As part of Viability Plan III, GM announced its intention to close 42 percent of its bloated dealer network, reducing the number of stores to 3,600. That’s a cut of 2,600 dealers. Our take on that part of that part of the new new new new new new new new turnaround plan: a Mandarkian laugh. American car dealers are covered by 50 states worth of franchise laws; politicians don’t get elected without the support of their local or state dealers’ council. Any dealer cull would have to wait for a bankruptcy judge. Nuff said? Apparently not. Wards’ Dealer Business reports that The General is laying the groundwork for an anti-dealer jihad, regardless of the “niceties” of C11.
The zombie automaker is looking to weasel out of their agreements by, get this, voiding thousands of contracts on the basis of dealer-perpetuated customer satisfaction index and export-related fraud.
“Already, the company is informing dealerships it is auditing customer-satisfaction- index (CSI) scores going back five years to evaluate whether fraud occurred. In cases where GM determines a dealership submitted fraudulent CSI scores, the auto maker can terminate the franchise agreement, says Michael Charapp, an attorney with Charapp & Weiss, LLP, in McLean, VA.”
GM’s dealer audit might also include “warranty claims and sales in which vehicles may have been exported to foreign countries, a practice all auto makers prohibit.” You gotta wonder: what IS the point? When GM files, all the dealer contracts can be rendered null and void. Fin. And after that, buh-bye floor planning (dealer loans to buy inventory) costs. Fin II. In other words, the perfect storm bearing down on dealers will leave few survivors for “good” GM to kill.
A large Chevrolet dealer in Tampa, FL, believes GM’s recently announced 2-month plant shutdown this summer will force many dealers out of business.
“There are a lot of dealers who are carrying thin inventories,” he says. “Because of floorplan costs, they’ve cut their days’ supply to less than 60 days. Those guys are going to have a tough time making it two to three months without inventory.”
Dealers will not be able to rely on used-vehicles, because they won’t be taking trade ins with no new cars to sell. They also won’t be generating cash, which means they won’t be able to buy vehicles at the auction.
Additionally, banks providing floorplan loans that let dealers buy new vehicles from manufacturers likely will pull the financing from a large number of GM dealers should the auto maker file for bankruptcy. The result being GM may watch its dealership count plunge far lower than its 3,600 target.
And then, finally, reality.
In the end, GM might not have to do anything. It’s likely to sit back and watch the market take care of closing its dealerships.
After this, why would anyone want to open a new GM dealership after this when (if) things get better for them?
Look for US government (oops, taxpayer) funds to keep all of them alive.
The lucky survivors will have the right to sell Impalas and Aveos to a public that will be lined up none deep. Congrats.
Wow, this is exciting! Can’t wait to go on line each day to keep up with this soap opera.
Thank you TTAC for keeping us informed.
I like how GM is going to get rid of dealers in the most weasel-like way they can think of. Seems like there might be more goodwill toward what’s left of GM if they just did a chapter 11 declaration and closed dealers. I can’t imagine the hatred toward GM they’ll generate by using this method. I’m not surprised though.
One quibble regarding the dealers’ availability of cash – “They also won’t be generating cash, which means they won’t be able to buy vehicles at the auction.” The new car showroom doesn’t make much money – it’s just an excuse to have a service and parts departments, which do generate cash. I think we can count on GM cars to to continue to need parts and repair, so they should be able to buy auction cars.
Too low inventory? I thought the problem was that GM and its dealers had too much inventory. Can’t the little dealers buy excess inventory from the big dealers? Or, they can’t finance such purchases because the money train is no longer coming down the tracks?
Oh, the irony!! Dealers have been weaseling their customers for years…and now GM is doing it to them!!!
“Mandarkian laugh”. Ha! Ha ha! HA ha ha! Awesome. Obscure but awesome.
It’s generally said that in order for a CSI score to be valid, they are given by a third party with zero interaction by the person who will be evaluated by the result of that score. I’ve had several CSI forms after vehicle service, and the service writer always insisted I talk to him if I cannot give a 100% rating at the time of receiving the CSI. Even better, one dealership put gold stars on the invoice saying the same thing.
If GM worded their CSI contracts correctly, they might have a chance of pulling this off.
Not only CSI scores.
A thorough warranty claim audit will find fraud at almost all dealers.
I sold my chevy store 2 years ago, and the buyer closed it down two months ago. The model doesn’t work boys and girls. Radio shack doesn’t sell TRS-80’s anymore either and microsoft excel was the demise of lotus 123. Video killed the radio star, and I don’t know why this is any differnt. Compare GM to IBM and toy/Honda to windows.
IBM is still in biz, but they focus on their niche. PCjr was not their niche.
Americans build the absolute best trucks on planet earth. Play to your stregths and let others play on theirs. The Italian place doesn’t have moo goo gai pan and 20 flavors of hotwings on their menu.
Make money on what your good at, I’ve had to learn this lesson the hard way myself
I don’t understand why they’re going through all of this because, as stated in the article, supply of new cars and floorplan financing is most likely going to do a lot of these dealers in without GM having to pull any franchise agreements.
@ Hippo:
+1
Safe money’s on GM being correct here. How hard will it be to conduct audits of submitted repair bills that GM paid for but wasn’t performed by the dealer.
This reminds me of repair itemizations from body shops with items they claimed they replaced but I know they didn’t. I wish more people would notify insurance companies when they see that as it impacts everyone’s insurance rates.
I sold my chevy store 2 years ago, and the buyer closed it down two months ago. The model doesn’t work boys and girls. Radio shack doesn’t sell TRS-80’s anymore either and microsoft excel was the demise of lotus 123. Video killed the radio star, and I don’t know why this is any differnt. Compare GM to IBM and toy/Honda to windows.
Exactly. These companies think they have a God-given right to exist. This is all the free market at work.
John
One quibble regarding the dealers’ availability of cash – “They also won’t be generating cash, which means they won’t be able to buy vehicles at the auction.” The new car showroom doesn’t make much money – it’s just an excuse to have a service and parts departments, which do generate cash. I think we can count on GM cars to to continue to need parts and repair, so they should be able to buy auction cars.
Correct.
Too low inventory? I thought the problem was that GM and its dealers had too much inventory. Can’t the little dealers buy excess inventory from the big dealers?
Also correct.
Dealers will not be able to rely on used-vehicles, because they won’t be taking trade ins with no new cars to sell. They also won’t be generating cash, which means they won’t be able to buy vehicles at the auction.
Ridiculous. They get cars from auctions. Their used car inventory is only partially fed by trade-ins, and many of the cars they take in trade go to auctions.
I was listening to an NPR segment today on the topic of struggling car dealers. At one point, they stated that each dealer employs about 50 people.
50*2600 = 130,000 jobs lost.
The dealer closures need to happen alright, but g’damn on the jobs front.
Every dealer cheats the CSI. It’s a genius move if that’s all it takes to nullify a franchise agreement.
Finding this kind of “fraud” at a dealership might not be enough to kill a franchise agreement….
What GM might be doing here is picking at the low hanging fruit – the stuff everyone knows about, but always winked at – fudging the CSI ratings, a couple of cars going to Canada, having sex with the receptionist and then firing her, etc. By having a stack of ‘violations’ GM could hope to avoid some Post BK lawsuits by demonstrating that any given dealership had it coming to them.
Unless the dealership agreements say explicitly “If you pencil whip a CSI survey – you’re gone..” it comes down to just how ‘bad’ a violation is.
In Contracts (like Marriage) there are big violations and little ones. There’s meeting friends at Hooters for a beer and wings or OR meeting girlfriends at Hooters for beer and wings. You’re in trouble for both, but theoretically, the penalty should be different for either transgression.
I think there may be value in the double whammy. First you cheat someone out of there franchise, then you file. The beef is with the BK corporation which will be long gone and empty when the courts get around to finding in favor of the dealers. This means no lawyers will want to play.
Also, there are dealers with low overhead who have likely been on low inventory for a while. Not every dealership is over leveraged. GM is likely fed up with these guys who they can’t push around. This is one way to get rid of them.
Anyway, it would never really stand to kick only a few players if everyone did it, because if a dealer could prove that everyone did it, but only some lost their franchises, he would likely win his case. He could likely argue that NOT cheating on his CSI would have forced him out of business unfairly years earlier since all his competitors were cheating up the average.
I worked for a company where you were expected to send in bogus reports. I was in constant trouble until I complied, at which point I was mostly left alone to actually do my job. Had I really wanted to keep that job, I suppose I would have had to keep records of conversations where managers and other employees advised me to make crap up.
The problem with the way GM’s dealerships are being culled is that it is an uncontrolled collapse which is going to leave GM with the wrong dealers in the wrong places.
The word that comes to my mind is “chickenshit”.
There is a similar technique used when a company wants to fire someone but can’t figure out a good reason to. So they use a personal phone call as an abuse of company resources, a fireable offense. If someone dares uses the phone to call home to tell the kids/spouse that they are going to be late, you can technically be fired for that. You use the copier to copy your kid’s report-card… fired. Check your email… fired.
I remember a lawsuit in Texas where a man was fired for just such an offense. The jury agreed that it was chickenshit and he won.
John Horner:
The problem with the way GM’s dealerships are being culled is that it is an uncontrolled collapse which is going to leave GM with the wrong dealers in the wrong places.
All the more reason for a bankruptcy judge to supervise a re-organization. Pick the best dealers in an area, dump the rest, and poke all 50 State AG’s (with their shakedown-racket car franchise laws) in the eye.
My long-time local GM dealer was killed off by GMAC last December – just as GMAC got $6 billion from us customers and taxpayers. I thought that’s how GM was going to kill off dealers. Both Rick Wagoner and Fritz Henderson said rural dealers would be left alone and then said the cuts would be in metropolitan areas. Evidently, that’s just bullshit talk. My local dealer was in business here in the Sierra Nevada foothills for 35 years and sold over 1.5 million cars for GM. But his new facility (mandated by GM and financed by GMAC) did him in. GM and GMAC just killed the loyalty that this rural county has given them in one fell swoop last December. No wonder why GM is screwed. My local dealer was the only game in town and the next closest GM dealer is one hour away! You can’t destroy a community’s (and customers) loyalty and expect them to keep buying from GM. We are all so pissed off here in Amador County, CA, that we will never again buy GM cars.
They need mom and pop dealers in rural areas. Shitcan the excess dealers in the cities. They probably won’t be missed.
The whole CSI score process is a farce. All the dealers try to manipulate the scores. I’ve had so many dealers tell me how to answer, and if you don’t give them top scores then you get screwed the next time you bring the car in for service.
If GM is using CSI fraud to screw the dealers, I say screw away.
Very interesting article. I wonder what GM will say when they find out that their SFE facilitators
go into GM dealerships and coach dealership personnel on how to fill out CSI surveys and get tthem from customers. Surely GM is not so naive as to not know this. They better be real careful under which rocks they look. What they find may bite them in the ………
I am a Gm dealership employee and have been for a couple decades now. I have worked for several GM dealerships and other non GM brands as well and this is a very common practice across the entire dealership industry not just GM.Offering a free oil change if they will bring in their CSI forms and let the dealership employees fill them out seems to be the biggest practice I have witnessed.At the beginning of this bailout mess the focus was on all the Jobs that would be lost in Michigan if the government allowed the Manufacturers to file bankruptcy and the impact that would have on the unemployment system, 135,000 dealership employess now face unemployment( I am also wondering about mine and my families future now )!We have at least 6 chevrolet dealerships in a 50 mile area and I admit that is way too many ! I feel that this is just a beginning of further hardships for our nation not just our auto industry as a whole.
GM looks at its huge dealer base as nothing but cost and not a competitive advantage. IF your car dealer is five miles in the opposite direction of your job, it’s not a huge deal dropping off your vehicle for service in the morning before you go to work. If It is 20 miles in the opposite direction, you’ve got a logistical nightmare on your hands.
I think GM’s sales will fall in proportion to its dealer count. Any other assumption in its business plan is intellectually dishonest.