Closing GM Dealerships Will Definitely NOT Help
Every time I hear a backseat driver critic of the American car industry impart their infinite wisdom on why filing Chapter 11 would be the best option at this point for General Motors and Chrysler, one of the key factors that they cite is the ensuing restructuring would force General Motors and Chrysler to close their "excessive" number of dealerships. As if that would be an indisputably wise move. And as if General Motors and Chrysler couldn't make that decision even without the draconian move of filing Chapter 11. While I don't dispute that with or without a bankruptcy filing we'll see a large number of dealership closings, I do dispute the accepted premise that such a move would in any way move these automakers towards improved viability.
The useless comparison that's always made is that General Motors has four times (or whatever the official number is) more dealerships nationwide than Toyota or Honda. The logical conclusion of this comparison is that GM closing three-quarters of its dealerships would cut overhead costs (which it would) and create a more level playing field for automobile sales with foreign competitors (which it almost certainly would not). There is a reason why General Motors has four times the number of dealerships as Toyota and Honda, and it can be easily determined by a simple evaluation of traffic on the freeways of Southern California compared to the Main Streets of Fort Dodge, Iowa, or Portsmouth, Ohio.
It's no coincidence that urban America has freeways full of Toyota Priuses and rural America has Main Streets full of Chevy Yukons (or less controversially, Oldsmobile Aleros). General Motors, along with Ford and to a lesser extent Chrysler, has created a market niche BECAUSE OF their large number of dealerships in areas where Toyota and Honda don't play ball. Closing large swaths of those dealerships in places like the aforementioned Fort Dodge and Portsmouth is more likely to drive residents in those communities away from purchasing GM products and towards Toyotas and Hondas, not the opposite which is the accepted theory among those with a rudimentary understanding of the situation but nonetheless fancy themselves experts.
It's an imperfect comparison because of the price disparity, but it's no secret that K-Mart faces long-term viability problems itself. K-Mart, like General Motors, has created a customer base in smaller towns and cities where there is often little to no retail competition. Bloomingdales, on the other hand, is doing better with its limited locations mostly in urban centers. Would it make business sense for K-Mart to close its stores in small towns across America and operate only in cities where Bloomingdales has franchises? Would that improve K-Mart's financial viability? If you listen to those who gleefully call for the closing of hundreds (even thousands) of GM and Chrysler dealerships, it'd be a stroke of business genius.
Bottom line: American automakers' financial decline would have been much more abrupt if not for their continued successes in the very markets where modern "experts" think they should shut down dealerships. In the event of bankruptcy and hundreds of dealership closings in these markets, buyers in these markets no longer have a convenience benefit for continuing to purchase GM products and the companies will fold entirely at an even faster pace. If the family in Portsmouth, OH, has to drive to Cincinnati to buy or repair a car in the first place, they're LESS, not more, likely to buy a Chevy from a bankrupt company.
The useless comparison that's always made is that General Motors has four times (or whatever the official number is) more dealerships nationwide than Toyota or Honda. The logical conclusion of this comparison is that GM closing three-quarters of its dealerships would cut overhead costs (which it would) and create a more level playing field for automobile sales with foreign competitors (which it almost certainly would not). There is a reason why General Motors has four times the number of dealerships as Toyota and Honda, and it can be easily determined by a simple evaluation of traffic on the freeways of Southern California compared to the Main Streets of Fort Dodge, Iowa, or Portsmouth, Ohio.
It's no coincidence that urban America has freeways full of Toyota Priuses and rural America has Main Streets full of Chevy Yukons (or less controversially, Oldsmobile Aleros). General Motors, along with Ford and to a lesser extent Chrysler, has created a market niche BECAUSE OF their large number of dealerships in areas where Toyota and Honda don't play ball. Closing large swaths of those dealerships in places like the aforementioned Fort Dodge and Portsmouth is more likely to drive residents in those communities away from purchasing GM products and towards Toyotas and Hondas, not the opposite which is the accepted theory among those with a rudimentary understanding of the situation but nonetheless fancy themselves experts.
It's an imperfect comparison because of the price disparity, but it's no secret that K-Mart faces long-term viability problems itself. K-Mart, like General Motors, has created a customer base in smaller towns and cities where there is often little to no retail competition. Bloomingdales, on the other hand, is doing better with its limited locations mostly in urban centers. Would it make business sense for K-Mart to close its stores in small towns across America and operate only in cities where Bloomingdales has franchises? Would that improve K-Mart's financial viability? If you listen to those who gleefully call for the closing of hundreds (even thousands) of GM and Chrysler dealerships, it'd be a stroke of business genius.
Bottom line: American automakers' financial decline would have been much more abrupt if not for their continued successes in the very markets where modern "experts" think they should shut down dealerships. In the event of bankruptcy and hundreds of dealership closings in these markets, buyers in these markets no longer have a convenience benefit for continuing to purchase GM products and the companies will fold entirely at an even faster pace. If the family in Portsmouth, OH, has to drive to Cincinnati to buy or repair a car in the first place, they're LESS, not more, likely to buy a Chevy from a bankrupt company.
posted by Mark at 9:53 PM
5 Comments:
Mark, I run the service department of a GM dealership in a small town. It was established in 1947 by my great grandfather. We are now being targeted by GMAC (where GM is still the majority owner) by attempting to dig into our bank records, threatening to pull the floor plan, etc. Even though we turned a profit last year and continue to do so, dealers like us are being targeted because of years of greed, ignorance, and incompetence by upper management. I was glad to read this blog, it made me feel like at least somebody out there gets it.
A very good argument.
Personally, it would take the moving of a mountain for me to again consider a GM vehicle (my last one was a '93 Chevy Corsica - one problem after another!). But to rejoice if our local Chevy dealer were to lose their shingle? Not on your life. We live outside Savannah, Ga. in what used to be a 'small county', but has since become a "white flight" suburban ring. Effingham County still has one each of Ford, Chevrolet here in town (Rincon) and up the road in Springfield there's a Chrysler/Dodge place.
I look at Fuller Chevrolet and I don't see a lot of action. I would hate like hell to see them dry up, leaving the only option for Chevy in a 75 mile radius to be the omnipotent Vaden family - which controls Chevrolet, Nissan, VW and Hyundai. Maybe others I don't know of.
I lament the loss of competition in this country. GM is *not* going to help itself by shrinking, ESPECIALLY in these smaller Deep South markets. The big guns (google "Bill Heard Chevrolet" if you want a good argument against 'megadealers') will starting REALLY acting the part.
IMHO, if GM had not killed the EV-1 car a decade ago, we would not be having this conversation. General Motors would be sitting pretty, and - perhaps - the gumment would be going to *IT* for a bailout!
.02
GM does is not the majority owner of GMAC Lou! They sold 51% to Cerebus(majority owner of Chrysler).
Also, I would like to know what expense is a dealership to GM??
I was a district manager for Yamaha Motor Corp for 15 years and now own my own motorcycle dealership.
The motorcycle business is a close parallel to the car business. Here is my take....
It just isnt logical business to think that closing retail outlets will help. Period.
It doesnt reduce their cost in any real way, they save some mail, some COOP, ect but it doesnt make up for the lost wholesale purchases. And units must be retailed or they wont be wholesaled. Hey dont use COOP as an excuse either because the dealers they are closing are not the "best dealers" and they arent the ones spending a lot of COOP anyway, chrysler could always just change the matching %.
NO these are not the reasons........
There is only one reason that i can think of for closing dealers. I said it 100's of times when i did dealer development for Yamaha.
If I could Terminate all the dealers in my district that didn't perform, and then replace them with dealers I chose. I could increase my sales 40%, and Yamaha's market share in my district would have risen from around 20% to 30-35%.
The real reason is that in bankruptcy the DMV regulatons that normally protect the dealers from termination do not apply. Giving GM ect carte blanche to get rid of the "bad dealers".
But why would they do that.......
Only if they feel they will reorganize and stay in business.
ie: fiat and chrysler.
Chrysler will pull through this part.. they will have been able to get rid of all of the bad dealers. Then they can go back into these markets and set up better dealers.
I garuntee you they are not closing good perfomers in smaller markets with good market share.
Thanks to all for the input on this post. I appreciate the insights from those who know the business first-hand.
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