GM, Chrysler working to shrink dealer networks as federal aid rolls in
12/29/2008, 11:52 AM
By Drew Johnson
General Motors and Chrysler are both scheduled to receive a $4 billion cash injection from the U.S. government today, but that doesn’t necessarily signal the tough times are over for the Michigan automakers. Both automakers are tasked with thinning their U.S. dealer base, which could be much more difficult than first thought.
Due to franchise laws and other regulations, getting dealers to call it quits won’t be an easy proposition. GM plans to shed 27 percent of its dealer base – or roughly 1,750 stores – which could cost the automaker billion in buy outs and legal fees. Chrysler also plans to reduce its 3,300-strong dealer network, but has yet to announce by how much.
“In a number of states there’s these very elaborate procedures that you have to go through to shut dealerships,” University of Chicago law professor Douglas Baird told Bloomberg. “In some states you just can’t do it at all.”
But despite the tough road ahead, it’s a necessary move for both automakers. The high number of dealerships – particularly in urban areas – is making it difficult to compete with other brands. Instead of taking on competition such as Honda and Toyota, most GM and Chrysler dealerships are having to deal with other GM and Chrysler stores just around the block. The dealer congestion is also taking its toll on marketing budgets.
That being said, the move to eliminate stores isn’t completely impossible. Just a few years ago GM closed its Oldsmobile brand, which required the closure of several dealerships. However, dealership lawsuits ballooned GM’s cost to close the brand to over $1 billion.
12/29, 12:15 PM
posted by:
tzu13
Good. The dealers aren’t going to like it (who would?), but it must be done.
12/29, 12:23 PM
posted by:
Borat
“shrink dealer network” – sounds like circumcision with a dull instrument.
12/29, 12:30 PM
posted by:
RaineMan
I don’t understand what is so hard… just stop sending them cars.
12/29, 12:35 PM
posted by:
sj79
“I don’t understand what is so hard… just stop sending them cars.”
This is why they have laws to protect franchise holders. You cannot just starve them of product and drive them out of business.
12/29, 12:42 PM
posted by:
johnnycanuck
Here’s how incredibly cutthroat it’s become. There are two Chrysler dealers on the ‘auto mile’ down from where I live. I’m good friends with one of the sales guys at one of these stores. Well his dealership couldn’t figure out how the other one was able to undercut them by about a thousand bucks on every car. Then one of his customers comes in one day rather sheepishly and says he nearly did a deal with the other guys because of that thousand dollar difference. They got halfway into writing up the deal before he noticed they were trying to slip through a $1200 documentation fee.
Apparently the two dealership owners had a meeting of the minds shortly thereafter and this practice was immediately discontinued.
12/29, 1:35 PM
posted by:
howsmydriving
Note the picture of the Astra. I STILL have yet to see one on the streets. Ditto Flex.
12/29, 1:57 PM
posted by:
beemerdude
RaineMan…
“I don’t understand what is so hard… just stop sending them cars.”
Dealers sign contracts with the suppliers. A contract is a contract… and is binding. GM will be breaking the terms of their contracts with the dealers and will thus open themselves up to big lawsuits.
Like sj79 said, it isn’t as easy as just cutting off their supply of cars. GM is obligated to supply vehilces under the terms of the contracts they signed.
12/29, 2:54 PM
posted by:
inline6
Hows,
I see one every day. It sits in my driveway when I’m at home, and where I parked it while at work.
I just bought a new ‘08 Astra XE about 12 days ago. And I absolutely love it. But yeah…I’ve only seen one or two others on the road in my area.
12/29, 3:17 PM
posted by:
yarddog82abn
When Ford was shrieking it’s dealer network, I know of one dealer that by the time it was all said and done he walked away with $16 Million, after Tax, and he’s converting the dealer lot in to a store plaza, but it did take a year for him to settle out of his contract…
12/29, 4:20 PM
posted by:
Borat
After reading your posts about dealers hardship, I wish the instrument was even duller.
12/29, 7:01 PM
posted by:
TomF
What does LLN mean, shrinking the dealer body “could be more difficult than first thought”? It’s always been regarded as virtually impossible, which is why it hasn’t happened until now. Laws and contracts favor the franchisees. About the only way to kill ‘em is to stop producing the products they resell… not stop shipping them, but stop making them.
12/29, 7:59 PM
posted by:
DrFill
More evidence of mismanagement by the domestics
You leave in clauses where you can close stores based on sales, economic conditions, profit margin, any mikllions of reasons at your discretion
That’s called minding your business
When you let the inmates run the asylum
You pay the price
DrFill
12/29, 10:05 PM
posted by:
inline6
DrFill,
The problem with that is that many of these contracts were signed back in the days when the domestics had 90-95% market share. And smaller companies like Chrysler, AMC, and Studebaker-Packard found that, in tough times, dealers deserted them in droves for Ford and GM contracts, which made their downturns worse because they couldn’t get good market proliferation.
So back in the day, contracts like these kept the automakers’ dealer bodies stable. And they helped keep GM’s market share above 40% and Ford’s share above 20.
12/30, 11:28 AM
posted by:
Z06ified
The best thing for GM would be to let dealers fail and close on their own. I’ve already seen a lot GM dealers go out of business near where I live. Only the best and most healthy dealers will survive, and those are the ones you want to keep anyway. Let the markets work themselves out naturally.
12/30, 1:06 PM
posted by:
inline6
Z06ified,
Problem is, the dealers aren’t failing fast enough to hit the targets GM needs to hit. The conditions on this bridge loan are such that significant progress needs to be made by March 31. That isn’t a lot of time to wait around for them to fail on their own while they simultaneously endure a PR disaster then the newsmedia catch wind of every “local business” failing because of GM.
01/05, 1:27 PM
posted by:
MercMark
Why does it matter how many dealerships there are?
If sales are down won’t the smaller weaker ones get out on their own?
01/06, 4:12 PM
posted by:
sharpe22
Having just closed a Chrysler, Jeep, Dodge franchise in a small town in Dec of 2007 let me tell you they have been trying to close dealers for quite awhile. In conjunction with their financial arm of Chrysler Financial, a small dealer really doesn’t stand a chance. The first thing they do is load the dealers up on inventory. Just the opposite approach one might think. This is how the factories keep from having to inventory the products themselves which is very very expensive. Do they pay us to keep this inventory for them? Nope, they charge us to hold it for them calling it floor plan charges going to Chrysler Financial. Well if this is the case why do we buy all these cars from the factory?Good question? The answer is relatively simple. If we don’t buy the cars they want us to have, then they will not let us buy the ones we need., and they do this little thing called “packaging”. They will give a discount to the dealer who buys these certain cars but not to the dealers who do not. Yep, its illegal,but they do it anyway. If you do not believe me just check with any small town Chrysler, Dodge or Jeep Dealer……..Now Chrysler and Chrysler Financial are using the Taxpayer money to sue all the dealers they forced out of business for loans they gave them to pay the floors plans with……for some reason I do not believe this is what congress had in mind when it agreed to “bail” them out.
Who is going to bail the hundreds of small dealers out ?