Bloomberg reports that General Motors marketing maven Mark LaNeve is set to announce that the bankruptcy-bound automaker will drop the axe on 1100 US dealers at noon EDT (16:00 UTC). The move is designed to reduce GM’s dealer count from 6200 to 3200. Don’t tell the MSM, but the news is nowhere as dramatic as it seems. First, the cull won’t—in fact, can’t—take place until after The General files for Chapter 11, where bankruptcy law trumps franchise law. As Bloomberg’s insider says, “GM is hoping for an orderly wind-down of the affected dealers over the next year or so.” In that sense, the pre-C11 dealercide decision is just for show.
GM’s lame duck management are proving to GM’s real owners, The Presidential Task Force on Automobiles (PTFOA), that the suits “get it.” You know, faster, pussycat, kill, kill, kill! At the same time, the dealer ditching announcement is classic misdirection. General Motors (i.e., the PTFOA) has already started eliminating stores in a far more effective way by “allowing” GMAC to withdraw floorplanning loans.
Anyway, how the stores and the corporate mothership will dispose of one-sixth of the 750k units (120k or so) on the ground is the real, multi-billion dollar question . . .
“A concern of all dealers would be if the market value of vehicles were to decline because terminated dealers would be desperate to sell,” said Jim Eagan, a partner at consulting firm Plante & Moran in Southfield, Michigan.
Eagan said he hoped that GM would force the remaining franchisees to purchase inventory from stores being closed. Bankrupt Chrysler LLC took similar steps when it announced the shutdown of 789 dealerships yesterday.
Yes, they did, didn’t they? But it’s hard to see how “good” GM or “wikkid pissa” Chrysler could force dealers who survive their family and friends fatwa to “buy” vehicles from the dealers destined to meet Allah (sooner rather than later). Who sets the price? How would they pay for them? (Please, God, no more taxpayer subsidies.) Where would they PUT them?
Much more likely: the mother of all fire sales. As they said in Tin Men, “Bonanza is not an accurate depiction of the West.” Sorry, I mean you gotta move the metal.
Chrysler did two dealers near me, one a low sales leader and another with a scary reputation for stealing trades. Not a huge loss to the world. The GM dealers are bigger and fatter, this should be interesting.
I assume there would be no reason for them not to take on a different car company. Some of those dealers may end up outperforming their old sales figures with GM.
Open to hear about great deals on G8 GT’s with leather and a sunroof!
jkross: You might do better on an SRT-8 Charger at one of the shuttered Chrysler locations. Chrysler doesn’t have to buy their cars back, so they may be willing to let ’em go on the cheap.
Are they taking submissions? I can recommend at least one dealer that is utterly deserving.
I am not sure about the firesales. Maybe it’s because I haven’t been to a dealer in person, but I don’t see too many firesales around Toronto unless you are looking for an Aveo or (still!) an unsold Uplander or Montana.
Granted both Chrysler and GM have more dealers per car produced than Toyota or Honda. It still isn’t clear to me how dropping 20% of their sales outlets will make either of them more profitable or even viable. Has anyone posted an explanation?
I’m hearing that even if a GM store is safe today, they are going to re-evaluate the situation after June 1st, so today might be just a stay of execution for some of them.
It’s like the movie “Dead Man Walking”.
MikeyDee:
Yeah, that seems likely considering that this is a cut of 1100, which doesn’t seem likely “to reduce GM’s dealer count from 6200 to 3200” by itself.
The only reasoning I can see behind this as far as a “savings” for the manufacturer is:
1. Less dealer reps and the associated costs (demo cars, salary, etc).
2. Less promotional material and the cost of sending it.
3. Lower training costs and materials
I know that what they are hoping is that the remaining dealers become more profitable and can then spend more money on advertisting, having a better staff, etc so they can compete with rival manufacturers not fellow GM dealers.
Corvair:
If I had to speculate, I’d think of something along these lines:
“State franchise laws make it very expensive for GM and Chrysler if a dealer goes bankrupt, and otherwise impose financial and legal obligations on the manufacturers. For those reasons, GM and Chrysler have generally engaged in incentives that cost profit but are designed to keep the dealers from going bankrupt (including promotional material, training, etc.), which would cost even more due to these laws. With these laws suspended in bankruptcy, they can shutter dealers without facing the normal financial penalty.”
One has to conclude, I think, that GM and Chrysler would have terminated these agreements all along if they could have done so without penalty.
Keeping my fingers crossed here… funny thing is, I don’t know for what. I guess we’ll see, right?
They are going to let their franchise contracts expire in Sept. 2010. So I wouldn’t expect any great deals at the moment, plenty of time for them to stretch this out (“Employee pricing! 2.0!”)
But as y’all have said, this could all change in a couple weeks with a bankruptcy filing, and is just the beginning of the culling…
What’s to stop a spurned dealer from “burning the house down”? Selling what’s on the lot for next to nothing ($500 Aveo, $?G8), paying employees, and then filing their own C7. Move on to nice local political career after having hooked everyone up. Just a thought…
They are going to let their franchise contracts expire in Sept. 2010. So I wouldn’t expect any great deals at the moment, plenty of time for them to stretch this out (”Employee pricing! 2.0!”)
Keep in mind that dealers will be hard pressed to keep employees once this drops. People will start looking for employment elsewhere as soon as they get the word. They’d be nuts not to. Waiting for your dealer to close in a year to find a job just doesn’t make sense.
I cannot think of a current GM product I would be willing to purchase. Camaro? Maybe…
Chrysler is not forcing “good” dealers to buy inventory from closed dealers either. Since the inventories are floorplanned the bank that floorplanned them will own the cars.
Hmmmmmmmmmmmmmmmmmmmmmmmmmmmm. Lets see how bad it gets. An Aveo auctioned off for $500? Well I rolled the dice on a Chinese scooter at $1200 so why not a Korean car for cheap?
GM is going to announce that they’ll drop 1,100 dealers, but they’re sure not going to telegraph the names before CH 11…. that will just cause all sorts of blue hell.
So, that means that no dealer will be absolutely sure that they’re safe until the “hangman’s pet’s” list appears.
If they’re going to try to make those on the list eat the cars they have, nobody is going to take any more inventory between now and then – you’d be crazy to. Anyway, they’re having trouble moving what they have now.
Finally add in disgruntled salespeople and mechanics who are sitting around scanning the want ads –
Can you say “Death Spiral” boys and girls?.
How exactly does 6200-1100=3200?
Trim bloated dealer network…
it’s what we wanted, isn’t it?
They won’t post the list. What a bunch of pussies.
Haven’t seen the letter, but I’m personal friends with a family that owns a small low volume Chev dealership. I was told, it basically says their franchise is not going to be renewed. I understand there is an appeals process for whatever that’s process is worth.
Huffington Post is compiling a list of GM dealers being closed:
http://www.huffingtonpost.com/2009/05/15/gm-dealerships-closing-se_n_204031.html
More GM stupidity. If the dealer is able to stay in business, he is selling GM cars. If you shoot dealers in the head who have been selling your cars, you are going to end up selling fewer cars. The market should determine how the dealers should be thinned, not GM. Cutting half their dealers probably will result in a further twenty five percent loss in sales. This death is so painful. GM should just liquidate now.
The Offer that GM gives to its death row dealers is good, but it is better than what they would get with CH11 GM.
AFAIK the deal is putting back the cars and buy pack of tooling and signs. The C11 deal is no deal at all. I think they hope that a lot of dealers will take the deal offered.