As Robert wrote earlier, GM is piling on the incentives to move metal in a January market that seems to be moving like molasses. And though GM and its finance units are benefiting from the largess of the federal bailout bonanza, their decision to delay incentive payments in December is putting the squeeze on its dealer network. Especially as they’re forcing dealers to buy more inventory in order to qualify for incentive cash. Automotive News [sub] reports that GM’s $4b loan “provided a short-term relief,” but “it didn’t fix the issue,” according to GM’s Mark LaNeve. La Neve tells AN that he isn’t planning on altering the incentive schedule. So, although payments have resumed, they are now two weeks behind schedule. And he doesn’t know when they’ll return to the normal schedule; it all depends on when tranche deux of the federal sugar shows up. Meanwhile…
“If you look at the stores that closed, it’s cash flow,” says Ken Fichtner, owner of Fichtner Chevrolet in Laurel, Mont. “It’s harder on the bigger stores than the smaller ones because often they grew too fast.”
And things will get worse before they get better.
Jacques Moore, owner of Moore Cadillac in Richmond, Va. tells AN “it’ll be a lot more awkward when business picks up because you’ve got more money hanging out there longer. But if we go back to normal volume, then it’ll be tough to catch up. It’s a significant cash flow issue and a significant payment that gets delayed.”
Good thing then, that dying dealers are a crucial component of the GM turnaround.
Another way that GM can squeeze the weak cash position dealer and trim the network. GMAC is also demanding cash write downs for aged new and used vehicle inventory. Dry up the dealer’s cash flow and you effectively put him out. Seems to be working in the area. Two long standing Chevrolet points have folded locally here in the last 30 days. One Ford also went dark, plus the nearest Saturn dealer. I’m sure more to come in the future.
Just to be pedantic, Molasses in January moves surprisingly fast
If I’m a dealer that sells two different makes, and one pays me on time, which one do you think I’m going to work harder to sell?
Screwing your dealers/employees is not good business practice for any company. I know when I worked at one corporation and they decided to outsource our function, amazingly our expense accounts were maxxed out, and productivity dropped to a tiny amount.
I also enjoyed showing my contractor replacement the least efficient way to do things.
Sounds like that for once, a GM plan is coming together.
Quuote : “ “If you look at the stores that closed, it’s cash flow,” says Ken Fichtner, owner of Fichtner Chevrolet in Laurel, Mont. “It’s harder on the bigger stores than the smaller ones because often they grew too fast.””
Exactly…the rural dealerships where I grew up are doing relatively well because they never had a lot of habitual new-car buyers in their customer base to drive up new car sales anyway. They never forgot that you can make more money in your service department than you can your showroom. On the used car side, they are doing quite well buying a whole bunch of very cheap, low-mileage, relatively new off-lease cars at the OEM’s dealer-only auctions and they’re still making money via F&I as well, especially on used cars. They never abandoned the traditional revenue streams of their business because their customer’s buying habits didn’t change-they didn’t get new-car fever and so now those dealerships are best-prepared to survive these turbulent times.
Rural folk tend to put more cash down on the deal, have cleaner credit ratings with more open lines of credit and do not tend to get caught up in fads and trends-such as owning a new car every two or three years.
Dealerships typically can make money four ways…1: New Car sales 2: Used Car sales 3: F&I 4: Parts and Service Department sales. The rural dealers never forgot these simple business principles of running a car dealership…the big dealers who got caught up in focusing on new-car sales volumes are now seeing that relying on new-car sales is only one-leg of a four-legged stool and it’s kind of hard to balance yourself on a one-legged stool folks.