Excess dealers costing Big Three $436 per vehicle in extra costs
It's a commonly accepted fact that General Motors, Ford and Chrysler have far too many retail outlets relative to the number of vehicles they sell. A new study by CNW Marketing Research has now tried to quantify the dollar cost of that excess and come up with $3.9 billion, or $436 per vehicle. The three US carmakers have 15,741 dealers between them, while the Japanese carmakers have less than 4,000.
Domestic dealers, on average, sell less than half as many vehicles per store annually than a Japanese brand dealer, and most sell far less than that. The extra cost comes from items like having to deliver vehicles to so many outlets, advertising support for dealers and the administrative costs associated supporting them all. For years, the domestics have been trying to find a way to reduce their dealer counts, but state franchise laws make it almost impossible for the carmakers to get rid of dealers until they want out themselves. Unfortunately, the Starbucks model of a coffee shop on every corner just doesn't work for car retailing.
[Source: Detroit Free Press]
Reader Comments (Page 1 of 1)
Kumar 9:26AM (6/18/2007)
I remember when Penske was trying to have a 'mega' shop in Indianapolis by buying up/closing many dealerships about 10 years ago.
To me, the huge # of dealerships is just another carryover, along with the unions, of when the auto industry was THE industry. Without knocking on the usefulness of unions anymore, the only possible reason for so many dealerships could be for end use service. That, unfortunately, also gives the impression that your vehicles break down more often, causing the need for more service centers.
In the not too distant future, I predict more dealerships that specialize in internet and build-to-order vehicles, with only a small show room. This would be combined with a huge service center that specialized on fast service that would combine the efficiency with a jiffy lube with the comfort of dealer certification.
No doubt, car salesmen would hate it, since they still hold on to the dream that people go to dealerships to buy a car the same day.
Reply
realitychk15 8:57AM (6/18/2007)
I wonder if the research included the obvious facts that affect the big 3, location, location and location. Many of the big 3 dealerships are located in big cities or small towns that are all affected by the urban sprawl effect. look anywhere at the advantages the foreign dealerships have, better locations, better facilities, bigger dealerships. it still comes down to how easy it is for a new brand to set up shop in a new suburban area vs how difficult and costly it is to relocate a big 3 dealership to the same area.
Reply
goat 10:01AM (6/18/2007)
Actually, with some tweaks, I think the many dealer model could work better.
What they could do is revamp their service departments to do general car service, competing with the smaller repair shops. Right now, no one goes to a dealer for repair if it's not warranty work, because of the reputation for high pricing. If they brought the pricing into line, then they'd have people with broken cars that they could then offer an option to: buy a new car!
Reply
Scott Gresser 11:42AM (6/18/2007)
I can't see where a compromise can't be made. First, what was said about the number of dealerships is correct. The number does need to come down. But why can't some of these dealer locations be a service area for another dealer a little further away.
For example: When you live in a smaller populated area, you will see people not have a problem going out of their way to a dealership in a larger city to buy a car but want to get their warranty and other service work done back at the dealership where they live. So you make that smaller town dealership a service and parts branch for the dealership in a larger city.
Reply
bmoredlj 11:46AM (6/18/2007)
The Big 3 need to cut costs.
Too many dealerships...a relic of their dominant past.
Dropping dealerships will cut costs.
Ergo, the Big 3 need to start dropping dealerships.
It sounds very simple in theory...but in practice it will be very tough, expensive, and time consuming. But I think it'll be worth it.
Dealers should never have to shut down due to their suppliers' problems.
But if those problems continue unabated - with the dealers being an integral contributor - the Big 3 will not survive, and the dealerships will have to start bidding on import franchises.
Men are weak. The race of Men is failing. The blood of Númenor is all but spent, its pride and dignity forgotten.
...Whoops, sorry. Wrong thread. Or is it?
Reply
beken 12:40PM (6/18/2007)
Didn't it used to be the other way around? The dealerships PAID the manufacturers franchise fees to sell their cars?
I find it interesting that in my area, there may be 10 GM dealerships scattered all over, but they're all owned by one or two groups. All the other dealer owners have already retired or gone under.
Reply
Don 1:10PM (6/18/2007)
So let's see...with the legacy healthcare and retirement costs, as well as the dealer induced costs...we're basically doing this to ourselves.
Reply
3cubedminus3squared 1:12PM (6/18/2007)
Yes, way too many dealerships.
where I live, the population is like 175K+ and we have three Chevy dealerships and Three Ford dealerships.
Most of the time the lots are full because there are just more vehicles than there are people buying cars.
Reply
Wayne 2:28PM (6/18/2007)
Where I live in a small Canadian city we have the following
3 - GM/Chevrolet
2 - Ford
2 - Chrysler/Dodge
1 - Mazda
1 - Kia
1 - Hyundai
1 - Honda
1 - Nissan
1 - Subaru
1 - Suzuki
1 - Acura
1 - Toyota/Lexus
1 - Mitsubishi
1 - Volvo/Land Rover/Jag/Mercedes/Smart Car
1 - Saturn
1 - BMW/Mini
as well as numerous independant used car dealers. This is all in a city of 200,000 people if you were to add in the surrounding area (Say 100 mile radius) you could probably triple the Domestic numbers. I just don't see how they are all staying alive.
Mal Fuller 6:59PM (6/18/2007)
Detroit carmakers, who once again number 3, should put some of their dealers who, after all, have been clever enough to survive in spite of some of the turkeys they've been given to sell on their management team. These survivors must know something that the typical Detroit white collar management people do not.
Reply