GM Forcing More than 1,000 Dealerships to Close

Just out from the Associated Press. Not sure how this gets done in practice absent massive state-specific lawsuits. Also, some good insight on why Obama being the biggest shareholder in General Motors will create numerous and material conflicts of interest for the administration.

DETROIT (AP) — General Motors Corp. says it will force 1,000 to 1,200 underperforming dealerships to close their doors as the automaker tries to thin dealer ranks to make the remaining outlets stronger.

Dealers were told of the move in a video conference Monday.

In addition, the company expects to lose 500 Hummer and Saturn dealers when the brands close or are sold, and it expects 400 dealers to close voluntarily. Another 500 would be consolidated into other dealers.

A dealer who watched the conference told The Associated Press about the changes, and company spokeswoman Susan Garantakos confirmed the numbers.

The company announced Monday it plans to reduce dealerships by 42 percent from 2008 to 2010, cutting them from 6,246 to 3,605.

Comments

[Michael Terry:]

The interesting thing is that dealers, as franchises, are under state jurisdiction and cannot be unilaterally closed.

Apr 28 03:30 PM

[FE812:]

Buyers for Hummer or Saturn?

Apr 28 03:37 PM

[yellowhoard:]

Given the positive or negative impact of EPA edicts and congressional legislation on auto manufacturers, business will become very difficult for the private car companies.

I can see Ford coming out with a blockbuster vehicle that could potentially shutter a GM plant and presto, whammo, suddenly the vehicle is deemed dangerous to other cars because it rides too high. Or the materials used in the manufacturing process are considered too toxic and need to be disposed of at a huge expense.

We all know how the game is played.

Apr 28 03:43 PM

[DavidR:]

General Motors is going to look to technicalities within the dealer agreements to justify and support the dealer closings. In the past, GM has looked the other way if customer satisfaction, market penetration, capitalization, non-compliant facilities, or other violations of the dealer agreement were not being met. Today they made it clear that these would be the criteria that would assist in targeting "underperforming" dealerships. With that amunition, they are fully within their right to close those dealerships for just cause.

Apr 28 03:50 PM

[elcopone:]

David is correct in that they will look to act on technicalities within the dealer franchise agreements. While I agree that they are fully within their rights, state franchise laws are the "greesiest" laws around. They favor the dealer tremendously. GM, Ford and Chrysler know this and is why they have never attempted to dramatically reduce their dealer network before (despite the obvious need). What will happen is the dealers who are shut down will sue GM. They will either battle in court or GM will probably end up paying them. State franchise laws are an absolute gold mine for lobbyists (and politicians) and one could look at these laws as a very clear example of just how corrupt our elected officials are.

Apr 28 04:03 PM

[mrmillergd:]

When people don't "consume" cars the way they used to, you need a lot fewer distributors. I can't imagine that business is good enough for most of the dealers to fight hard against a shutdown.

Apr 28 05:39 PM

[Alfredo Mar...:]

This is a big reason why GM (and the other Big 3) needed to declare bankruptcy. The dealers would sue GM for billions if GM attempted to thin out their dealer network. GM had to pay Oldsmobile dealers billions when they stopped making the Oldsmobile brand.

These state laws protecting dealers (that were written by the dealers) are complete rackets that held GM hostage. In some states, it's even illegal to buy a car online directly from the manufacturer.

I can't wait to see how well the new GM does as a nationalized car company owned by bureaucrats and the UAW.

Apr 28 06:08 PM

[DavidR:]

On Apr 28 05:39 PM mrmillergd wrote:

I can't imagine that business is good enough
> for most of the dealers to fight hard against a shutdown.

Then imagine this:
In 1955, your grandpa opened a standalone Chevy dealership in a rural town 75 miles away from metro Anytown, USA. Your father inherited the business in the 70's, and slowly, Anytown grew by adding suburbs, it's boundaries moving closer to your fathers dealership. His sales grew, thanks to the urban sprawl. When you grew up, your father brought you into the business. As the late 90's approached, the suburbs of Anytown had engulfed your small town, so General Motors pressured you and your father into building a brand new $8 million dollar facility on prime real estate next to the freeway. Business was good, so you and your father took your life savings and invested it into the store. Higher volume was necessary to cover the new loans, but as long as you could pump out some units back into Anytown, the store was profitable. But in getting those extra sales, your customer satisfaction dropped. As GM stock began dropping in value, so to, did the value of the "blue sky". No longer in an equity position, your bank began raising your floor plan interest rates. Still, business is ok, suplimented with a profitable service department and use car sales, so cash flow is covering the bills. Today, GM calls and says that you are one of the dealerships they are going to close, because there is another Chevy dealer 75 miles down the road that is selling more units, has higher CSI, and a better balance sheet. Your $8 Million investment, your grandfather's heritage, your family retirement, your life. Do you think you'd fight for fair compensation?......

Apr 28 06:12 PM

[nukldrager:]

On Apr 28 06:12 PM DavidR wrote:
"...GM calls and says that you are one of the dealerships they are going to close, because there is another Chevy dealer 75 miles down the road that is selling more units, has higher CSI, and a better balance sheet. Your $8 Million investment, your grandfather's heritage, your family retirement, your life. Do you think you'd fight for fair compensation?......"

Did third and fourth generation steel workers get fair compensation when their mills and jobs were shut down? Mom and Pop stores of all kinds going under with the advent of mallmarts and big pharmacys and home despots? In real estate appraisal it's called "highest and best use". Which means the use that will bring the highest profit per square foot, or highest property value.

Apr 28 07:01 PM

[Cobra 1:]

This is where there is tragedy. I feel for most of the small town dealers, however, the ones like Bergstrom motors (26 dealerships) I hope closes its doors and get the biggest screwing anyone could give. I feel for the 3rd gen owners, that are still in the small towns, I hope they are the ones to make it, these are the guys who say what they mean, mean what they say!

Your a customer and have always been treated like one. If these big dealerships (small too) would have remembered what their families had for a motto and lived that motto, they would not have to worry about being closed.

IMHO

Apr 28 08:53 PM

[Miken:]

Do we really even need dealers? The internet is quickly dismantling the non value added practices of the middle man in almost every other industry. Research shows that the vast majority of consumers have already 'built' their car on the internet. They may be something that is simply no longer required.

Regional service centers could be strategically placed to be convenient for warranty work, along with new cars on display for those who want to kick the tires might be all that's required. One thing that has been learned with the Saturn experience is that people would rather know what the price is without having to go to every dealer to find the cheapest price. Then performing the pricing ballet while the sales person 'goes to check with the boss'. Have a financing expert on site and you're good to go.

The other thing that would be avoided is the monthly dance to award dealers with bonuses to do their job, not to mention the sales man complaining about the factory to a customer.

Hmmm.

Apr 28 09:07 PM

[boisterousbob:]

This is a truly awful story. But we do have to keep context here. Why should auto dealers (whether handed down through generations or not) enjoy protections that other businesses don't.

Take a family seafood restaurant, that has been in a family for generations. Recently the family has invested more money to refit the restaurant and keep it fresh and comply with tightening health regulations. The ever increasing cost of fish from the limited number of suppliers has really hurt cash flow. Now the landlord has decided that the lease will increase to a rate at which a profit can no longer be made. The restaurant can be sold but only at a huge loss as few people are opening restaurants today.

I cannot sue the city over health regulations, or the fish supplier for its prices or the landlord for rent. Having lived on profits from the business for decades and chosen to stay in it, I don't even feel entitled to compensation.

Regardless, I do think the idea that auto dealers deserve compensation where other business owners do not is just wrong.

Then imagine this:
In 1955, your grandpa opened a standalone Chevy dealership in a rural town 75 miles away from metro Anytown, USA. Your father inherited the business in the 70's, and slowly, Anytown grew by adding suburbs, it's boundaries moving closer to your fathers dealership. His sales grew, thanks to the urban sprawl. When you grew up, your father brought you into the business. As the late 90's approached, the suburbs of Anytown had engulfed your small town, so General Motors pressured you and your father into building a brand new $8 million dollar facility on prime real estate next to the freeway. Business was good, so you and your father took your life savings and invested it into the store. Higher volume was necessary to cover the new loans, but as long as you could pump out some units back into Anytown, the store was profitable. But in getting those extra sales, your customer satisfaction dropped. As GM stock began dropping in value, so to, did the value of the "blue sky". No longer in an equity position, your bank began raising your floor plan interest rates. Still, business is ok, suplimented with a profitable service department and use car sales, so cash flow is covering the bills. Today, GM calls and says that you are one of the dealerships they are going to close, because there is another Chevy dealer 75 miles down the road that is selling more units, has higher CSI, and a better balance sheet. Your $8 Million investment, your grandfather's heritage, your family retirement, your life. Do you think you'd fight for fair compensation?......

Apr 28 09:11 PM

[boisterousbob:]

I understand the sentiment but I think you are looking in the wrong place. We don't need dealers because they are worth the money or because they add value. We need them because so many people feel insecure about making their second largest purchase and need someone to make them feel OK about it.

Fortunately as we all get wealthier (we are doing, honestly!) the need for this emotional crutch will go away and dealers will dissappear, much the same way the shop assistant in the grocery store no longer takes the tin of soup off the shelf and puts it in your hands for you.

It may take some time, though.


On Apr 28 09:07 PM Miken wrote:

> Do we really even need dealers? The internet is quickly dismantling
> the non value added practices of the middle man in almost every other
> industry. Research shows that the vast majority of consumers have
> already 'built' their car on the internet. They may be something
> that is simply no longer required.
>
> Regional service centers could be strategically placed to be convenient
> for warranty work, along with new cars on display for those who want
> to kick the tires might be all that's required. One thing that has
> been learned with the Saturn experience is that people would rather
> know what the price is without having to go to every dealer to find
> the cheapest price. Then performing the pricing ballet while the
> sales person 'goes to check with the boss'. Have a financing expert
> on site and you're good to go.
>
> The other thing that would be avoided is the monthly dance to award
> dealers with bonuses to do their job, not to mention the sales man
> complaining about the factory to a customer.
>
> Hmmm.

Apr 29 12:06 AM

[conceptwizard:]

This cant be good for employment numbers. With the demise of the Pontiac Brand this will likely be the focus on the dealerships closing. Saturn will also account for some of these numbers.

Apr 29 09:29 AM

[Larrysyr:]

With the internet, it is no longer necessary to meet salespeople face to face in order to bargain. Various websites, including the manufacturers', will distribute a request for bids to a number of dealers based on the customer's specifications.

Dealers ARE useful for test drives, exploring available options, and service, but negotiating in person with the salesperson using the "manager" to let the customer stew is obsolete.


On Apr 28 09:07 PM Miken wrote:

> Do we really even need dealers? The internet is quickly dismantling
> the non value added practices of the middle man in almost every other
> industry. Research shows that the vast majority of consumers have
> already 'built' their car on the internet. They may be something
> that is simply no longer required.
>
> Regional service centers could be strategically placed to be convenient
> for warranty work, along with new cars on display for those who want
> to kick the tires might be all that's required. One thing that has
> been learned with the Saturn experience is that people would rather
> know what the price is without having to go to every dealer to find
> the cheapest price. Then performing the pricing ballet while the
> sales person 'goes to check with the boss'. Have a financing expert
> on site and you're good to go.
>
> The other thing that would be avoided is the monthly dance to award
> dealers with bonuses to do their job, not to mention the sales man
> complaining about the factory to a customer.
>
> Hmmm.

Apr 29 10:09 AM

[DavidR:]

Trying to explain any process to someone that just doesn't get it is generally a lost cause. Kind of like explaining Catholic Mass to an athiest. The dealership is a necessary link in the auto supply chain. The role of the dealership is to broker the transaction for multiple parties from start to finish (especially more complicated transactions). Trade-in purchases, floating the payoff on the trade while waiting for the new loan to fund, securing lien release, title work, lost title applications, multiple owner trades, agent to the DMV, securing financing on the new vehicle (not always as easy as it seems), warehousing a selection of vehicles, locating vehicles more efficiently. The dealer streamlines these processes; they do this multiple times every day. The buyer does them once every 3 to 6 years.
You could buy a new car without a dealer,
You also could buy a house without a real estate agent,
You could get a college degree without a teacher,
You could defend yourself in court without a lawyer,

but...
A man who represents himself in court has a fool for an attorney.

I don't believe that dealers deserve some kind of free ride; they don't. The original point was that a dealer who has been forced to borrow money to invest in expensive facilities by the manufacturer under threat of loosing their franchise, only to have the franchise pulled shortly thereafter anyway has a right to compensation for loss of value caused directly by that manufacturers negligent business practices.

Apr 29 11:38 AM

[TeresaE:]

Dealer's hold the Big 3 hostage, just as much as the UAW and Teamsters and like the UAW, dealer's are protected by the courts.

It is a shame that across the country, the thinning of distributors of all types of products have been happening for over a decade, but none of them were able to force a multi-national to gift them coverage for their losses. They just went away bankrupt and probably homeless.

Many family businesses, that created a good living for the owner's and their employees, were forced out of business by "competing" with China & the third world. It is still happening to those of us that survived the first thinning of the American herd. I make & sell nuts and bolts and I can tell you that housing was the primary force driving the non-bank/non-Wall St economy.

Too many restrictive, expensive regulations, taxes (hidden, excise, property & if lucky income) and lawsuits are gutting our country's job creators-small business.

This is yet one more blow.

And I don't know how we pay for all of Washington's grand plans, and gift the banks trillions without jobs and masses of taxpayers.

Do any of you?

The joke is on GM, every other international, too huge corporation and the government--the EMPLOYEES used to be your best CUSTOMERS and now they are bankrupt, unemployed and broke.

The decisions being made now, from mandatory health care, to bank thievery, to carbon taxes, to unionism and globalism are going to crash into a great big nightmare.

And our time is running out, if we the wise don't quit arguing amongst ourselves, band together and vote the crooks out of Washington soon, there isn't going to be much of a country left to recover.

Apr 29 02:37 PM

[pragmattist:]

A Whimsical Notion:

What if Congress authorized the Transportation Department to
create a brand and contract the design and production of 50 million
natural gas plug-in hybrids over 10 years. A contract like that would
make the automakers solvent overnight.

The brand, "Ami", could be the people's car much like Germany's
people's car in 1933, the Volkswagen. It was massed produced to make it affordable. If the automakers can produce 50 million of such a people's car for $20,000 + inflation, the Transportation Department could use the existing dealerships to sell its brand to the public and even export the brand. The dealerships could also be the refueling stations. The automakers could then own the brand after 10 years. That commits the Transportation Department to $1T over 10 years, but also costs nothing in the end if all cars are sold.

The Germans already call Americans by that name, "Ami", and so the brand would resonate with them. The Latin languages would also associate the brand "Ami" with love and friendship. All the BRICs have a huge natural gas supply waiting to be maximized as well. The brand would be successful because it would bring Americans and the world together on one project, CO2 reduction, and it would be more fun than buying war bonds.

But, the main motivation for such a concept would be the overnight
energy storage of 50 million natural gas plug-in hybrids. There is
always underutilized electricity at night and the cars would charge
their batteries at the period of lowest demand. This is energy storage in a big way for our brand new smart energy grid.

Apr 30 06:56 AM

[boisterousbob:]

I think I do get it though, David. Let me try to illustrate it this way.

30 years ago buying a computer was an expensive business. A teams of sales people and engineers from the vendor would meet with a project team at the purchaser and hash out over the course of a few weeks or months a proposal which would be approved by senior officials on both sides and then hopefully for all go through.

Today people walk into a store and buy a PC, small businesses order from a catalogue and only the *very* largest few percent of orders that warrant it are negotiated in some way and involve deeper effort from either side.

The only difference is that computers today are much lower cost than they were. People seek advice buying cars because they are expensive, not because they don't know what they want or can't understand what they are buying. Because it is expensive they want support and frankly someone to hold accountable if it goes wrong.

A small business today does not need to hold someone accountable for a $500 computer that proved to be less than ideal for its needs. It is wiling to take the risk because frankly paying an expert to advise on it is too expensive and not worth it.

As cars get cheaper and people get richer, dealers will become increasingly irrelevant. They will still exist for top marque brands (S class Mercedes anyone) for longer, and for fleet purchasers. But the days of going through an expensive dealership to buy an ever less expensive Ford Focus are numbered.


On Apr 29 11:38 AM DavidR wrote:

> Trying to explain any process to someone that just doesn't get it
> is generally a lost cause. Kind of like explaining Catholic Mass
> to an athiest. The dealership is a necessary link in the auto supply
> chain. The role of the dealership is to broker the transaction for
> multiple parties from start to finish (especially more complicated
> transactions). Trade-in purchases, floating the payoff on the trade
> while waiting for the new loan to fund, securing lien release, title
> work, lost title applications, multiple owner trades, agent to the
> DMV, securing financing on the new vehicle (not always as easy as
> it seems), warehousing a selection of vehicles, locating vehicles
> more efficiently. The dealer streamlines these processes; they do
> this multiple times every day. The buyer does them once every 3
> to 6 years.
> You could buy a new car without a dealer,
> You also could buy a house without a real estate agent,
> You could get a college degree without a teacher,
> You could defend yourself in court without a lawyer,
>
> but...
> A man who represents himself in court has a fool for an attorney.
>
>
> I don't believe that dealers deserve some kind of free ride; they
> don't. The original point was that a dealer who has been forced
> to borrow money to invest in expensive facilities by the manufacturer
> under threat of loosing their franchise, only to have the franchise
> pulled shortly thereafter anyway has a right to compensation for
> loss of value caused directly by that manufacturers negligent business
> practices.

May 02 09:12 PM

[ConcernedMom:]

I don't think a $20,000 car is car that most americans can afford or would want. Your idea would maybe stand a chance with a $10,000 car. Remember the middle class is fading fast.


On Apr 30 06:56 AM pragmattist wrote:

> A Whimsical Notion:
>
> What if Congress authorized the Transportation Department to
> create a brand and contract the design and production of 50 million
>
> natural gas plug-in hybrids over 10 years. A contract like that would
>
> make the automakers solvent overnight.
>
> The brand, "Ami", could be the people's car much like Germany's<br/>pe...
> car in 1933, the Volkswagen. It was massed produced to make it affordable.
> If the automakers can produce 50 million of such a people's car for
> $20,000 + inflation, the Transportation Department could use the
> existing dealerships to sell its brand to the public and even export
> the brand. The dealerships could also be the refueling stations.
> The automakers could then own the brand after 10 years. That commits
> the Transportation Department to $1T over 10 years, but also costs
> nothing in the end if all cars are sold.
>
> The Germans already call Americans by that name, "Ami", and so the
> brand would resonate with them. The Latin languages would also associate
> the brand "Ami" with love and friendship. All the BRICs have a huge
> natural gas supply waiting to be maximized as well. The brand would
> be successful because it would bring Americans and the world together
> on one project, CO2 reduction, and it would be more fun than buying
> war bonds.
>
> But, the main motivation for such a concept would be the overnight
>
> energy storage of 50 million natural gas plug-in hybrids. There is
>
> always underutilized electricity at night and the cars would charge
>
> their batteries at the period of lowest demand. This is energy storage
> in a big way for our brand new smart energy grid.

May 14 12:29 PM