Why Is GM Sending Ultimatums to Its Dealers?

The Cleveland Plain Dealer Reporter out with a "shocker" disclosing just how much of a political bargaining chip the Big-3 use their dealers as. According to the story, GM (GMGMQ.PK) sent ultimatums to all of its 6,000 U.S. dealers on Tuesday with the following stipulation "follow our new rules or face almost immediate franchise cancellations in court."

For the 2,000 dealerships targeted to lose their franchises, GM said it would soften the blow if those retailers don't oppose the automaker's restructuring plan.

The dealers that GM is keeping learned that sales quotas will go up, that they might have to remodel showrooms and that selling competing brands at GM stores could be discouraged.

GM has not publicly stated which dealerships will lose their franchises, and that list may never become public. Chrysler's cancellation list came out in court filings, but GM is encouraging dealers to settle out of court.

...

Ganley, whose dealership is among the survivors, pointed out that if dealers don't agree to GM's terms, the automaker could cancel their franchise contracts in bankruptcy court. GM said in its filing Monday that it now plans to eliminate hundreds of more dealers, for a total of about 1,500.

In all, the automaker expects to cancel the franchises of about 2,000 stores, including about 500 Saturn, Hummer, Saab and Pontiac dealerships.

Why all the secrecy GM? What kind of pattern are you afraid will emerge if someone puts it all together?

Comments

[TeresaE]

Wow, strongarming, threatening and firing your BEST customers.

Wonder how the union is going to continue to pay Gettelfinger's pay & benes when they have NO customers.

Which seems to be the plan.

Great plan, wouldn't expect anything else from our government.

2009 Jun 04 10:38 AM

[Graham and Dodd Investor]

When a pattern emerges from this chicanery, Tyler Durden will be among the first to pick it up. Stay tuned!

2009 Jun 04 11:04 AM

[tumark]

larger number of dealers was good for us the car buyer, allowed for more competition for the best price.
less dealers will mean higher prices for you and me.
don't forget how many people will now be laid off from those dealerships and factories adding their homes to the house forclosure mess. we can expect another downward turn to the economy.
hang on to your hat the rough ride is not over yet!!

2009 Jun 04 01:20 PM

[H. T. Love]

Seems appropriate: take our tax dollars, violate the capital structure to favor the unions and screw the higher-ups in the structure, help save the economy by putting 1500 dealers and their employees out of business and work, get a "stranglehold" on the remaining dealers and net out with increased pricing power to take our dollars from us again.

I hope you buy their products if you want to save them - I won't.

What would you expect when you marry government with a totally inefficient and mismanaged private company? The "worst of both worlds" coming together results are easily predicted.

HardToLove


On Jun 04 01:20 PM tumark wrote:

> larger number of dealers was good for us the car buyer, allowed for
> more competition for the best price.
> less dealers will mean higher prices for you and me.
> don't forget how many people will now be laid off from those dealerships
> and factories adding their homes to the house forclosure mess. we
> can expect another downward turn to the economy.
> hang on to your hat the rough ride is not over yet!!

2009 Jun 05 11:51 AM

[CarDealer123]

I am a Chevrolet Dealer in Virginia. The mass dealer closings are really only possible in bankruptcy because bankruptcy law trumps state franchise law. What you say about the dealer's investment is true. It is also true that dealers don't cost manufacturer's anything from a dollars and cents measureable perspective. That is why there is so much outrage directed at the administration and the task force. While I am very upset at the manner in which they are retaining some of us. Basically they are forcing us to sign a very onerous amendment to the existing dealer agreement which basically requires us to sign away all our rights. It is absolutely unfair and unAmerican. The state laws that protect dealers from this kind of heavy handed-ness also make it nearly impossible and extremenly costly to terminate dealers who fail to live up to their end of the franchise agreement. The dealer agreement calls for the dealer to satisfactorily represent the brand in a specific Assigned Geographic Sales and Service Area (AGSSA).
How many times have you been to a dealer where:
the facilities were old and dirty? the salesforce was untrained?
the management unprofessional?
the dealer didn't stock a sufficient selection of product?
The service department was incompetent?
Most importantly, these dealers also tend to perform poorly in the area of retail sales which does cost the manufacturer in the form of lost business. The manufacturer spends a ton of money just trying to get on the consumers list of cars to consider. If he can manage to do that and the consumer's visit to the local dealership is less than a positive experience and he leaves the dealership without buying, the manufacturer has to pray that the consumer will give them a second chance at the next dealership representing the brand. Chances are the consumer will not. So you see, it does cost the manufacturer dearly if the dealer isn't getting the job done.
Any time a dealer like this is allowed to continue representing the franchise, he gives all dealers of that brand a bad name. As much as I hate the way they are doing it, this is GM's once in a lifetime chance to get rid of these poor performing dealers. They must take advantage of it.
The Chrysler debacle is much worse because their decisions on which dealers to eliminate seem to be unjustifiable. In some cases keeping the poor performer because they own the dealer's real estate or hold the mortgage on the property.

2009 Jun 05 01:08 PM

[Leftfield]

Thanks for the insights, CarDealer123. I think the last question about dealership closures in the article, "Why the secrecy at GM? What kind of pattern are you afraid will emerge if someone puts it all together?" points to rampant political chicanery. It will be like military contractors and bases to have a GM dealership in a district. Except, like me, so many are likely to turn away in complete disgust the chances of GM success in the market are possibly nil.

2009 Jun 05 01:38 PM