REPORT: GM won't pay dealers for franchises, will buy back parts, vehicles
In a special broadcast to dealers yesterday, General Motors' sales chief, Mark LaNeve, explained that the automaker would buy back unsold new vehicles and parts from dealerships slated to be phased out by the end of 2010, but GM wouldn't pay off dealers for their franchises.
As reported earlier this week, GM plans to cut it U.S. dealerships by 42% by the end of next year, reducing the total number of retailers from 6,246 to 3,605. Beginning this May, GM will begin sending letters to around 1,200 dealers informing them that their franchises will not be renewed and "they will not be part of a reinvented GM going forward."
According to LaNeve, the 1,200 or so dealerships slated to be cut are "very poor performing and not adhering to the sales and service agreement obligations." Joining the underperformers will be an additional 500 dealerships in saturated urban markets, another 500 that will be shuttered by the end of the year due to normal attrition, yet another 500 retailers that carry Hummer, Saab and Saturn vehicles – brands which GM is desperately trying to unload – along with 35 stand-alone Pontiac dealers that will meet their demise when the brand is phased-out at the end of 2010.
How this is all going to sit with dealer franchise laws remains to be seen, but after watching the Oldsmobile debacle play out, we doubt any resolution between GM and its dealers will be easy.
[Source: Automotive News – Sub. Req. | Source Image: Justin Sullivan/Getty]
_opt_thumbnail.jpg)
_thumbnail.jpg "2011 Audi A8: Live from Miami")
Reader Comments (Page 1 of 2)
Alex 3:39PM (4/29/2009)
Will the public know which dealerships will be getting the axe? Used shop parts at a nice price sound like they could be right around the corner.
Reply
Sea Urchin 3:44PM (4/29/2009)
"Used shop parts at a nice price sound like they could be right around the corner. "---You still planning to buy anything associated with GM?
The Luigiian 3:51PM (4/29/2009)
@SeaUrchin:
Why not? Might as well get your taxpayer dollar's worth.
Alex 4:26PM (4/29/2009)
I have my doubts that GM built the air compressors that the shop used.
UltimoDragon 4:31PM (4/29/2009)
@ SeaUrchin: I agree with Luigian. All of you who hated the auto bailouts--as the man said, go get your moneys worth. There's still going to be discounting to be had on Chevys, GMCs, and of course, Pontiacs and Saturns.
Do what you can for your country!
/only half sarcastically
race1foru 3:44PM (4/29/2009)
This will not fly. You cannot simply tell them their franchise agreement will not be renewed because this is another form of termination- which must be done on a mutual basis between the franchisee and the manufacturer. What you have printed above would be in direct violation of franchise law.
I watched the IDL broadcast yesterday and nowhere in the broadcast did LaNeve ever say that dealers will not be paid for their franchises. He said they would be preparing "packages" for the dealers GM does not want going forward, but they "cannot terminate" the dealers.
Reply
Beat-it-nerd 4:05PM (4/29/2009)
I also watched the IDL yesterday and he most definitely did not say that.
Tourian 4:34PM (4/29/2009)
But what if those dealers floor with GM/GMAC and they suddenly get denied floorplan? OR what if they simply don't get sent any more parts or vehicles? Im sure somewhere in the franchise rules the amount of sales you make or your CSI are stipulations for you continuing to be eligbile as a franchise.
gessvt 5:16PM (4/29/2009)
If a dealer principal can prove that his dealership is a profitable entity (thru fixed operations, used car sales, etc.), he'd have a valid argument in a wrongful termination suit. GM must have a plan to buy out the brick and mortar from these guys.
Jared 5:59PM (4/29/2009)
If you think that GM is going to paying big bucks to canceled franchises, you are dreaming. If the dealers try to push that, GM will declare Ch. 11, the franchise contracts will be canceled and the dealers will get bupkis. Take the deal that GM offers. Pennies on the dollar is a better deal than $0.
showgoer 3:45PM (4/29/2009)
Regardless of political leaning, this is going to be devastating to communities across America.
The vast majority of dealerships are single purpose facilities that have little redevelopment use. Given the current credit crisis, even well located sites are unlikely to be redeveloped quickly.
There are still Oldsmobile stores standing vacant and abandoned across the country. These sites consume police resources to address constant vandalism and other crime, and pay no taxes.
The sudden termination of thousands of Chrysler and GM dealers is going to flood the market with facilities like these, in numbers that will take years to work through.
A far better solution, IMO, would be for Darwin to close unprofitable stores, with the result being a more gradual addition of real estate into the market.
Reply
Jake B 4:01PM (4/29/2009)
The oldsmobile dealership in my town sat empty until last year when it was changed into a furniture store.
StickShift 4:03PM (4/29/2009)
"A far better solution, IMO, would be for Darwin to close unprofitable stores, with the result being a more gradual addition of real estate into the market."
I agree. However, both GM and Chrysler need to get rid of extraneous dealers NOW, hence the mass extinctions. This will not be good for communities, but it has to be done for eventual (hopefully) health of the companies.
showgoer 4:13PM (4/29/2009)
@StickShift:
Can you explain your position that the factories need to slim down the dealer body? The reason that the factories added so many stores over the past 20 years is that each store incrementally adds to net brand sales.
It works the same way in reverse.
In the case of unilateral termination, the ensuing litigation costs and subsequent flurry of new state protections will wipe out any possible benefits to the factory, IMO.
Reply
StickShift 4:52PM (4/29/2009)
My understanding was that GM and Chrysler are massively cutting their sales because of the failing economy and loss of market share to foreign competitors. With less demand for their products, but a large number of dealers that need to be supplied with cars, GM produces more cars than needed and has to pile on incentives to push the glut of cars out the door. The incentives cost the factory money. Also, if production is cut, but there are still too many dealers, then each lot winds up with less of a selection for customers to choose from. I imagine that doesn't help sales or the dealership's profitability.
Less dealers allow a smaller GM/Chrysler to cut production without hurting product availability at those stores, while simultaneously increasing sales (and profitability) at the dealerships that stay open.
That's at least my take on the situation, based on what I've read here and from other automotive new sources. If I'm wrong, please correct me, but I think I'm not too far off from reality.
Nixapatfan 4:56PM (4/29/2009)
Basically say you have plant capacity of 20,000 cars per year and 10,000 dealers each dealer will only have 2 cars to sell for the year. But your franchise agreement says you will supply enough cars to the dealer so they can fill the lot and they can make money if not you just breeched your contract with the dealer and will probably get sued. So to avoid being sued you build another plant to build more cars which may or may not sell just to satisfy your dealer body.
This is where GM is at and why you see blatant badge engineering, they have to supply enough cars to satisfy all their dealers so you get darlings like the G3. Then when those dealers can't sell them all GM has to slap on massive rebates to clear them out and lose even more money. They also lose money paying for kick backs to cover interest the dealer paid to have all those cars on the lot. They also end up having huge overhead in inventory which ties up R&D money.
UltimoDragon 4:19PM (4/29/2009)
I'm not sure how everyone keeps saying that the same lawsuits that were spurred with Oldsmobile's closing will be the same thing that happens with the closing of Pontiac. GM was probably losing money back in late 2000 when they made that announcement, but they were in much better shape financially than they are now.
Assuming the dealers have an open & shut case, do any of them really think they'll be compensated legally considering GM's teetering status? I'd take the buybacks and move on.
Reply
msm 4:28PM (4/29/2009)
Good luck getting any money from a bankrupt company run by the government.............GM has been screwing dealers and others for many years this is nothing new................Laneve even looks like a criminal........................
Reply
Mike 4:29PM (4/29/2009)
Why not change these dealerships into Service Centers for GM, Toyota has less dealerships but sells a ton of cars, try getting service done when you need it with them. Honda has Service Center seperate from dealership locations. Its easier to get work done without having to go back to the dealership( being chase around by salemen)
Reply
Tourian 4:37PM (4/29/2009)
Because parts and service is what keeps most dealers running when sales are down. In fact, most dealers look at new cars as loss leaders. Used cars and parts and service is where the profit is. They don't want to take that profit center away (or create too much competition) from the dealers selling new cars.
Reply