GM, Chrysler say slashing dealerships necessary

Source: Associated Press

WASHINGTON – The chiefs of General Motors and Chrysler told Congress on Wednesday they have too many dealers to support their slimmed down operations and sacrifices must be shared as they fight to overcome bankruptcy and survive. They acknowledged that slashing dealerships is causing pain in communities around the country.

GM is aiming for "fewer, stronger brands as well as fewer, stronger dealers," GM President Fritz Henderson said in testimony prepared for the Senate Commerce Committee. "These are tough times for everyone in the GM family."

Chrysler President James Press told the panel in prepared remarks: "Poor performing dealers cost us customers...If they don't sell cars, we don't either."

Committee Chairman Jay Rockefeller, D-W.Va., suggested both companies were abandoning customers and dealers, some of whose families have been in the business for decades.

Read more: http://news.yahoo.com/s/ap/us_auto_dealers

ideally, they should have started trimming a few at a time instead of all at once...but the automakers have never been big on foresight -- not only that, but dealerships are VERY well protected legally, and it costs a lot to buy them out (of course the bankruptcy ruling throws that out the window...)

You are correct. As Toyota closed in on them, we should have seen Toyota dealerships/production increasing and GM dealerships/production decreasing. Instead, GM continued as if they still had virtually no overseas competition like the end of WW-II.

So we end up with a wholesale collapse instead of a longer term shrinkage.

Loses money with the two dealerships in my town. Neither of them was failing, they were both healthy and provided jobs, tax revenue and donated quite a bit to local charities. All of that will come to an end and both manufacturers will lose the market in this area. How is that a benefit to anyone?

I don't know about the GM/Chevrolet/Cadillac dealer. But, if they all 3 close, it will leave Ford, Toyota and Honda dealerships. Presumably, they will get much of the business if the other 3 close. I don't think most people will travel to another city for sales and service. I won't.

or are they cannibalizing sales from a mega-dealer in the next town? are they dirty, dingy and have an look and feel that hasn't been made over since 1983? have there been a number of customer or BBB complaints about service?

could be a number of factors...

Both dealerships are in good condition both structurally and financially. All that will result from this is people will not purchase new GM or Chrysler vehicles because they're not going to want to drive over an hour for warranty service or repairs. If we're lucky, we might be able to pick up another manufacturer (we already have ford) and they will claim the market GM and Chrysler are abandoning.

It isn't so much an issue of some dealers not selling enough, or cannibalization of sales that motivates GM. In fact one could argue that either of those situations boils down to a big problem for the dealer and not so much for the car company. When dealers order for their lots they put in order forms for a number of different cars with different features so that they can more or less cover the spread of what are likely consumer preferences (Maybe you have to convince someone to take a different color here or an option there, but basically you have something pretty close to what they want. To do this it is necessary to keep a fairly large number of vehicles on the lot at all times. If they can get rid of a dealership, then that's one less lot full of cars that the company needs to provide an assorment of cars for. The truth is that one dealer can probably meet your town's needs, but it will involve a faster moving inventory, which is better for GM.

If this isn't clear, let me set up an example. Suppose there are two Chevy dealers in your town and they each carry three models. Model A has an invoice of $15,000, Model B of $20,000 and model C $25,000. The dealers both like to stock around 30 of each (usually the spread of cars is 2 months worth of sales, so it could be more or less depending on how fast your car market is) in order to have a good selection on hand. So on average each dealer needs $1.8 Million dollars worth of merchandise on the lot at all times. GM can't wait for the money to trickle in according to sales of the car, so they finance them, they lend the dealer money through their financing arm that pays for the cars until the dealer can pay off the financing. So while the company has cash flow, it's based on credit until the dealer can make the sale and discharge that liability on the balance sheet. They're essentially fronting $3.6 million dollars of merchandise in that town. So what's the reason that they want to take out a dealer? Because they don't want to have to front $3.6 M when they know the single dealer could keep offering a proper selection with only $1.8 M and more frequent ordering. Apply this on a nation wide scale and you can see how this would ease their need to devote resources to supplying this credit.

read here if interested
http://www.intellichoice.com/carBuying101/HowDealershipsWork

Coverage and convenience for customers is vitally important. If you don’t have proper coverage and availability... you won’t get the business.
It won’t matter if you have the best selection of vehicles if your business is 25 miles away... particularly if there are a significant number of competitors nearby.
The end result will be a dramatic net loss of vehicles being sold through GM related dealerships. In my estimation, this is a bad business move in a company that has a proven history of bad business decisions.

are able to service their customers and get higher sales with fewer locations.

the customer isn't able to negotiate a better price by saying he is going to take his business down the street to the next dealer. Each car then can bring in higher profits for GM.

Of course GM is banking on the idea that the customer only wants a GM and is not willing to go to another brand.

A company could sell fewer vehicles and have a greater profit. Volume does not equal profit.

I saw it on my local station.

they were all pissed off at everything Obama while "protesting" infront of a chevy dealership.

But I think the media is finally cluing into their rampant stupidity.

the stations around here in Austin seem to be ending these various reports on these "protests" with some nut sucker fish ultra fringe comment.

This particular one ended with the classic nut holding a sign to the effect that the IRA are terrorists.

It's nice to see the right wing being treated to the same media bias that the left had to suffer under for years.