GM plans to trim 400 dealers per year until 2012
Dealership rationalization was something General Motors was looking at well before the economy went pear-shaped. GM still has more than 6,300 dealerships in the U.S., and it is even more important now to start shedding some of that financial burden. That is why The General told dealers at the NADA conference that it plans to get rid of 1,600 dealerships by 2012.
GM's initial viability plan to Congress proposed an eventual reduction to 4,000 dealerships. No one knows yet, though, how GM plans to do that. GM said it will explain the dealer elimination plan in the follow-up viability plan it submits to Congress on February 17. Said one GM dealer, "They basically said, 'We're looking for strong dealers, and if you're not a strong dealer, you better evaluate your options."
GM did say that 400 dealers per year being shut isn't a firm number, simply a target. Nevertheless, dealers are none too happy. Some dealers say GM is using GMAC to force dealers out by setting capital requirements beyond a dealer's reach. GM says it has no intention of using GMAC in such a way. When the time comes, dealership liquidation will be be judged market by market, and based on a number of factors including age, location, volume, capitalization and customer satisfaction. While the plan will obviously save GM money in the long term and make it more efficient, in the short term it is going to cost GM a fortune to close 1,600 locations.
[Source: Automotive News, sub req'd, Photo by Justin Sullivan/Getty]
Reader Comments (Page 1 of 2)
TomdeTomTom 2:52PM (1/26/2009)
400 should be locked in. That is an attainable number each year.
Also it shouldn't stop in 2012. They should continue until they have 4000 dealers or less.
With a streamlined 5 brands even that is a bit much.
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TomdeTomTom 2:54PM (1/26/2009)
Also note that Saturn has 425 dealers so...there is a years worth right there.
(If they let it die on the vine in 2012 like was said earlier today)
firstplace 4:32PM (1/26/2009)
GM dosent own the dealers, they are almost all (99%) private or corporations not affiliated with GM other then the name. It wont cost them anything.
montoym 5:54AM (1/27/2009)
@ firstplace:
On the contrary, those private dealers have contracts with GM to sell their vehciles. GM can't just end that contract whenever they choose. That's why it's called a contract.
So, GM will instead likely be buying out those dealers in order to end the contracts early. So, yeah, it will cost them a lot of money.
I believe they paid out some $2Billion to Oldsmobile dealers when Olds was shut down.
Nightcrawler 2:07PM (1/27/2009)
Could GM avoid the costs of buying out their dealer by just taking the underhanded trick of cutting product line to make the dealership not viable? For example, of they wanted to get rid of Saturn dealers, could they just cut Saturn's lineup to one lousy car, which would eventually force Saturn dealers to go bankrupt and close?
It seems under that scenario GM would technically be holding up their end of the dealer franchise bargain. It would be a really dirty trick though.
Pengwin 2:55PM (1/26/2009)
holy crap, how many GM dealers are there?
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Franz 2:57PM (1/26/2009)
The exact same thought crossed my mind.
Jay Evans 3:07PM (1/26/2009)
"GM still has more than 6,300 dealerships in the U.S., "
Reading not one of your strong suits?
"in the short term it is going to cost GM a fortune to close 1,600 locations."
GM or the US taxpayer???
Seminole 3:09PM (1/26/2009)
A lot. I took SR 27 instead of the interstate one time from Tallahassee to Tampa and you pass through a lot of tiny towns like Perry, Cross City, Chiefland, Crystal River, etc.
You would be surprised how many GM brand dealerships you see.
jamie 3:11PM (1/26/2009)
At the start of 2008, GM's U.S. dealership count was 6,653. But there are also over 14,000 individual franchises to contend with as well.
Ideally GM should restructure into a single network of about 3000 dealers. That would give each dealer a community of 100,000 potential customers.
Each dealer needs to sell about 1000 vehicles annually to be successful. So, if GM is planning 12 manufacturing facilities producing about 300,000 vehicles each; that would net 3,600,000 vehicles for sale annually which would be far more efficient than the current business model.
However, realistically GM will likely have to settle for 2 divisions
Cadillac-Chevrolet-Saturn and
Buick-Pontiac-GMC
in order for true economies of scale to be effective. The more divsions it has, the harder it will be to control costs.
Nick 2:59PM (1/26/2009)
I know this is a dumb question, by why does car companies allow dealerships to own other dealerships that are of competing companies? To me, If I were GM, I'd shut down all those who own competing dealerships...
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jamie 3:15PM (1/26/2009)
Same reason that your local grocery store sells Coca Cola beside Pepsi and Kelloggs cereal by Post products or Quaker Oats. It's called free enterprise and competition is good for business.
DJ 4:56PM (1/26/2009)
Actually, there are several reasons. Some involving federal and state monopoly and restraint of trade laws and others that make prudent business sense. Every automaker, not just GM, needs it's dealers to be as financially sound as possible. That way, they have the capital to improve their facilities, carry greater inventory and offer greater incentives. If that means carrying competitive brands to get there, sobeit. For example, maybe a megadealer has GM, BMW and Toyota stores. Two of the three may be doing very well and allow that dealer to stay in business. If they were GM only, they might fail and lose that market to Ford or Chrysler (OK, Chrysler's a bad example).
david 3:16PM (1/26/2009)
Total BS. My brother-in-law owns a dealership, and GM is INDEED using GMAC to force dealers out of business. The method: provide a go-forward viability plan (in perhaps the worst economy since the great depression) that we approve of, OR you will have to pledge your personal assets against the floor-plan financing.
What makes this unconscionable is the fact that GM has veto power over virtually any "sell the franchise" action a current franchise owner would pursue. In fact, this exact thing happened to my brother-in-law: in the last 3 years, he's negotiated not one deal, but TWO deals to get out of the business and GM has vetoed them both.
I hope my brother-in-law gets out of the business, and when he does, I hope GM goes down in flames . . . they deserve it.
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paul 4:10PM (1/26/2009)
I have a brother-in-law too that is dealing with the same problem. What scares me is they are in a small market (10K population ). He sells Cadillac, and Chevy. If They get closed there won't be a GM dealership within 50 miles. I told him he should just scrape GM and convert to a Toyota dealership, but he said they already pursued that, and Toyota Turned them down. Not looking good. Its sad that GM is going to close dealerships. Dealerships are privately owned. By taking back their franchise rights, these dealerships will either die, or convert to Toyotas, which is great for Toyota, but bad for GM. I know GM is a bit over saturated in the market place, but this is like playing monopoly and selling your brother Park place, which completes his monopoly. Then praying you never land on it.
In response to meatbag.
Each of the dealerships paid for franchise rights to sell Chevy and Cadillac. If GM decides to take away their franchise rights, they will have to buy back the franchise from the dealership. So this in a way is like severance package for dealerships. Plus GM would be responsible to ship all the vehicles to other dealerships ( not cheap ). The benefit is less market saturation, and less administrative man power will be required to deal with 4000 dealerships.
ProudToBeAmerican 3:19PM (1/26/2009)
This is evident close to home here in Georgia-The Saturn dealership
is closed and lights are out before Christmas and the GMC dealership 1/2 mile down
from it, is liquidating it's remaining inventory to close their doors in the next
30-45 days.
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meatbag 3:21PM (1/26/2009)
pardon my ignorance, but i'm not clearly seeing why it would cost GM to close dealerships. anyone? and for that matter why not just axe the 400 bottom performers every year? 100 dealers per quarter, thats waht i call dealer incentive!
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Jeff 3:47PM (1/26/2009)
Because of state franchise laws, they aren't allowed to close dealers, even if business can't support the dealer. They have the buy the dealers out, which is expensive.
Kumar 4:03PM (1/26/2009)
Yeah, it's the franchise laws. They were meant to protect franchise owners, but have hurt plans to consolidate the overgrown system.
I remember Penske tried to consolidate dealerships in Indianapolis and troubles with franchise laws.
It's also what's keeping you from being able to order 'factory direct' or any other means of cutting out the middle man and markup.
That's probably the reason Saturn will die a slow and painful death as dealers slowly die off, so that GM can avoid paying buyout fees if they just closed down the brand. It sucks for many people, but it a whole lot better than all of GM filing for bankruptcy to skirt those archaic state laws.
gslippy 4:14PM (1/26/2009)
Wow, over 1 per day. They'd better get busy if they really mean it.
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