GM reportedly accelerating the closure of 1,700 dealers
June 1, 2009 is turning into the equivalent of General Motors' D-Day, and every day seems to bring new events that are being planned in advance of it. GM had more than 6,000 dealerships at the end of last year, and in the initial viability plan it offered to the government, the automaker pledged to close 25% of those over the next five years. As with the rest of the plan, the Auto Task Force said "That isn't enough." So GM has turned the big guns on its dealership closures, having seen 200 of them shut down this year already. It is not waiting for attrition to rid itself of others, but pin-pointing under-performing locations and "could move to terminate franchise agreements." And GM is doing so with a different payment scale than it had when it closed down the 2,800 Oldsmobile dealerships, which ran up a tab of $1 billion.
Also, it appears, the bell tolls louder for a GM bankruptcy. Tucked in the article was this line: "The issue of how many U.S. dealerships GM can support has been one of the hot-button issues for U.S. officials as they drive GM toward a stepped-up restructuring that many observers have now concluded will include a bankruptcy filing."
[Source: Yahoo!]
Reader Comments (Page 1 of 2)
jamie 11:12AM (4/16/2009)
Your average auto dealer needs to sell about 1000 vehicles per year to be mildly profitable.
GM has 6500 dealers. That means to keep their network of dealers happy, GM must manufacture 6.5 million vehicles per year. Ain't happenin' Willis!
Slow as molasses Rickshaw Rick envisioned selling 4 million vehicles per year in NA. Good plan, really. But the attrition rate was far too slow to keep pace with the failing real world economy.
GM is now selling at an annualized rate of about 2 million vehicles per year. Yikes! That means they can only support about 2,000 dealers.
If GM could rapidly scale down to 9 or 10 assembly plants in NA producing 3.6 million vehicles per year; then the dealership count needs to be severely chopped to 3,600 - 4,000 dealers. This is the only plan that will ensure that GM remains a viable going concern.
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Frank 11:14AM (4/16/2009)
My guess is those underperforming dealerships will try to sue, GM will file C11, and they will go to the end of the line figuratively speaking, as creditors. In other words, when it's all over they will get nothing.
Does anyone know of the 6000 or so dealers how many individual retail outlets they have? Most Pontiac GMC and Buicks are at one single outlet. I have a local dealer that is Chevy/Pontiac (used to be Olds too). I'm guessing they have only 3000-4000+ unique outlets for all those brands including Saturn, Hummer and Saab.
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why not the LS2LS7? 11:17AM (4/16/2009)
Can someone explain to me why it matters to GM how many dealerships there are? Why it is to their advantage to pay dealers to close?
GM does not own the dealerships, they are independent, so how does it cost GM money for a dealership to be open, or save GM money for one to be closed?
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Julius 11:59AM (4/16/2009)
In short - franchise laws.
Plus, the dealer is the public face of the company. People have bitched for years that the service given at the domestics is crap. That's why Saturn with its customer-friendly approach was so remarkable. The converse to that is that Saturn only had
jamie 12:29PM (4/16/2009)
Logistics is the main conundrum.
Simply put GM has 6500 dealers.
Each dealer needs to sell about 1000 vehcles annually to be mildly profitable.
Thr Rickster envisioned GM selling 4 million vehicles annually at about 4300 dealers across the country (which was a really good plan) before the economy went south.
Now GM is struggling to maintain a 2 million vehicle annualized selling rate. Realistically today, GM needs only 2000 dealers. The auto crash of the century is hitting main street USA in a big way.
why not the LS2LS7? 12:32PM (4/16/2009)
Julius:
I don't understand "franchise laws". Can you give me the long version?
Jamie:
Your argument explains why dealerships would become nonviable. But I don't understand why GM cares if dealerships become nonviable any more than I understand why they care if they remain viable.
Why does the mere existence of an extra dealer out there hurt GM financially? How does the lack of one help them?
jamie 12:52PM (4/16/2009)
Location. Location. Location.
The good part about having so many dealers is that service is nearby. Not true if you happen to own say, a Suzuki, Mitsubishi or even a Toyota (which has only about 1500 dealers nationwide).
Many dealers also affords many selling points which reinforces the company as a whole in the public eye. This is really good for public image (but not if the dealerships are shabbily run).
GM is burdened by having too many dealers which requires extra support personnel to efficiently manage all the orders, warranties and financial concerns.
Toyota sells the same number of vehicles as GM at 1500 dealers with only 9 assembly plants in total in NA. GM has 6500 dealers and 23 odd assembly plants producing the same result.
Which model to you think is more cost effective and therefore more profitable? It takes a lot of extra support personnel to maintain GM's heavily bloated business model compared to Toyota's leaner and meaner operation.
Therefore reducing the dealership count reduces the inherent costs of operation internally. GM's middle management has always been a huge costly yoke on the entire operation. GM could have learned a lot about flat management structure if it had held on to FIAT instead of dumping it into oblivion.
Mark B. Morrow 1:01PM (4/16/2009)
Dealers are the face of the manufacturer for sales and service. If GM has too many in close proximity to each other selling the same product they will all suffer. The price competition devalues the product and dealers that aren't making money are likely to offer poor service which drives away repeat business. It is in GM's (and Ford's and Chrysler's) best interest to have a body of successful dealers rather than mediocre ones.
Jay Evans 1:06PM (4/16/2009)
Why? Check how many GM dealerships are around you. For me there are
6 Buick (combo Pontiac/GMC for many)
3 Caddy
10 Chevy
3 Saturn
All within 25 miles.
Most of the time they aren't competing with other Brands, just with other GM dealerships. With so many dealerships, that drives down prices and it's almost a guarantee that nobody will make money on new cars.
So the dealer tries to make it on repairs but there again he's competing against 20 other GM dealers all just a few miles apart.
why not the LS2LS7? 1:27PM (4/16/2009)
Why does GM care if dealers can't make money because they are in a price war? GM still gets paid the same amount when they sells the cars to the dealers.
There's a Quiznos every 5 feet around here now. I feel bad for the owners of the franchises (Quiznos gives no exclusive area), but I don't see Quiznos saying that the presence of too many franchises hurts them.
UltimoDragon 2:31PM (4/16/2009)
@ why not the LS2LS7?: I'd throw in a guess at the prospect of building company-owned stores down the line.
Even acknowledging GM's want to avoid bankruptcy if still possible, there's easily small part of their braintrust that knows there's a few chances to innovate the buying experience if they're allowed to ditch dealer contracts because of bankruptcy. Not all of the true franchises would go away under any plan to implement company stores, but I'm sure GM would like to have a greater say in controlling image/message of its products, from manufacture to sale.
Phil L. 5:07PM (4/16/2009)
Regarding franchise laws:
Lots of good reading if you Google "franchise laws auto dealers". A few on which to get started:
http://www.thetruthaboutcars.com/the-truth-about-car-dealer-franchise-laws/
http://volokh.com/posts/1233851046.shtml
http://www.newyorker.com/talk/content/articles/060904ta_talk_surowiecki
The short story: State-level franchise laws can make it difficult for big OEMs to make significant dealership structure changes without legal hassles or huge expense.
Judy Zik 8:31PM (4/16/2009)
There are some much simplier issues from having too many dealers. Say GM wants to sell a new 2010 model. Instead of sending out 1500 marketing kits to 1500 dealerships like Toyota they have to send them out to more than double that. Ditto that for training sales staff about it. They also have to produce more than double the number of vehicles just to get one on every lot. All this while selling less than Toyota. Come the end of the 2010 model year they now also have over double the inventory sitting out on lots of old models. This leads to them having to give more dealers more factory incentives to get rid of more old stock. Then add in the number of badge engineered versions of the same car at seperate divisions competing with each other and it is a nightmare. Of course the dealers are also in it to make money and when a marginal dealership isn't getting enough sales they will squeeze GM for unnecessary warranty work and squeeze customers. Hurting GM both ways. Too many dealerships is a huge problem.
harlanx6 11:21AM (4/16/2009)
"The issue of how many U.S. dealerships GM can support has been one of the hot-button issues for U.S. officials as they drive GM toward a stepped-up restructuring that many observers have now concluded will include a bankruptcy filing."
I would think the dealerships are supposed to support GM, not the other way around. Maybe not.
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Todd 11:23AM (4/16/2009)
Weird. Need to shut down every diluted brand ( Saturn, GMC, Pontiac, etc. ) dealer in the country, like *immediately*, *today* - until there's only Chevy and Cadillac left.
1,700 isn't even a drop in the bucket.
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RamblinReck89 11:27AM (4/16/2009)
Give me some C-4 and I'll accelerate the closure for them.
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Frank 12:42PM (4/16/2009)
Better be careful or you'll end up on a Nepolitano Homeland Security assesment report with all the other "undesirables".
Alex 11:52AM (4/16/2009)
good for them
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mikeyt 12:09PM (4/16/2009)
So what is that, about 80,000 jobs ?
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sdcarnut 12:10PM (4/16/2009)
Im kinda surprised that GM needs to do anything but sit back and watch, i cannot get over all the dealers that have closed recently here in san diego, some real big dealers and some not so big, Alot of these dealers are closing shop cause of no sales, not from being forced to close down, my local hummer dealer has one car out front and its a mazda 3 lol ....
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