Closing auto dealers: Dumb move

[goof2]

Originally Posted by pauldun170

drop in the bucket yes.
the point isn't about expenses.
Its about generating revenue.

GM had a lot of revenue. In 2008 GM had almost $150 billion in revenue (over $175 billion in 2007, their worst year ever). Their problem for the better part of the last decade is that they had even more expenses. Again in 2008 GM had almost $180 billion in expenses (almost $220 billion in 2007).

There are two ways for a company to get out of the red, increase revenues and decrease expenses. Obviously they all need to do both and that holds true for GM as well, but GM's expenses have been way out of control for way too long. Instead of dealing with that when they had the chance they decided to close dealerships to give the appearance of "doing something" rather than actually doing something. It is a shame really because as the organization is currently set up it is no more sustainable than it was 2 years ago.

[pauldun170]

Originally Posted by Homeslice

Except those efficiencies are very minor, since the manufacturer doesn't own the dealer, and only helps him with a teeny bit of his expenses.

Oh yeah...here is where you said that:

I can see how you could interpret it that way.


My point is that the government helping Automakers get around all the legal bullshit concerning dealers in was assisting automakers in restructuring efforts.
The point of those restructuring efforts is to help automaker shed legacy bs and focus on selling cars.
Not focus on retail jobs, the focus of the original article.

Reread my posts and hopefully you will see that.

Dealerships purchase the franchise rights and represent the automaker in the market place. It is the right of the automaker to control that arrangement.

My perspective on dealer saturation is from an economist standpoint.
Are you going to standby your assertion that consumers cross-shop between GM products and Toyota products?

[pauldun170]

Originally Posted by goof2

GM had a lot of revenue. In 2008 GM had almost $150 billion in revenue (over $175 billion in 2007, their worst year ever). Their problem for the better part of the last decade is that they had even more expenses. Again in 2008 GM had almost $180 billion in expenses (almost $220 billion in 2007).

There are two ways for a company to get out of the red, increase revenues and decrease expenses. Obviously they all need to do both and that holds true for GM as well, but GM's expenses have been way out of control for way too long. Instead of dealing with that when they had the chance they decided to close dealerships to give the appearance of "doing something" rather than actually doing something. It is a shame really because as the organization is currently set up it is no more sustainable than it was 2 years ago.

What value is it to GM to maintain franchise arrangements with dealerships that had poor scorecards? What value is it to GM to have two similar franchises within 3 miles of each other? what value is it to GM to have multiple dealers, each with excess inventory and possible low sales, including any financial arrangements with the individual dealers for vehicles and parts inventory?

If you have a market that supports 20 sales a month yet have two dealers with inventory to for 30 sales a month sitting down the block from each other (resulting on cars sitting idle on the lot resulting on pricing pressure as dealers try to offload inventory...resulting in market perception that your cars are worth less than MSRP) what is the benefit to GM?

[goof2]

Originally Posted by pauldun170

What value is it to GM to maintain franchise arrangements with dealerships that had poor scorecards? What value is it to GM to have two similar franchises within 3 miles of each other? what value is it to GM to have multiple dealers, each with excess inventory and possible low sales, including any financial arrangements with the individual dealers for vehicles and parts inventory?

If you have a market that supports 20 sales a month yet have two dealers with inventory to for 30 sales a month sitting down the block from each other (resulting on cars sitting idle on the lot resulting on pricing pressure as dealers try to offload inventory...resulting in market perception that your cars are worth less than MSRP) what is the benefit to GM?

I don't know what the value is, but considering GM (the government and unions) originally planned to close over 600 more dealerships based on those factors then reversed the decision apparently GM sees some value.

ETA: As I said it doesn't matter anyway. GM isn't doing what is necessary to be a viable concern so without some major future changes all GM's dealers will be SOL.

[pauldun170]

Lets just recap
Automakers wanted to dump underperforming dealerships and also reduce saturation.
Franchise laws made this an expensive and onerous task.
Gov\Tarp came along and said 'we'll make it easy for you'
Automakers jumped on it.

Benefits

Long-term gains

The upside of cuts is that the surviving dealers can present a better image for the manufacturer and over time, said Dilts, the surviving dealer network will be able to pick up lost sales volume as the economy improves.

More profitable dealers can spend more on store upgrades, build more service bays to take care of customers and provide better salaries and higher commissions to attract the best employees.

"We feel that customers like to visit nice, clean, upgraded facilities," said Garontakos.

Just reducing the sheer number of dealerships isn't the goal for GM.

"They're going to leave their 'power stores' together in their key markets," said Dilts.

GM's dealership network gives it certain advantages over a rival like Toyota said GM sales spokesman John McDonald.

There isn't much else that I can add.
This auditor complained that closing the dealerships added to unemployment rolls and the government didn't add as much weight to that when it offered the automakers help in getting around franchise laws.
The point of helping out the automakers was to help the automakers...not the dealerships. Its better to have some great franchises than alot of shitty ones because the shitty ones drag your brand down. Having em close together devalues your product because now you have pricing nonsense as two crappy dealer compete, both dealers with excess inventory screwing up your forecasts because now you gotta deal with multiple dealers instead of one all trying to sell product that just wont move.

[pauldun170]

Originally Posted by goof2

I don't know what the value is, but considering GM (the government and unions) originally planned to close over 600 more dealerships based on those factors then reversed the decision apparently GM sees some value.

Its called litigation.
Dealer sued
politicians screamed

There are probably some cases where dealers got there shit together and improved their scorecards but a lot of cases are dealerships calling lawyers.

Originally Posted by goof2

I don't know what the value is, but considering GM (the government and unions) originally planned to close over 600 more dealerships based on those factors then reversed the decision apparently GM sees some value.

ETA: As I said it doesn't matter anyway. GM isn't doing what is necessary to be a viable concern so without some major future changes all GM's dealers will be SOL.

What should GM be doing to be viable?

[goof2]

Originally Posted by pauldun170

Its called litigation.
Dealer sued
politicians screamed

There are probably some cases where dealers got there shit together and improved their scorecards but a lot of cases are dealerships calling lawyers.

Actually it was arbitration not litigation, but you have hit on wher GM sees the value of keeping them open.

Originally Posted by pauldun170

What should GM be doing to be viable?

In my view the most important thing they need to do is scrap their labor agreements. As I understand it they have only dealt with pensions so far. That they dealt with them by giving the UAW pension fund 17.5% ownership doesn't make this likely. This is also the primary reason why I don't see the new GM as viable in the long term.

They also definately need to improve their quality. This avoids warranty claims which directly cost them money. It sounds nice that domestic manufacturers are touting their reductions in warranty claim expenses from the first 90 days of ownership. It is not so nice that those reductions track with similar reductions in new car sales. Quality goes beyond those direct costs though. The high NVH levels I have experienced in domestic cars will not result in warranty claims, but I have to wonder how manufacturers in the 21st century can find it acceptable. Practically every domestic I have been in, including newer cars, has NVH levels that you don't find in a 100k mile Honda or Toyota. In my experience domestics also have an annoying level of squeaks and rattles that aren't found in most foreign vehicles. Sure, the new GM is talking about increasing quality, but so was the old GM. They need to actually do it, not just talk about it.

The argument goes back and forth on this one but I think they should rely less on outside suppliers. Bringing more production inside would allow them to cut costs and put them in a better position to control quality. That does depend on GM actually controlling quality which, as I stated above, I need to see in order to believe.

That is just a sampling but compared to those three issues, which I am not conviced have been fixed, their dealership structure is a drop in the bucket.

[101lifts2]

Pauldun I think you are pretty misguided in this thread. I have alot more experience with auto OEMs and dealerships than many here. I have spoken about buisness practices with many dealer principles (owners) over the years. The fact of the matter is this: While GM takes in alot of cash, it was shelling out more. The main reason was too many like products with too much inventory, so plants had to be closed and personall had to be reduced. Now...if you do this, you simply do not have enough inventory to support 4,XXX dealers, so the bankruptcy protected GM from getting sued.

More dealers = more revenue for GM. Period, especially if the dealers are hungry. Also, don't forget GM has fixed costs with its IT, Service support, sales support that the dealer pays GM per month. If you cut the dealer body in half, you loose half of this revenue, while still having to provide the same level of service to the remaining dealers. Also, in most cases GM will jack the monthly fees per month to compensate for the reduction in the dealer count.

The advantage for dealer reduction is at the dealership itself. Less competition and less vehicles produced will ensure a steady steam of revenue, but because of this, these dealers are no longer "hungry' and will be content with selling only slightly more vehicles or servicing slightly more vehicles than before.

Isuzu is going through the exact same thing...550 truck dealers (GM/Isuzu) down to 300 (Isuzu). Vehicle sales WILL decrease and it will be loose for Isuzu and win for the remaining dealers.

[pauldun170]

Originally Posted by 101lifts2

Pauldun I think you are pretty misguided in this thread. I have alot more experience with auto OEMs and dealerships than many here. I have spoken about buisness practices with many dealer principles (owners) over the years. The fact of the matter is this: While GM takes in alot of cash, it was shelling out more. The main reason was too many like products with too much inventory, so plants had to be closed and personall had to be reduced. Now...if you do this, you simply do not have enough inventory to support 4,XXX dealers, so the bankruptcy protected GM from getting sued.

More dealers = more revenue for GM. Period, especially if the dealers are hungry. Also, don't forget GM has fixed costs with its IT, Service support, sales support that the dealer pays GM per month. If you cut the dealer body in half, you loose half of this revenue, while still having to provide the same level of service to the remaining dealers. Also, in most cases GM will jack the monthly fees per month to compensate for the reduction in the dealer count.

The only real benefit for dealer reduction is at the dealership itself. Less competition and less vehicles produced will ensure a steady steam of revenue, but because of this, these dealers are no longer "hungry' and will be content with selling only slightly more vehicles or servicing slightly more vehicles than before.

Isuzu is going through the exact same thing...550 truck dealers (GM/Isuzu) down to 300 (Isuzu). Vehicle sales WILL decrease and it will be loose for Isuzu and win for the remaining dealers.

ok

[pauldun170]

http://www.youtube.com/watch?v=nFDqv...eature=channel