Topic: GM and Dealers (Read 9728 times)

Joe Sixpack · « **on:** June 18, 2009, 08:17:20 AM »

I'm confused more than usual regarding GM wanting to close down dealers. Do dealers actually cost GM money somehow? Seems to me, dealers order cars from GM and then basically compete with each other in their local markets. So how does closing dealers help GM? The best dealers will stay in business, and if there are too many the market won't support them and they'll go out of business. Either way they are selling GM cars. Enlighten me.

BizB · « **Reply #1 on:** June 18, 2009, 08:45:13 AM »

I can't. I've been asking the same question. As a matter of fact, I think dealers pay the manufacturers a fee for the right to sell their cars. A franchise fee so to speak.

And, to confuse things even more, they're not closing just unprofitable dealerships.

Min · « **Reply #2 on:** June 18, 2009, 10:20:32 AM »

Good point. Think it's because Government Motors doesn't think the free market works? If the free market doesn't work or rather, if the government knows better than the invisible hand...then it makes perfect sense. I think ecomonists call it the "Costanza Approach". Do the opposite. It'll all work out.

12AX7 · « **Reply #3 on:** June 18, 2009, 10:58:43 AM »

Years of declining sales have left both GM and Chrysler with many more dealerships than they need. As a result, their dealers often compete with each other for customers, hurting their profits.

Most of the GM dealers selected are "hurting, losing money and in danger of going out of business anyway," Mr. LaNeve told reporters. "It's a move that people could argue should have been taken years ago."

From here: http://online.wsj.com/article/SB124238650972623589.html

That's what they say, anyway.

mryellow · « **Reply #4 on:** June 18, 2009, 12:05:08 PM »

I still don't get it though. Even if this is true, why would GM care if two dealers try and take each other's business? Who cares which dealer puts in the production orders, it's still the same amount of cars sold? It would make more sense if the dealers themselves were looking for a way out so that they could try and sell decent cars from a different manufacturer, but that's not the case here.

Strange.

12AX7 · « **Reply #5 on:** June 18, 2009, 12:40:30 PM »

My guess is if they (dealerships) aren't making as much profit due to said "competition", they don't have as much capital to purchase as-yet-unsold (new model year) autos. (The ones you actually see on the lots) This competition is based more on too many dealerships per capita; not neccessarily by demand for the autos.

BizB · « **Reply #6 on:** June 18, 2009, 12:43:16 PM »

Dealer A buys car from manufacturer for $10,000 Sells car for $11,000
Dealer B buys car from manufacturer for $10,000 Sells car for $10,500

Dealer A makes a profit and continues to get business based on reputation and superior service.
Dealer B makes a profit and gets more business than Dealer A in the future thereby selling a larger volume of cars and making the same gross at the end of the year by moving more product.

Where does the manufacturer get hurt in either of those scenarios?

12AX7 · « **Reply #7 on:** June 18, 2009, 12:58:17 PM »

Since the competition is driven by too many dealerships and not enough demand, when dealer A and dealer B get into a price war, they hurt their own bottom line; thereby decreasing the total autos purchased NEXT (because neither dealer now has as much money). Play this scenario out for several years, and you can see how - since the dealers keep competing over the same (small) number of consumers, GM eventually starts to lose sales to the dealerships in total. Apply that over several thousand dealerships, and that's a big cut in sales for GM.

Probie · « **Reply #8 on:** June 18, 2009, 12:59:18 PM »

what about pressure from dealerships to drop prices and stuff? Isn't that what happens with oil?

BizB · « **Reply #9 on:** June 18, 2009, 01:20:36 PM »

Quote from: 12AX7 on June 18, 2009, 12:58:17 PM

Since the competition is driven by too many dealerships and not enough demand, when dealer A and dealer B get into a price war, they hurt their own bottom line; thereby decreasing the total autos purchased NEXT (because neither dealer now has as much money). Play this scenario out for several years, and you can see how - since the dealers keep competing over the same (small) number of consumers, GM eventually starts to lose sales to the dealerships in total. Apply that over several thousand dealerships, and that's a big cut in sales for GM.

You can't be serious. When was the last time you bought a new car? Tell me about that experience where you decided upon which car you wanted to buy but then couldn't find a dealer willing to a) order it for you, b) buy it from another dealer and have it delivered, c) bend over backwards to make you happy.

If what you are suggesting were true, then the dairy industry would have gone bankrupt decades ago. Because, you know, back in the day, you could only get a bottle of milk from the milk-man who delivered it to your home. Today, however, you can get it from just about every store on every corner. And, they DO compete on price, too. Same thing with gasoline.

If GM/Chrysler are losing market share, it's not due to competition among dealers. It's due to lack of brand loyalty.

12AX7 · « **Reply #10 on:** June 18, 2009, 01:22:53 PM »

Sorry for posting. It was just an idea, you know; since you don't have any.

Vespertine · « **Reply #11 on:** June 18, 2009, 04:54:00 PM »

I know this flies in the face of the "franchise" type of thought, but is it possible that GM (at a corporate level) somehow subsidizes GM dealerships? If so, that could explain the need to offload a ton of them.

pbsaurus · « **Reply #12 on:** June 18, 2009, 04:55:09 PM »

I've always wondered why someone like Amazon couldn't get into the car business? You go to several dealers, test drive all the potential models you're looking for, then go to Amazon and order the color, features, and car you want, without paying a commission or huge overhead. Oh but wait, Amazon is prevented from going into this business? Talk about anticompetitive practices.

pbsaurus · « **Reply #13 on:** June 18, 2009, 04:58:22 PM »

Quote from: Vespertine on June 18, 2009, 04:54:00 PM

I know this flies in the face of the "franchise" type of thought, but is it possible that GM (at a corporate level) somehow subsidizes GM dealerships? If so, that could explain the need to offload a ton of them.

I don't know the complete model because I understand it's convoluted, but it would be logical for something like this to be in place in order for GM to have the desire to want to break contracts with the dealers they wish to no longer affiliate with. Either that, or the dealers have some form of collective bargaining and by getting rid of the troublemakers, GM can go into more favorable (to GM) contracts with the remaining dealers.

12AX7 · « **Reply #14 on:** June 18, 2009, 05:42:47 PM »

Quote from: BizB on June 18, 2009, 01:20:36 PM

You can't be serious. When was the last time you bought a new car? Tell me about that experience where you decided upon which car you wanted to buy but then couldn't find a dealer willing to a) order it for you, b) buy it from another dealer and have it delivered, c) bend over backwards to make you happy.

If what you are suggesting were true, then the dairy industry would have gone bankrupt decades ago. Because, you know, back in the day, you could only get a bottle of milk from the milk-man who delivered it to your home. Today, however, you can get it from just about every store on every corner. And, they DO compete on price, too. Same thing with gasoline.

If GM/Chrysler are losing market share, it's not due to competition among dealers. It's due to lack of brand loyalty.

Quote from: Probie on June 18, 2009, 12:59:18 PM

what about pressure from dealerships to drop prices and stuff? Isn't that what happens with oil?

Quote from: BizB on June 18, 2009, 12:43:16 PM

Dealer A buys car from manufacturer for $10,000 Sells car for $11,000

Dealer B buys car from manufacturer for $10,000 Sells car for $10,500

Dealer A makes a profit and continues to get business based on reputation and superior service.

Dealer B makes a profit and gets more business than Dealer A in the future thereby selling a larger volume of cars and making the same gross at the end of the year by moving more product.

Where does the manufacturer get hurt in either of those scenarios?

Quote from: Vespertine on June 18, 2009, 04:54:00 PM

I know this flies in the face of the "franchise" type of thought, but is it possible that GM (at a corporate level) somehow subsidizes GM dealerships? If so, that could explain the need to offload a ton of them.

Quote from: pbsaurus on June 18, 2009, 04:58:22 PM

I don't know the complete model because I understand it's convoluted, but it would be logical for something like this to be in place in order for GM to have the desire to want to break contracts with the dealers they wish to no longer affiliate with. Either that, or the dealers have some form of collective bargaining and by getting rid of the troublemakers, GM can go into more favorable (to GM) contracts with the remaining dealers.

All of which was posted after I posted the link and used the information in the article to make a post. Since APPARENTLY it hasn't been read (suggested by the posts) here is the relevant parts:

Quote from: 12AX7 on June 18, 2009, 10:58:43 AM

From here: http://online.wsj.com/article/SB124238650972623589.html

Quote

Years of declining sales have left both GM and Chrysler with many more dealerships than they need. As a result, their dealers often compete with each other for customers, hurting their profits.

Most of the GM dealers selected are "hurting, losing money and in danger of going out of business anyway," Mr. LaNeve told reporters. "It's a move that people could argue should have been taken years ago."

<snip>

Fewer but Healthier?

The company believes that having fewer, healthier dealers will help it better compete with foreign-based rivals such as Toyota Motor Corp. and Honda Motor Co., which tend to have newer, better financed stores in more attractive locations.
By limiting the number of retailers, those companies ensure that each has a better shot at being profitable.

So, Mr Milkman, as you can see it isn't ME "being serious"; it's GM. Did you read the article after you posted? Not at all? Or did you read it and not comprehend it?

Min · « **Reply #15 on:** June 18, 2009, 08:25:51 PM »

Quote from: pbsaurus on June 18, 2009, 04:55:09 PM

I've always wondered why someone like Amazon couldn't get into the car business? You go to several dealers, test drive all the potential models you're looking for, then go to Amazon and order the color, features, and car you want, without paying a commission or huge overhead. Oh but wait, Amazon is prevented from going into this business? Talk about anticompetitive practices.

Just buy from Carmax.

DO IT!!!

BizB · « **Reply #16 on:** June 18, 2009, 08:40:49 PM »

I didn't read it. I still haven't read it. I have, however, read several other articles that attempt to articulate a similar line of thinking. It still doesn't make sense.

Competition is good in a free market.

The survival of the manufacturer making a product that the consumer wants to buy is not dependent upon the profitability of individual dealerships. Sure, they have to have some dealerships that are strong and they will, by offering a quality car and providing quality service at a price that the consumer is willing to pay. With fewer dealerships, the consumer's price will rise. The level of service will fall. This will not help the manufacturer.

Dealers purchase the vehicles from the manufacturer for a set price. They have the ability to set the price on their lot to whatever they believe that they can get for it. There is a MSRP, but the dealer is not forced to sell the vehicles for that amount.

Here's just one example of how it can work using the Saturn Sky.

Quote

Saturn has some concern that dealers might try to sell the Sky above the sticker price of $23,690, including shipping. This is a sensitive area for Saturn because it's known for a no-dicker sticker price.

"Retailers are free to set their own prices, but we always highly encourage our retailers not to sell above the MSRP," says Jill Lajdziak, Saturn general manager. She says Saturn sets sticker prices at the "real value in the marketplace."

Produce a quality product that the consumer wants and you'll never have to worry about "too many dealerships".

No need to name-call, 12.

12AX7 · « **Reply #17 on:** June 18, 2009, 09:49:28 PM »

Warranty work, parts under warranty, and mechanic certification cost GM; not the dealerships. If you buy a car, have it a year, and it "makes a funny noise"; it could jsut be the linkage in the shifter that needs adjusting. However, if the dealership wants to "provide good service" to this customer and get return/repeat business, they may very well replace the transmission completely; which costs GM directly; not the dealership. Many dealerships have enormous amounts of this "warranty work"; pleasing their customer and costing GM. I know of several dealerships that have 5 and 6 bay garages which are always backed up.

You are GM. I am a dealership competeing with Detta's dealership. To keep my customers happy so they will return; if they so much as have a rattle near a warranty-covered part, I would replace the covered part and let the customer know that we fixed the problem, and it's covered under warranty. Also, all my mechanics are certified on GM products; which cost GM to pay for their training. On top of that; me and my management are total ASSHOLES to our staff; causing a high turnover rate in my certified mechanics. Meaning I need to hire more certified mechanics (training paid by GM) every year.

Detta's dealership doesn't operate this way; the mechanincs are happy at their job (no turnover rate) and find troubles and fix them (such as adjusting linkage instead of replacing the transmission); which costs the customer a fee; but not GM, since her mechanics fixed it without using warranty covered parts. Her customers are just as happy as mine with their friendly, fast service; but she isn't costing you (GM) nearly as much as MY dealership does - using mostly warranty-covered parts, and hiring four or five new mechanics a year.
Also contained in the article I posted is the fact that it is extremely hard for GM to shut a dealer down. If you (GM) wanted to get out of your contract with me (since I cost you so much more than Detta's dealership) , I could sue you and most likely win. However, if GM goes into bankruptcy (done), they can then cut the dealerships (such as mine) in locations where there is a competing dealer (Detta) who doesn't cost you as much; and under Chapter 11, I can't sue you for it.

And how about not ridicule someone tossing out an idea. If you had read the article, you would've read where GM says they want to do things similar to Toyota, Honda and others; which LIMIT THEIR DEALERSHIPS to ensure that each one has a better chance of being profitable. GM hopes to do the same. I don't post links for you to skip and then in a hostile reply ask me the same questions answered in the damn link. And then whine about being referred to as Mr Milkman.

Wunderkind · « **Reply #18 on:** June 18, 2009, 10:05:25 PM »

Is it too late for popcorn?

Probie · « **Reply #19 on:** June 19, 2009, 04:15:31 AM »

I cant read all of that last post 12, my attention span is to short today it's friday! But why am i quoted when my idea was unrelated? I don't actually have any real knowledge it was just an idea.

12AX7 · « **Reply #20 on:** June 19, 2009, 06:25:25 AM »

Just that it came after the link. Thats all.

BizB · « **Reply #21 on:** June 19, 2009, 10:07:35 AM »

Ok, 12. Calm down. Take a deep breath. I never ridiculed you. I never called you a name. I never attacked you in any way shape or form. The only part of my post that you may have decided to take personally was the "You can't be serious!" Which, I'll admit was unwarranted and didn't add to my points at all. For that, I'm sorry.

Now...

Quote

Warranty work, parts under warranty, and mechanic certification cost GM; not the dealerships. If you buy a car, have it a year, and it "makes a funny noise"; it could jsut be the linkage in the shifter that needs adjusting. However, if the dealership wants to "provide good service" to this customer and get return/repeat business, they may very well replace the transmission completely; which costs GM directly; not the dealership. Many dealerships have enormous amounts of this "warranty work"; pleasing their customer and costing GM. I know of several dealerships that have 5 and 6 bay garages which are always backed up.

I'm fairly certain that the manufacturers require dealerships to complete a checklist of possible causes before they'll just give them a new transmission to replace the existing one. If they don't, then they're doing it wrong.
Dealerships with enormous amounts of "warranty work" sounds like inferior products to me. The fact that you know of several dealerships with multiple work bays that are always busy does not speak well of the product they're servicing. If this is the case, and there are several dealerships with multiple bays that will be (or have) closing their doors, how does that help the consumer? Where will these consumers get their vehicles serviced?

Quote

You are GM. I am a dealership competeing with Detta's dealership. To keep my customers happy so they will return; if they so much as have a rattle near a warranty-covered part, I would replace the covered part and let the customer know that we fixed the problem, and it's covered under warranty. Also, all my mechanics are certified on GM products; which cost GM to pay for their training. On top of that; me and my management are total ASSHOLES to our staff; causing a high turnover rate in my certified mechanics. Meaning I need to hire more certified mechanics (training paid by GM) every year.

Detta's dealership doesn't operate this way; the mechanincs are happy at their job (no turnover rate) and find troubles and fix them (such as adjusting linkage instead of replacing the transmission); which costs the customer a fee; but not GM, since her mechanics fixed it without using warranty covered parts. Her customers are just as happy as mine with their friendly, fast service; but she isn't costing you (GM) nearly as much as MY dealership does - using mostly warranty-covered parts, and hiring four or five new mechanics a year.
Also contained in the article I posted is the fact that it is extremely hard for GM to shut a dealer down. If you (GM) wanted to get out of your contract with me (since I cost you so much more than Detta's dealership) , I could sue you and most likely win. However, if GM goes into bankruptcy (done), they can then cut the dealerships (such as mine) in locations where there is a competing dealer (Detta) who doesn't cost you as much; and under Chapter 11, I can't sue you for it.

I'm pretty sure that GM doesn't pay to have the mechanics ASE certified. If they do, they're doing it wrong. If I'm not mistaken (and I very well could be,) ASE certification is a course that is paid for by the person seeking the certification in most cases. I do know for a fact that my brother stepped out of the industry because he didn't want to pay for certification. Even if I accept your premise that GM pays for certification and GM just allows warranty work without verification of the process, then I must say, they have a flawed model. Strict restrictions and requirements for franchisees would certainly aid in the manufacturer's ability to curtail situations as you've outlined. Requiring the dealerships to carry a certain amount of inventory, and produce a particular level of revenue would be just a start. Checklists for parts under warranty coverage, in my simple mind, should be standard operating procedure. If their current contracts don't require such things, then I believe I could see a reason for closing some dealerships. Though, I doubt that's the way it works.

Quote

And how about not ridicule someone tossing out an idea. If you had read the article, you would've read where GM says they want to do things similar to Toyota, Honda and others; which LIMIT THEIR DEALERSHIPS to ensure that each one has a better chance of being profitable. GM hopes to do the same. I don't post links for you to skip and then in a hostile reply ask me the same questions answered in the damn link. And then whine about being referred to as Mr Milkman

I only asked one question in my post and, from what I can see, that question isn't answered in the article you linked.

Since reading your article and the argument we've had thus far (including this post up to this point,) I've gone and done some extensive research on the rationality behind the decision to close dealerships. There are several contributing factors including, but not limited to

The change in the the way dealers are buying cars. Due to the credit crunch, GM is absorbing much of the cost of stocking the dealerships since the consignment loans that dealers used to use are no longer available
Dealers are guaranteed the right to purchase a certain number of vehicles from the manufacturer including quotas within each brand. This is due, in large part, to the flawed franchise agreements established during the hey-days of the big three. Since the consignment loans are not available at present, GM is bearing the brunt of the cost of filling the dealers showrooms.

Apparently the franchisee agreements cut both ways. Franchisees are guaranteed a certain level of inventory and the manufacturers are guaranteed a certain turn-over. It's just not enough turn over to keep everyone profitable. The entire franchise model needs an overhaul based on what I read.

Fewer dealerships = fewer GM financed cars on the lots (stagnant inventory) = fewer dealer incentives = better ability to offer a product at a competitive price.

It does make sense that they're closing dealerships, now. Not for the reasons you suggest, but it does make sense.

I'm still firmly in the camp that GM and Chrysler need to offer a better product to solve the problem.

12AX7 · « **Reply #22 on:** June 19, 2009, 05:15:05 PM »

Quote from: BizB on June 19, 2009, 10:07:35 AM

Ok, 12. Calm down. Take a deep breath. I never ridiculed you. I never called you a name. I never attacked you in any way shape or form. The only part of my post that you may have decided to take personally was the "You can't be serious!" Which, I'll admit was unwarranted and didn't add to my points at all. For that, I'm sorry.

Ok. Let me get this part out of the way; I'm working on the rest.

You were fine, Biz. I over-reacted, and also was a blazing hypocrite. I answer posts (even yours) in a much more sarcastic, condescending tone than that all the time. So, it is I who apologize; to you and the other Geekery members I've answered that way. Maybe next time this 'evaluation' can happen before I reply.

BizB · « **Reply #23 on:** June 19, 2009, 06:20:20 PM »

If you only knew how many times I re-wrote that.

pbsaurus · « **Reply #24 on:** June 19, 2009, 08:35:14 PM »

Quote from: Detta on June 18, 2009, 08:25:51 PM

Just buy from Carmax.

DO IT!!!

Isn't Carmax used cars (or whatever euphemism they're using now-a-days--previously owned, etc.). I don't believe one can order direct through a manufacturer or a reseller for brand spanking new cars, or can one?

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Author Topic: GM and Dealers (Read 9728 times)

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