Well, we still don’t have that list of doomed GM dealers. Senator Rockefeller’s office has failed to return eight phone calls asking for the information: the list he requested from GM CEO Fritz Henderson, who promised, under oath to provide. Meanwhile, here, finally, is the supporting documentation for GM’s dealer cull. The bankrupt automaker submitted the document [link here] to Friday’s Stupak hearing on dealer closing. Bottom line: GM’s dealer network reductions enable an estimated $415 million in “gross structural cost savings potential.” What is it with these guys? There are lots of good reasons to shrink GM’s dealer network. In the face of a total industry bailout that’s topped $100 billion, Henderson’s “rooftop” cost saving ain’t it.
Did I read that correctly? Only 415 million projected savings? If that is true, then the “culling” of dealerships is a bad joke that is putting more Americans on the street for nothing.
The truly poor dealerships should be terminated, but at least from what I’ve seen locally it appears to be more of a crap-shoot.
In a FREEP article today, Henderson is quoted as saying killing 2,500 dealers would save GM $2,500,000,000. So he’s claiming that GM is spending $1 million per year over and above what it’s getting back in profit from sales for each of these dealers? I doubt this. Getting to the bottom of this is not hard. Just demand to see the number crunching that led to this conclusion, and bring in a few dealers to review this process. Wagoner is gone in body, but his spirit of utter incompetence and bullshit lives on.
Henderson also supposedly said that a majority of GM dealers were not profitable today. I have to admit though that Henderson’s plan, as indicated in the new agreement forced down the dealer’s throats would fix the problem. Just make them sell more cars. There, that wan’t so hard. Why didn’t we think of that a year ago?
I guess the GM whizzes figure there’ll be long lines waiting to snap up the franchises of dealers terminated in the future for non-performance, and all of these new franchise holders will be eager to plow millions in fancy new facilities.
That new agreement is something else. I haven’t heard whether the Chevrolet/Cadillac dealer in town will loose his franchise or not because he also has Toyotas in his showroom. If he does there is still a GMC/Buick/Pontiac dealer in town that sells nothing else and has existed since 1918. The Chevy dealership is only about 30 yrs old.
an estimated $415M in “gross structural cost savings potential.”
Mouse nuts, and probably an inflated number at that.
Note the weasel word potential.
I don’t believe the GM statement is truthful. In Madison, WI, GM is denying franchise renewal to the largest – and only – Chevy dealer in town, which carries only the Chevrolet brand and outsells all the suburban Chevy dealers. I believe the dealership is likely profitable, and has solid capitalization – it’s been in business since the twenties, same family ownership since the late sixties. It’s also the only dealership handling the medium trucks, a line that GM’s dropping.
BUT, GM is keeping the three dealerships in suburbs around the city. I each instance, these have newer physical facilities and each was allowed to build to poach in the natural market of the original, larger dealership. Of course, the reason the established dealer presumably is profitable and has adequate capital structure likely has a great deal to do with it not spending on new physical facilities that would add to overhead without adding to profit.
The logic of closing the largest GM dealer in the area somewhat evades me. But then, of course, this is the management of GM making these decisions, the same brilliant folks whose past decisions brought GM to bankruptcy. So, it’s silly of me to think logic has much to do with this.
And, of course, GM’s going to command that the remaining dealers increase sales. Odd, though, that they didn’t think of this approach before. Had they simply commanded their dealers increase sales six years ago, they wouldn’t be in this mess.
The other valuation they are not including, possibly because they still can’t see it, is the cost of competition BETWEEN dealers. Difficult to quantify, but even an attempt would have shown some insight GM hasn’t heretofore demonstrated.
Packard: I’m from Fitchburg… Thorstad Chevy you are talking about.
From what I heard they are an expensive dealership/shop. Well, I don’t own a GM and it doesn’t mean the other shops are better. Just the people i talked to.
Form their newspaper interviews I read they are the old redneck kind that blame every bad thing happening to them on the government or high oil prices or otherwise. They are the typical Hummer drivers if you will. That’s what I got from the interviews I read with Thorstad Management. If you reinstated the 60’s, they wold blend in perfectly. Again, not sure if the other Chevy deales around here are more 21st century. We have 2 Mazda, so I don’t give a rat’s ass :-)
Maybe GM wants us to have 3 smaller dealerships to give us the illusion of choice rather than 1 large one? It kind of make sense since so much depends on how much you like the dealer and with only one in town they can afford to suck.
Culling their “bloated dealer network” is supposed to be a good thing, right?
With some of the horror stories people around here had with their dealer experiences, you’d think these dealerships were getting what they deserved.
So, what’s all the weeping and gnashing of teeth for?
In this area, they closed two GM dealerships, one I can see why maybe, from the Roadway, you could not see the showroom because the Lot was filled with Trucks and the whole office-showroom looked like a real dump, the other one sold only Pontiac, Buick and GMC Trucks, I think the word “Pontiac” is the key for being terminated!
The whole notion of a dealer is antiquated as it is. Does one go to a Coke dealership to get Coke and a Pepsi dealership to get Pepsi?
Dealers are parasitic middlemen between consumers and producers. They’re anti-helpful. If someone knows less about their product then the person buying it, what’s the point?
With some of the horror stories people around here had with their dealer experiences, you’d think these dealerships were getting what they deserved.
So, what’s all the weeping and gnashing of teeth for?
From what I read, I think the domestic dealers are no worse, and maybe better, than the imports. Look at how many dealers own both types of stores; why would they have different policies in different stores? From what I’ve seen personally the domestics treat you better because they’re hungrier. And in small town situations, they’ve been around too long to have survived with less than satisfactory service.
It seems GM and Chrysler are following the same ‘logic’ in this dealer culling that they’ve used in the rest of their business for years. Locally, one guy owns a Honda/Dodge store sharing the same showroom. He also owns a Chrysler store a few miles away. Per a sales guy who worked there for years, this dealer hasn’t ordered anything from Chrysler for almost a year, and the dwindling inventory supports this. Plus, he doesn’t use Chrysler Financial for his floorplan. So Chrysler keeps this guy even though it sure looks like he’s rejecting them. But a Dodge dealer about 10 miles away got a termination letter.
Dealers are parasitic middlemen between consumers and producers. They’re anti-helpful. If someone knows less about their product then the person buying it, what’s the point?
The point is state laws mandating dealerships. If dealers really serve a great purpose, they’d be able to survive even if people were allowed to buy cars outside them.
CarsDirect and similar services are all ways of trying to find loopholes around the dealer laws. As, to some degree, is the multi-franchise, multi-location dealership.
long126mike –
But we do go to a AT&T store or Verizon store – or Subway versus Taco Bell. Both distribution models (many SKUs from varying producers in 1 store versus tightly controlled franchise stores) seem to work. It all depends on how much control the manufacturer wants on the supply chain and whether or not the distribution network is profitable if the sellers only carry products from a single brand/manufacturer. We’ve seen cases like the Gateway Stores where the one-brand model doesn’t work, but the Apple stores seem successful.
The dealer cull really was a means to kill a few to save the rest. In the long-run you want a healthy sales network comprised of profitable dealerships that can make money without cutting corners or can make money without specializing in antagonistic business practices. The impact to the automaker in the short term is actually negative since the automaker is losing some of its own customers (the dealers).
Ideally some/most end-channel customers who might be going to a doomed-dealer will instead go to another GM/Fiatsler dealer, and that’s supposed to help the remaining dealers be more profitable. The domestics have long had terrible ratings at the dealer-level for its volume brands because of severe in-fighting to claim customers and high employee turnover at the dealer since quotas and bonuses are more attainable at dealerships that are actually making money.
Link to some JD Power graph that most people don’t believe because they think JD Power is full of sh**
The only reason that the domestics have such a bloated netwok to begin with was because their business leaders in the past found a quick way to boost short term profit. By allowing more dealers, they were adding to their customer base, and received huge bonuses for doing so. But having such a bloated dealer network slowly degraded their sales channel as dealer profitability shrank and dealers couldn’t invest in themselves on par with the competition. Investment could be in the form of capital improvements, sales training and retention, etc.
I don’t think anyone is saying all dealer woes are instantly solved with a dealer cull – but this is an enabler to help strengthen the remaining dealers. It’s just unfortunate that some good dealers are getting cut in the process.
@johnthacker
The point is state laws mandating dealerships.
I favor shredding those laws. Same with laws like forcing beer makers to use established distributors. Parasitic middlemen who not only don’t add value, they take value away. They raise costs and make the experience harder than it otherwise would be.
@holydonut
But we do go to a AT&T store or Verizon store – or Subway versus Taco Bell
In the first case, though there are brand-specific service provider stores, one can still go to cell phone stores and booths, as well as all kinds of major retailers, who carry a wide variety of service providers. Plus the cell phones themselves that the service providers sell are not of one single brand, either. Plus, I don’t like the cell phone business, either. Talk about another scam – seemingly low prices on the hardware that they make up with overpriced service contracts that they lock you into, with massive overage fees but giving people no ability to real-time monitor their usage.
In the second case, you’re talking about restaurants, not mass-produced items. BUT, it’s not uncommon to see the two you’re mentioning sharing the same space in a gas station, rest stop, or mall.
And you’re absolutely right about the dealer experience, particularly with American brands. After visiting a Pontiac and a Mercury dealer a while back, I felt dirty and wanted to take a shower. Creepy. What a contrast to a Honda dealership, not to mention a Lexus or Porsche dealership.
Everyone knows the dealership horror stories. Everyone knows that there are too many dealers out there for GM and Chrysler. I’d like someone to explain to me how cutting these dealerships is a savings because I don’t understand the details. The market should be making the cuts, not some obscure bureaucratic
process.
The shameful thing about all of this is the process.
http://www.c-spanarchives.org/flash/cspanPlayer.swf?pid=286995-1&clipStart=4553.00&clipStop=4955.00&autoplay=0“
What really boggles my mind is that GM couldn’t immediately and clearly state what the cost benefit of the dealer cull would be. Henderson is a bean counter after all – he may not know how to run GM, but surely he would have crunched the numbers before doing this.
Can somebody explain to me how you can increase your market share, while eliminating 25% of your dealers and lowering your marketing budget?
What’s going to make me drive 10 miles farther to check out a GM dealer’s showroom? GM’s product pipeline is better than Chrysler’s but it’s not fantastic. Until the end of 2009, it looks like they have a nice Chevrolet Equinox arriving very soon and a Buick LaCrosse coming for fall. Other than that, is there anything new?
What I found interesting in my area (West of Boston MA) there are two local GM dealers. (Chevy, Buick,GMC,Pontiac) are advertising that they are “Key” dealers. Both of them sell a a lot of cars. And both, (are you sitting down) have a good reputation for service.
One of the dealers has several other brands, the stores are spread out. While the latter has one store, that has been in only two locations since 1940.
As for location placement, I don’t know much about car dealers or how a franchise location is selected, but some time ago, I knew someone that wanted to set up take burger place. He looked into McDonald’s but they soundly rejected his rural location. He then built his own place, and did pretty good. Within two years McDonald’s had a store up and running. In a location about 40 minutes from his place. The store was not very far from where he proposed the original location.
@ Jimmystartup
Man that hearing was painful – the “opening” portion took over 50 minutes! Things don’t even begin to get interesting until the 56 minute mark where Jimmy P says that the brand-clones did not result in incremental volume of units sold. Farago should appreciate that dig at brand engineering.