GM - Why close dealers

[Wes Tausend]

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Rant on

I don't quite see the logic in GM (or other US automakers) closing dealerships. Can anybody shed some light on this?

GM to Slash 1,100 Dealerships

"...About 400 to 500 of the GM dealers that are set for termination by the end of 2010 have been selling only about 35 vehicles per year, LaNeve said. And many were in "danger of going out of business anyway" because their profitability is so low.

The sheer size of GM's dealer network was hurting business. Rising competition forced dealers to undercut each other on prices, lowering the products' residual value and damaging the company's future sales..."

It seems to me that it's no skin off GM's butt as long as they weren't directly subsidizing them. Why don't they let dealerships die naturally if they can't cut it? Do they think the public will more likely buy higher priced "rare" Chevrolets? It's a bit like Kool-Aid shutting down lemonade stands to sell more Kool-Aid. Free enterprise isn't free anymore. Nor does it make sense. Again.

Perhaps their logic is to sell very few cars at premium prices. A few good cars... like a few good men. Logically, it reduces to... sell only one car for three times it's worth and corporate profit shoots through the ceiling, percentage-wise.

I can see GM wishing they could close competing-brand dealerships.

I don't have a problem with, sometimes amazing, GM engineering. For the money, the products are actually far better than given credit. Anybody can build a good car for 50K plus.

Rant off

Wes

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[Bartruff1]

There must be some kind of financial advantage to the manufacturers but it sure isn't apparent to me....that looks like a theft...a taking to me..???

[Ronbo]

This no doubt came from the government...

No business clips their sales force. Welcome to "government down-sizing".

The higher volume dealers got better pricing from the plant, a smaller volume dealer survived by offering better service and being more efficent. So take a guess where this is headed.

[joyridin']

I think GM and Chrysler are hoping their cars will increase in value due to the limited places to buy them.

Good luck to them!

[fsstnotch]

Supply and demand right....... ya... right!

[Seagull81]

This going to really screw the folks in smaller rural towns across the country. That is where many small dealerships are.
Maybe they can get GM bought out by Yugo.

[SPF2245]

From what I've been told by the local dealer, there is a contract between GM and the dealer, and it includes different financial support (marketing, ads, ect) to be provided to the dealer from GM. Add that with the cost of maintaining a supply chain of parts and vehicles to all the dealers...and it gets costly to maintain such a huge number of dealers.

[olddog]

GM just shut down a local dealership by force. Rumor has it threats were made by the owner of the dealership and law enforcement was called.

Rumor I heard was that GM's finance arm had floated all the loans for not only the cars on the lot, but the dealership's property, buildings, etc. I will add this dealership has existed on this spot over 30 years and at least another 20 years at its previous location. He sure does have a nice house, huge boat, and a race team for his son, but couldn't manage to pay the place off in 30 years. I can tell you the owner of that dealership had a reputation for arrogance, and they never ever found the cause and fixed a single thing I ever took to them. I am not sad for this one to go. I hope they cut the poor performing dealers and keep the good ones.

Bottom line is that dealerships cost the company money. I'm no expert, so I can only speculate on how it is all tied together. However if you are supplying the financing there has to be costs. It would also require a larger volume of cars in the pipeline to float twice as many dealers as you need. The working capital tied up nation wide has to be huge.

[95CobraR]

Originally Posted by Wes Tausend

I don't quite see the logic in GM (or other US automakers) closing dealerships. Can anybody shed some light on this?

The Wall Street Journal ran a series of articles on this. They interviewed a few GM and Chrysler dealers that felt that sometimes their biggest competitor was the same dealership nearby. The two competing GM (or Chrysler) dealers were cutting their own profit margins competing against each other.

I guess if I was the dealer left standing I would be happy with less competition. If I was the guy being shut down, I may have a different opinion.

[427sharpe]

Pure economics...Too many dealers = too much price leverage = lower profits.
GM released numbers with the news and said 49% of current dealer network accounts for 97% of profits....so theoretically they can eliminate 51% of the dealers who COST money rather than MAKE it. One can only hope that closure decisions are made with better insight than marketing ones
And no threats are required...dealers sign yearly license agreements and GM just will not offer another when one expires. GM is using the threat of bankruptcy to leverage the dealers, because if they do reorganize the judges will wipe out the contracts NOW...ala Chrysler. Sad to say, but the current political structure sees the business owner as the bad guys...not the bankers and 'financial experts'. Anybody heard of any bank ceo's being pushed out the way Rick Wagonner was???? Too much $ being donated BY the REAL badguys to hold them accountable. Good explanation of this can be found on YouTube...search for a clip from Bill Moyer's PBS show with a fellow named Black who used to be a regulator during the last meltdown (S&L crisis).