Find Reviews by Make:
And going, it seems. As many as 450 dealerships with franchise agreements coming due in the next 17 months will be dropped by GM, according to Automotive News [sub]. GM’s Mark LaNeve insists that “less than half” of the 450 number is more accurate, but admits that cuts will be announced when GM files for bankruptcy on Monday. “These are dealers who have very specific issues,” LaNeve tells AN. GM will be using “very similar” criteria for these cuts as the last round, when 1,124 dealers went to the big closeout sale in the sky.
25 Comments on “More GM Dealer Cuts Coming...”
Read all comments
When GM Canada announced the demise of the two local dealers here in this small rural Township, the Council, the Chamber, have started a letter writing campaign to ask GM to reverse this policy, to say they where shocked is a understatement, somehow I don’t care as I now drive a Toyota and have to go to the nearest Big Town if I need warranty service, so far none has been needed, these people can go to that Town too as there is a Larger GM Dealer there, for years I think GM had a dealer on every corner in every small Town and Village in Canada,
I guess Gov’t Motors found more dealers on the wrong campaign contribution list. Or on none at all.
In the small town where I live, the huge, recently revamped GM/Chevrolet dealership was told they were cut. Meanwhile, across the street, the creaky old Pontiac/Buick/GMC dealership remains intact, despite the fact that Pontiac has been declared dead and Buick is standing on the edge of the same grave looking in. They must be counting on the truck market to keep them going because that black Solstice hasn’t moved in 8 months. I guess a coin toss was used to decide who got closed in Canada instead of political influence. God forbid logic should enter into the process anywhere…
I’m not quite following the MSM’s reasoning for dumping on GM and Chrysler re them cutting dealerships.
How can GM support roughly the same amount of dealers now that GM only has 18% market share, vs years ago when GM had 35+% market share?
There are dozens of good reasons to criticize GM, but being forced to face realilty and try to match their dealer count to sales certainly isn’t one of them.
The market for large inflatable gorillas is not expected to rebound in the foreseeable future.
Can someone cogently explain why cutting dealers benefits GM?
I’m sure there’s some postage saved in not having to send them materials and bulletins, but it can’t be more than pennies. Meanwhile, customers have fewer places to buy your product.
If these were GM-owned businesses, I would understand. But it’s like McDonald’s going through and cutting 2,000 franchises…how would that save Mickey D’s any money? It wouldn’t, just as I don’t see how this saves GM anything.
Another great excuse that LaNeve can use, “Our sales are off 40% this time because there is no place left to buy one of our cars.”
from Alfred P Sloan’s “My Years With General Motors” 1964
Chapter 16 “Distribution and The Dealers”
“When I was chief executive officer of General Motors, I gave a large part of my attention to dealer relations, amounting at times, you might say, almost to a specialization. I did so because the experience of the 1920’s, when the modern problems of automobile distribution took shape, taught me that a stable dealer organization is a necessary condition for the progress and stability of an enterprise in this industry…
“The individual franchised dealer, usually a substantial businessman in his local community, meets the customer, often as a neighbor, trades with him, and services the product sold. The personality, acquaintance, and standing of the dealer as a local merchant are basic to the type of franchise distribution which has become the custom in the automobile industry. Our entire sales approach is based upon this system of individually financed merchants, to whom we offer a potential profit opportunity based upon the General Motors franchise.”
Sloan refers to the interface between the local businessman and the public. Closing stores will irreparably damage GM as the face of the company disappears and the tremendous backlash occurs from the negative publicity already building across America. GM’s single greatest loss of market share came when the company bought out Ross Perot, and the public perceived GM to be an “out of touch ogre”. Here we go again!
___________________________________________________________________
from Peter Drucker’s “The Concept of the Corporation” 1946
Chapter 2 “The Corporation as Human Effort”
“A good and loyal dealer organization is as important for the success of an automobile company as a good product; and good dealers are hard to get. In it’s attempts to eliminate the latent conflicts between manufacturer and dealer General Motors was certainly conscious of the broader, social implications of the situation. But above all the problem of fair and satisfactory dealer-relations is a problem of the efficient functioning, success, and survival of the company itself–as much as the problem of leadership-training for instance.”
When GM closed Olds, it dealt a body blow to the corporation. The customers did not necessarily stay loyal to GM, many jumped to the competition, never to return. Also this had the effect of furthering mistrust between the company and it’s other franchisees. After driving a million unit seller into the ground by the most incredibly stupid marketing, GM shut Olds down, losing well over a Billion directly and many more Billions indirectly.
Furthermore, the impending social implications are surely to be devastating nationwide as communities lose their pillars of support, tax revenue sources, and centers of activity. Surrounding businesses will suffer and close, unemployment will surge, and emptied commercial buildings will further distress real estate values.
___________________________________________________________________
from John DeLorean’s “On a Clear Day You Can See General Motors” 1979
Chapter 9 “Getting the USA to See Chevrolet”
“So the single identifiable reason GM dominates in the American automobile industry is its giant size as best expressed in the breadth and strength of its dealer body. Because of this, General Motors has fared much better than the competition in long industry sales downturns. Proportionally fewer GM dealers folded during the auto industry slump which began with the Arab oil embargo in late 1973, even though the markets most severely hit were for big cars which had been the backbone of GM’s profit structure. The automaker which never showed a loss in the Great Depression, while others were losing their shirts, was the only domestic maker to turn a profit in the troubled first quarter of 1975. The profit, in ’75, was modest, to be sure (only $50 million or about 20 cents a share), but it was a profit nonetheless. The financial strength of GM’s dealers enables them to absorb large inventories of new cars – taking the inventory cost burden off the corporation – and still ride through periods of red ink operations.”
DeLorean, although portrayed as a maverick, was in essence a visionary. He knew the business and had enormous success at Pontiac and then Chevrolet. Today we have a management unable to develop a strategy for Pontiac. Instead of getting rid of Pontiac, we need to get rid of the failed management. DeLorean recognized the value in the large dealer body. Culling dealers with such a vengeance and vigor as we see happening is retail suicide.
Afabbro.
I’m no expert, but I suspect GM needs a strong and profitable dealer network. Only profitable dealers can properly market the GM product.
Presently, there are too many GM dealers chasing too few potential GM sales. The GM dealers end up getting into price wars with each other in order to get sales. This makes for a situation where many, many GM dealers don’t earn enough profit to stay in business, much less properly market the product.
It’s important to figure that both GM and Toyota sell roughly the same amount of vehicles in the US. However, Toyota (generally very profitable) has dramatically fewer dealers than does have GM (generally horrifically unprofitable).
I think it’s generally accepted that Toyota dealers are profitable and are able to properly promote their product. I think it’s very well known that generally, GM dealers are money losers and are not able to properly promote the GM product.
Clearly, GM needs to have a dealer count closer to that of Toyota’s.
I’d be interested in knowing what TTAC’s readers have to say.
shabster You should reread what you wrote because you contradicted yourself twice.
Presently, there are too many GM dealers chasing too few potential GM sales. The GM dealers end up getting into price wars with each other in order to get sales. This makes for a situation where many, many GM dealers don’t earn enough profit to stay in business, much less properly market the product.
If the GM dealers didn’t earn a profit because of this then they would have gone out of business long ago and GM the parent wouldn’t be cutting dealers. And I don’t really think the competing with themselves is that big a deal, again someone would go belly up. GM is usually the one devaluing the product with money on the hood from the factory.
I think it’s generally accepted that Toyota dealers are profitable and are able to properly promote their product. I think it’s very well known that generally, GM dealers are money losers and are not able to properly promote the GM product.
This doesn’t make sense either, if they were really money losers the dealer owner wouldn’t be in business and would have started selling something else.
Maybe having too many dealers effects GM when it comes to holdback, but I don’t know.
GM problem is having too many brands with too many of the same car being sold at each, inturn giving them too many dealers in a single area. Where it costs GM the biggest cost is having a Chevy dealer here, a Pontiac dealer 1 mile away then a Saturn dealer down the street. Not becasue their are too many dealers but becasue they have to make a Malibu for the Chevy place, a G6 for the Pontiac place and an Aura for the Saturn place. And this is repeated over and over again with all the brands. They are wasting overhead all over the place and no way to recover it with the market share they now own.
Redbarchetta.
You make some fair points.
However, I still ask why it is that Toyota has so fewer dealers than GM?
Is Toyota management irresponsible for not dramatically increasing their dealer count, thereby maximizing profits for the shareholders? I doubt it. I’ll bet that part of Toyota’s long term, winning game plan is to ensure that their dealer count doesn’t become too bloated.
I pretty much fully agree with your last paragraph. At the end of the day, though, GM’s gotta cut dealers to deal with reality. 30+% market share ain’t coming back.
Buickman.
I’m a big fan. Seen you on tv and read some of your stuff.
I actually get pumped up listening to you. I love business and I really respect your focus on moving forward. You’re not a whiner or a quitter.
Your three items posted today are clearly insightful and important.
Even though most of the criticism of GM management is 100% true…. what’s happened, has happened. Is it simply not too late for GM to succeed by trying to operate as a 30+% player?
Hasn’t that ship sailed?
My local long-time (rural) GM/Chrysler/Toyota dealer got cut-off by GMAC last December. The one thing that did was to aggravate and piss off the loyal GM customers, as now we have to drive one hour for service. My dealer was a die-hard Republican who gave thousands to the party. Look what he got for it. GMAC cut him off just before the Bush bailout and pretty much told him to take a hike. Man, if I was him, I would want my money back. In addition, GM just lost thousands of customers (me included)when they and GMAC took our money and closed down our dealer. If I have to drive an hour to buy a car now, its going to be a Toyota. THe chances are I won’t have to drive an hour for warranty service. GM has absolutely no clue about rural dealers and customers. Now our local former dealer is opening an auto brokerage business next to his now vacant GMAC-owned facility. I think I’ll be buying Toyota from him.
I’m with the inflatable gorilla industry and I’m here for the bailout money.
shabster :
May 29th, 2009 at 3:33 pm
Presently, there are too many GM dealers chasing too few potential GM sales. The GM dealers end up getting into price wars with each other in order to get sales. This makes for a situation where many, many GM dealers don’t earn enough profit to stay in business, much less properly market the product.
——————————————-
Price wars will hurt dealers, not GM, if GM holds invoice prices steady.
Actually GM will benefit from price wars, because then GM would have a smaller distribution overhead.
Suppose that GM’s makes the Malibu as good as the Camry and consumers are willing to pay equal amounts for either at $20k. Also suppose Toyota dealers have a $2k margin. But since there are twice as many GM dealers and because of price wars, say, GM dealers can only get $1k margin. Then GM can simply list Malibu’s invoice $1k over that of a Camry and make more money than Toyota.
Remember, price wars only decrease dealer margins, not selling price itself. Sell prices are determined by consumers.
If a dealer got hurt too bad in a price war, then that dealer goes out business by itself. It’s the dealer’s decision, not GM’s decision to make.
shabster,
thanks for your comments.
no the ship hasn’t sailed, the fat lady has been sent packing. GM will live on but not for more than another year or two if the marketing isn’t dramatically altered.
today, interviewed by Kenichi Komatsu, Washington Bureau Chief Mainichi Newspapers
yesterday, Evgeny Popov, Chief Correspondent Russian State Television. also Jim Lehrer Newshour (to be broadcast Monday).
at least the world is seeing some better parts of Flint as Buickman played host.
word continues to spread, particularly since my interview with John McElroy which can be seen at
http://www.AutoLineDetroit.tv
WSN.
I kinda buy your points about the wars hurting dealers more than GM.
But in reality, most dealers don’t actually go out of business. Instead, they hang on and eke out an existence. This translates into a bunch of weak, marginal players that don’t net enough profit to properly promote and market the product.
GM, like most manufacturers, has to have a network of strong, healthy, profitable dealers to aggressively promote the GM product.
Again, I look at Toyota and see that they are very comfortable having a smaller dealer network that is healthy.
Also, keep in mind the quality of a GM dealership. Small sales across the same number of dealers means less profit for dealer.
Less profit for dealers means less capital for improvements.
I don’t know about you, but the GM dealerships I have been too have all the charm of a DMV office. Hard plastic seats, cheap desks, burned instance coffee, worn dingy floors, and a drab old feel to them.
And, in my experience, the staff must all be ex-DMV employees who were fired for incompetence or bad attitude, if that is possible. I’ve never seen a more miserable group of people.
Anyhow… it feeds into a vicious circle for GM of having to lower prices to sell cars because of a perceived lack of value.
The mothership can’t turn a blind eye to the quality of the customer experience at their dealers simply because “It’s not their problem”. At the end of the day, it is their problem. The words on the wheel and on the back of the car that the customer see every day say “Chevy”, “Pontiac”, or “GMC”.
quick, send money to the democratic party
LOL…more GM dealers gone. Especially the rural dealer that invested a lot of money, time, work effort. Just like our dealership…only to receive and unsigned notice from a few mornings ago. The FedEx letter stated…sincerely, GENERAL MOTORS. WELL GM…once again..you show how much you really care.
Deepsouth
Fully agree with your post.
However, it’s impossible to cut over a 1,000 dealers in a “nice way.”
No matter what GM did, there were going to be a lot of sad stories.
Pretty hard for a broke GM to align their dealer count without some harsh pain.
Had a conversation with a small town Chevy dealer Friday; 30 years at the same place. He thinks cutting dealers is pointless. He’s safe, so I don’t think he has any axe to grind. Chevy dealerships have these VERY large displays on a rack, kind of like a notebook with the pages in heavy lamination. He said the rack cost him $2k with another $600 a year for the content. I doubt GM goes in the hole on these.
I caught the tail end of an interview with Jerry York on Bloomberg today. He said that during his brief stint on the GM board, there was nobody there with the experience needed to be an effective board member. He’s very high on Kent Kresa. I’d like to know where this dealer culling bullshit is coming from.
“I don’t know about you, but the GM dealerships I have been too have all the charm of a DMV office. Hard plastic seats, cheap desks, burned instance coffee, worn dingy floors, and a drab old feel to them.”
Our local Chevrolet dealer just closed up shop … and the facility was about two years old. They built it in part with incentive money from the local government. Argh.
” … quick, send money to the democratic party …”
You know that line of so called reasoning has been completely debunked, right? http://www.fivethirtyeight.com/2009/05/news-flash-car-dealers-are-republicans.html
if your product is desirable, people will travel distances to obtain it.
something GM needs to take to heart.
@John Horner:
Half-assed analysis from a left-wing blog does not an argument make.