats why even though I hate dealers, I hate the franchise system (I would prefer to buy either from a company store or directly from the company) I still don’t like the flippant attitude of screw the dealers they are the problem.
However, I still suspect that they will not be able to pull it off as if you corner someone and say we are putting you out of business, they can be expected to fight as they have virtually nothing to lose. In adition I don’t think that some of the better financed multi line dealers will also not fight to protect what is also basically their right to survive. If they can put a small dealer out then they can put a large dealer out of business.
How about Chrysler setup a distribution center in every major city, and undercut their “competition” into oblivion?
It isn’t unfair if dealers can do it to one another, why would it be for Chrysler?
iNeon, maybe you should buy a Mcdonalds franchise and then ask if it is unfair if the week afterwards the parent company Mcdonalds opens 3 restaurants a block away all around you and undercuts you in price.
Just my opinion but it generally does not make good business sense nor is it good karma to screw over your business partners.
So yes it is unfair unethical and yet it is also sadly typical of Detroit’s way of doing business. So many who work for the former big three wonder why people won’t give them another chance maybe it is precisely this F*** everyone else mentality.
Lets look at this from the dealership’s perspective. Assuming that it works like other franchises, they paid an initial franchising fee and may continue to pay an annual fee to the Corporation for the priviledge of selling their cars and using their marketing. Now the corporation says, “Thanks for the money, but we decided we don’t want you anymore.” Does that seem fair? A fair solution would be to buy back all existing inventory at some predetermined date and pay the franchisee the equivalent in current dollars to what they paid for the franchise license back when they bought it. If that’s to expensive then don’t do it. Instead produce a product for these franchises that the public wants to buy. If the franchise owners truly don’t know what they are doing then you should have never sold them a franchise in the first place.
It’s one thing if a franchise goes under on its own, but quite a different thing if the franchisor intentionally drives it into bankruptcy. Can you imagine McDonald’s, Taco Bell, etc. doing something like this? These brands try to build up underperformers not tear them down. Of course many of the mid-level managers (and higher) in these corporations used to work at franchises/own them. Maybe that could be the difference.
This is off-topic, but can someone explain how one company is allowed to act as both distributor and sole franchisee for Toyota in Hawaii? Seems to me that there is classic anti-trust case to be had, but no one seems to care.
Now it is a big deal that well capitalized Toyota and Honda dealers are modern state of the art and true partners in selling the cars while the former big three dealers are old dingy and are at a disadvantage helping their respective parent companies sell cars.
Sherman Lin, where do you live that this is the case? Where I live the domestics have far nicer dealerships than the imports.
@ Sherman Lin
I’ve got shortsightedness ideas:
“Big 2.x glossing over dealer saturation inefficiency circa 2000” : “Studebaker glossing over labor inefficiency circa 1950”?
or
“Big 2.x selling dealerships circa 2000” : “International Hockey League selling expansion franchises circa 1996”?
But the precisely unique combination of that and “f*** everyone else mentality” may have no historical peer.
RE:Lumbergh21
New car dealers do not pay the franchisor an “initial” or “annual” fee. The franchisor (Chrysler or whomever) make thier money by selling the dealer the cars and parts. Of course, there are other “monies” the dealer can earn by selling @ certain volumes and by attaining a high CSI mark. When the franchise is sold, then the selling dealer may (and usually does) charge the buyer a fee for the franchise. This is different that most other type of franchises though.
“We can do better than the manufacturers by getting the word out about crappy dealers and their practices. It would be nice if there was a special section on this site about dealers that was broken down by state so the we can report things. I bet dealers would change pretty quick if they started seeing things from people rating the experiences that they have.”
Harley owners have done this already. Check out: http://www.stealer-dealer.com/
Owners put their dealership and shop experiences on the site and it gives everybody a chance to see what they can expect. ALL, and I do mean ALL, the automakers need a site like this for their dealerships and they could trim the low performers out within a year.
Manufacturers do not sell a “franchise” it is granted if a propspective dealers meets specific requirements. Brick and mortar being a major requirement.
A dealer does not sell his franchise, the dealer does not own it, consequently he cannot sell it. A dealer can sell the actual business that operates under the franchise, and the good will (blue sky) of the franchise.
The prospective buyer of the dealer’s business can do a deal with the dealer, get turned down by the manufacturer and suddenly there is no deal.
Manufacturers make money with vehicles, parts, service, special tools, a myriad of fees, interest charges by the captive finance that floor plan the inventory, interest charges from retail fiancing and leasing.
Most manufacturers have been downloading their costs on dealers for quite some time. They are quite good at it, if a manufacturer squeezes a dealer, who does the dealer squeeze?
Manufacturers give dealers a 9 to 10 point spread up front, a 2 to 3 point spread as holdback, and many manufacturers keep an additional 2 to 3 points as a “performance” bonus which turns into a way to keep dealers on their toes, and have them tow the line with ever changing parameters. If employees would be graded and rated the way some of these programs work, they would file complaints to human rights.
Forty years ago a GM dealer had the same license that a Toyota dealer has today, and an effective lever on the part of the manufacturer was to grant additional open points. The over dealering was a way for the manufacturer to control how much money a dealer could make (“he’s making too much money, and getting lazy, lets put in another dealer”).
The success of the franchise system for many years was to have an “independant operator” own the dealership. Now its public companies.
One of the reason manufacturers were not interested in dealers was the “trade in / used car” aspect of the business. Much easier to stay away from the “horse trading” that was going on with used vehicles.
When it comes to manufacurer/dealer relations there is always an element of being adversarial since the best interest of one are not aligned with the best interest of the other. There are agendas that are transparent, others opaque, and others obscure.
Noticing the vast amounts of Toyota’s and Honda’s all around me today; I made an observation.
Not only are these cars totally appliance like and utilitarian. They are also just like a pair of blue jeans or t-shirt. Gets the job done and is not commonly looked down upon. Accepted, common, and in style. Good enough for most people.
Put on your jeans and t-shirt and jump in your Honda. Nothing wrong with that for most people.
Why do I wear jeans/t-shirt? Well it works, and it’s available, cheap, and lack of more desirable alternative.
Why don’t I drive a Toyota/Honda? Same reason I don’t wear something else. No desire. I just flat don’t want one. Anything can get me to where I want to go. Also, I work on my own vehicles and I’ve never been a fan of front wheel drive architecture. I hate working on those cramped engine compartments.
Still though, with all that being said. I still can’t shake the haunting thoughts of the past. I can fully imagine someones POS Grand Prix in PepBoys getting worked on often for who knows what reason. And the ToyHonda’s seemingly staying out of the shops. They may well be a better car and it’s now pretty much common knowledge and accepted fact.
They will be climbing a mountain trying to establish a reputation that a Cobalt, or a G6, or a Aveo is just as good or better than an Accord/Civic/Camry. Is a Fusion better? I just don’t know. I imagine most people aren’t willing to try for themselves after what most have been through for the past thirty years in regards to domestic cars.
Still, with all that said; I still won’t buy a Honyota. They just don’t do it for me. More money upfront and the parts are expensive. It would be boring as all out driving a Corolla back and forth to work.
Chrylser? What do they got? A PT and a Viper? If that Viper was lower cost then a Vette, they just might have something.. Put a power adder on that V10.. Or just put a V8 in it with a power adder..
The problem with PT is it’s just a dog. The can’t even move them at $9988. That’s how undesirable it is in it’s current state.
If it had a 50 mpg TDI motor in it, would it sell? If it was hybrid would it sell?
I think if it was V8/rwd it would sell..
If it was full blown electric and got like ~350 miles per charge and it was fast? I think that would sell.
All their other cars are lame ducks. Nothing special. Straight up rental car material.
I’m at the airport and they pass me the keys to a Sebring. It’s like Man…. come on. You got anything else? I don’t want a Sebring..
“How about Chrysler setup a distribution center in every major city, and undercut their “competition” into oblivion?”
The franchise laws in most, if not all, states prohibit auto manufacturers from owning dealerships.
A few random thoughts/questions. Perhaps those of you with greater understanding of the problem would educate me.
1. CSI numbers, as I understand them, are mainly indicative of the dealer’s ability to cajole customers into giving hgh ratings. Why then would I – “joe customer”, or for that matter Chrysler give a damn about CSI numbers? Why give preference to the 5 star dealer when there may not be any actually difference in quality between a 5 and a 4 star? (Aside from cajoling skills)
2. Small town/rural dealers aren’t going to make the volume per store numbers that a city dealer makes. But isn’t it still valuable to be where potential customers are? Does Chrysler need to loose any opportunities to sell cars?
3. Franchises exist in many places. You could have a McD’s fanchise in the shadow of skyscrapers, or in the shadow of a grain elevator. The big city franchise undoubtedly makes more money, but does this automatically mean that the small town McD’s is second rate? Does every dealer have to become a millionaire? And how does that affect me -“Joe customer” ?
Excellent article. There are no heroes in the upcoming battle. Each side is guilty of crap behavior. However, a dealer shakeout is necessary. And the state laws they’ve hidden behind all these years reduce my sympathy level to near zero.
I do feel sorry for the quality, small volume dealer. They’re crushed between the hammer of the 2.xxx lackluster lineup and the anvil of their screw-the-customer-and-the-brand ‘brother’ dealer ten blocks down the street.
Re: In Leegin Creative Leather Products v. PSKS, Inc., the Supreme Court overturned a 96-year old precedent that made any kind of vertical (manufacturer-set) price rules illegal on their face, without any other examination.
I wondered how that legal animal would play in the car biz. Chryslerberus may want to test it out. Also, they should employ test shoppers at dealer service departments to see which dealers screw their customers the leastdo the best repairs.
If it had a 50 mpg TDI motor in it, would it sell?
Interestingly, well as much as Nylon Slacks can be interesting, the so far failing to impress Chrysler Sebring in the UK has a VAG 2.0 TDI engine in it.
Still with the exchange rate this way round they will make money on every one sold here. Are you watching Mr “I’ll import Opels” GM ?
mykeliam:
There was a site like that for VW dealers, 1.8t.org. As everyone should know: most VW stealers are notoriously bad, so it was a helpful site to have as a resource. Out of the two dealers closest to me, one was rated horribly, and one was rated very well. The one that was rated horrible also wanted $40 each for a parking brake cable for a 2000 Jetta, when they should only cost $15. If you have to go to a VW dealer for parts or service, make sure you bring the petroleum jelly.
CSI numbers, as I understand them, are mainly indicative of the dealer’s ability to cajole customers into giving hgh ratings. Why then would I – “joe customer”, or for that matter Chrysler give a damn about CSI numbers?
On one level, they’re bogus, but nonetheless, I believe that they probably lead to better service. The fact that the customer can threaten the dealer with a bad ranking, and that the manufacturer responds to bad rankings, gives the customer added leverage in their exchanges with the dealership.
In my view, customers would be best off if they understood this advantage and used it. While it may perfectly fun to complain to the Better Business Bureau (which couldn’t care less about your problem as its sales reps try to sell BBB membership to the owners of the dealership), you are sometimes better off going to the automaker itself to complain. If the automaker can and does withhold money, reduce its marketing assistance, etc., then sure, the dealer might be more likely to listen to you.
Now it is a big deal that well capitalized Toyota and Honda dealers are modern state of the art and true partners in selling the cars while the former big three dealers are old dingy and are at a disadvantage helping their respective parent companies sell cars.
Sherman Lin, where do you live that this is the case? Where I live the domestics have far nicer dealerships than the imports.
Around Ohio, at least where I’ve been, the Big 2.8 always have old and grubby showrooms while the imports are nice and modern.
John
Of course one might think that an older and fully depreciated building might result in less overhead and lower transaction costs.
While there are exceptions to every rule, my general experience is the newer, brighter, and bigger the facility, the more likely they are to be like a pack of ravenous dogs at the sight of a possible customer, LOL.
If the conclusion of this article is that the current dealer system is a straitjacket on the manufacturer, then chapter 11 does seem like the most attractive option. If I understand correctly, Chapter 11 allows them to renegotiate or abrogate a lot of their contracts, both on the production side (UAW) and on the sales side (dealers.)
The danger, of course, is that nobody knows what a chapter 11 filing would do to their most precious intangible resources, reputation and image. It seems to me that of the three groups that can be screwed by the manufacturer (the workers, the dealers, or the customers) it is the customers who have to be screwed the least (in terms of warranty obligations, which should be honored at all costs.) Because of any company screws the customers who took a risk and bought a new vehicle from a troubled company, it’s going to be an insurmountable battle to regain that trust in the marketplace. The workers and the dealers they can either live without or kiss and make up later, but if they poison the relationship with the people who pay the bills, that is, the buyers, then they might as well skip chapter 11 altogether and go straight to chapter 7 (liquidation.)
Pch101 :
August 27th, 2007 at 10:40 am
…………So there is a lot that Cerberus can do. As the 300-pound gorilla, it can afford to do a lot to squeeze down the size of the dealership network, and to give the heave-ho to the dealers that it hates the most. A small dealership isn’t going to have the money and staying power to win, no matter what the laws may say, and Cerberus knows it.
I hope Cerberus goes after poor dealers, not “Small Dealers”. There is a HUGE difference between the two. A small, but significant portion of the Big 3’s remaining market share is directly attributable to their small, rural dealers that make it much more convenient to buy and service a new car than their foreign competitors. I know in rural New England, many people only shop at their local dealers, because the closest dealership of ANY other kind is an hour away. I also see this in rural Quebec across the border. The big three ought to be very, very careful about sending people into a competitors showroom they never even considered visiting, just to get their dealer count down to some arbitrary number an armchair auto analyst pulled out of their rear-end.
86er “Sherman Lin, where do you live that this is the case? Where I live the domestics have far nicer dealerships than the imports.”
I live in Tampa. This article is one of many that speaks to the disadvantage that domestic dealers face. They have a harder time to generate the profits to keep their facilities as up to date and modern as their import counterparts. In our area the Buick dealer that in the 80s and 90s use to advertise that they were the 4th largest in the US. They are closing down and selling the lot for real estate. The Olds dealer was a multi line dealer Olds, Chrysler, Jeep Chevrolet. They use to advertise they were over 100 years old. Olds closed down, Chrysler closed down and real estate sold Chevy still there. The more desirable spots on dealer row have also been switching ownership from domestic dealers to import dealers.
thanks for clearing up the franchise agreements in the car business for me. I agree that closing down dealerships just because they are rural low volume dealers would be a BIG mistake. Even though I own a Mazda, Mazda is off the board as a new car for my wife as the nearest dealership closed and now it’s over 100 miles to a Mazda dealership. This also has to be a factor in buying a Saturn, since GM dealerships are not allowed to perform warrantee work on a Saturn, why would you even consider a Saturn unless there was a dealership in your town? A dealer of some renonn in these parts is a small Chevy Dealer located in a town of 2,000 about 80 miles east of here. The same guy has owned the dealership for over 40 years and is known for doing things like stopping to change a customer’s tire along side the road, or giving a customer a free tow in the middle of the night if their car breaks down. Closing this dealer, for instance, would be a big mistake.
Go to http://www.dealerrater.com, you can praise or bash anyone you like, whether it is warranted or not. The only bad review we have is by someone who refused to believe that under the Patriot Act we are required to perform a background check to make sure NO ONE is a terrorist trying to launder money. And, said person could not come to grips with the fact that we do not accept site drafts that are not worth the paper they are printed on. (Any merchant in this country can accept or deny any form of payment they choose.) In most cases, we are able to (and do) beat the finance rates the dot.com banks try to pass off as competitive. Even our over zealous, anti-business Attorney General cleared us of any wrong doing (yes said person filed a complaint against us).
Franchises promote competition, at least in this business. Ford tried getting into the dealer business in and around Indianapolis and failed. Even Saturn stores will compete with each other on the trade-in value.
Crappy dealers give the rest of us a black eye. Unfortunately the average, complacent, lazy, uninformed American consumer keeps them in business. Those of us who do care give back to our communities until it hurts. Other than the NADA and it’s members, who else sponsors and hosts “child safety seat” days (etc)? There aren’t many.
The only vehcile we EVER sold over MSRP was our first S2000 that was allocated to us, and EVERY penny over went to the charity of the customer’s choice.
Even though Sherman is a dealer basher, I agree with most of his comments as they are accurate. Unfortuneatly for Sherman, he lives in a state where the reputation for (most) dealers is quite crappy, to the point where it is common knowledge amongst dealers. No offense to the good guys/gals, you know who you are!
“They could just pull an Isuzu and quit selling cars and just have a few rebadged vehicles till the dealer network dries up.” isuzu makes a lot of other products back home that keep them afloat. The not so big 2.? sold off everything to raise cash, leaving them with little to fall back on. And, at Isuzu’s volume level, the not so big 2.? would starve themselves off in a hurry.
Dealer basher?
I just think the current process sucks. Its ridiculous that the last 3 houses that I purchased were done quicker and easier than the last 3 cars. In all of these situations the buyer (me) and the sellers all knew what price we would ultimately be willing to complete the transaction.
Yes there is haggling but it is all adult and quickly done. With autos they look you in the eye lie and treat the customer like crap. It always takes me two days to buy a car because I refuse to pay the suckers price. But the system is what it is.
No matter I still abhor the way manufacturers are trying to give the shaft to their alleged business partners. i use to be a former small business owner so I can have empathy for the dealers (I just hate the system). I also strongly feel that this type of negative relationship trickles down to the dealer customer level.
If Chrysler, GM and Ford think so little of the dealers that they feel they can give them the shaft simply because it is convenient then why is it a surprise that dealers would also give the shaft to the end customers when it is convenient.
If Chrysler, GM and Ford think so little of the dealers that they feel they can give them the shaft simply because it is convenient then why is it a surprise that dealers would also give the shaft to the end customers when it is convenient.
I don’t see the linkage between the two. The retail side of the car sales business is inherently sleazy, and there is not much that the manufacturers can do about it, even if they want to.
The reason for the sleaziness is simple — sleaziness increases dealership profits. The big-picture reason for the problem is that the car sales business is what economists call an “imperfect market,” which is to say that it is difficult for the consumer to know what to pay for the product, so the final transaction prices are all over the board.
Sleaziness helps to increase that transaction price, and because some well-placed sleaziness can add a lot of margin to a given sale, they do it. If there was some “magic price” that every consumer could pay to buy a car, and if everyone could easily figure out that price was, then the sleaze factor would die off because it wouldn’t help the business.
Add to this that the transaction often involves two or three different components — a car being sold, another car being taken in trade and a financing package accompanying the sale — and the opportunities for playing the classic shell game increase. Of course, they play that game because it adds profits. If you do all three, chances are the dealer will make more from stealing accepting your trade and the fees earned from the F&I package than from the actual car sale itself.
This system is so inherent to the business that there isn’t much the automakers can do about it, even if they cared (which they don’t care about much, really.) GM tried it via Saturn, but the fixed pricing model has limited appeal, because most customers feel that they are overpaying because of it (which in fact they are — they could by a competitor’s car at a lower margin if they haggle effectively), which limits sales and the appeal of owning such a dealership.
The only way that this would ever change is if the manufacturers got into the retail side and compensated the staff based upon a salary/bonus, rather than commissions. But manufacturers are not generally any good at retail, and in any case, the consumer may still find it distasteful if the salaried car seller doesn’t negotiate the price. That’s OK at Starbucks, but not acceptable on a $30,000 product.
Cars are so expensive that most consumers expect to negotiate and actually want to negotiate — a good haggle can save hundreds or thousands of dollars — so the “dream” store where the sleaze disappears may not be that appealing to the majority of car buyers when it comes at such a high price.
pch101,
Even if manufacturers would get in the retail business its not better, and in some cases worse.
Its easy to get the cost of any new vehicle, and to know which programs are applicable. Over 30% of consumers are “upside down” in their trade-ins (negative equity), which opens a pandoras box of variables and possibilities.
If every customers that steps into a dealer has a vehicle, then 1 in 3 is upside down and will need some creative financials to “roll over” deficiencies from the trade in.
Manufacturers narrow the margins on the dealer, the customers are upside down in the trade ins. Its an interesting showroom scenario.
“service departments for whom “bilk” isn’t just a word- it’s a way of life.”
That is exactly why I will never buy any GMC vehicle again. Three years of warranty and three years of the same old refrain, from every dealer I went to…. “We can’t replicate the problem.”
Allow me to translate: The defect did not jump out and bite us on the nose and we are unwilling to actually diagnose the problem so, too bad, you are stuck with those defects.
Well, I bought the 8-volume shop manual. I was able to trace down the problem points for most of the defects to but one or two components. If I can do it, what can’t the supposedly trained SAE rated mechanics at the dealerships? Corporate GMC didn’t care, they just told me to “go to the dealer.”
Okay Chevy/GMC, I was “this” close to buying Toyota. That’s where I will go next time. Perhaps Honda. Anywhere but any GMC product.