Flogging a dead horse: Tell me again why fewer dealers are better for carmakers.

[Stinky The Clown]

Every dealer has to pay a (quite substantial) franchise fee to the manufacturer.

The dealer is an independent business.

The dealers employ real people, just like the manufacturer.

[deaniac21]

1. Come on now, the administration is chock full of auto expertise.

Trust them, they really know what they are doing. They saved the banks didn't they?

[marybourg]

2. Too much competition drives down the price of the product. nt.

[Stinky The Clown]

3. Less available service drives custoimers away.

Every new car I ever owned (there have been many) was purchased from a dealer within five miles of wherever I happened to be living when I bought it.

[Historic NY]

4. I have 2 asshat dealers left now since my old place closed 2yrs ago. ..

we have have 5 close around here & one voluntarily, they better have courtesy cars so people can get home.

[Statistical]

8. Agreed. It is a balance.

But GM has WAY too many delerships.

Nearly double Toyota and 50% more than Ford.
That makes protecting margins nearly impossible.

GM problem wasn't selling vehicles.
They sold more vehicles than anyone else.
Their problem was getting enough profit per vehicle to cover their overhead.

[WVRICK13]

13. Reality Check

If they can't sell their vehicles at lower profits how do they expect to sell them for a higher price? Additionally, many people I know buy American cars because there is a dealer close by for service. Some of them prefer foreign cars but didn't want to drive an hour for service. I am afraid making people drive an hour to the American car dealers showroom will dramatically increase the sales of foreign cars and make this problem even worse. The only way GM and Chrysler can compete with fewer dealerships is to build cars of such amazing quality consumers will go out of their way to buy them. Does anyone think this will happen?

[Statistical]

14. That is the problem isn't it.

The truth is though GM will HAVE to raise margins. No ifs about it.
If the don't raise margins they likely will be bankrupt again in 5 years.

It is a balancing act.
Nobody is saying cutting dealerships until their is only one in a 200mile radius.
However some areas are super saturated.

When I worked at RK Chevrolet there was another Chevy dealership 1 mile away and 2 more within 5 minute drive.
There is simply no way to protect margins on that.

If GM cut dealerships by 30% they would still have more than Ford and substantially more than Honda or Toyota.

Does the consumer not buy a Honda or Toyota because the dealership is "too far" away?

[WVRICK13]

16. I Agree in Metro Areas

you have tremendous saturation. The problem is their formula appears to be based on population density. The net result is that a state like WV with around 2 million people spread over a large geographic area will lose almost 90 dealerships. Unfortunately, most of these dealerships are not within an hour of another dealer. In states like WV where geography and low population make travel difficult I know many people who buy a car because of the proximity of the dealer. I guess the median age in WV contributes to this phenomena. I think they need to hone their formula a bit.

[Clear Blue Sky]

15. Great. So we can expect to may more for crappy vehicles.

[customerserviceguy]

5. Same reason Starbucks closed all those stores several months ago

When you have far too many of them in an area, and people slow down on buying what you're selling, you really don't need as many outlets to sell the product. Each outlet has a hard time making its own costs.

Yes, the dealers are getting screwed out of the franchise fee. But they thought it was a good deal to plunk that money down when everybody and his dog could get a loan for a car.

[tomreedtoon]

6. I bet you're thinking of competition, Stinky. It never existed.

All those dealers pulled tricks to claim they were in "sales competition" with the other dealers. Fact: they all pay the same price for the same cars, and they have to pay the finance fee for those cars. The real "dealing" in car sales was this: how much can you get the salesman to cut his profit margin to make the sale?

In other words, a "great deal" on a car was a failure for the salesman.

I even knew someone who staked out a car dealer for a particular car he was prepared to buy. He figured out how long it was on the lot, and how long it would take before the dealer had to make another payment on the car loan. He walked in two days before that date and negotiated like a demon. He got a good deal.

But the salesman probably grew another ulcer.

Maybe with fewer dealers, it will be possible to set up flat pricing on a fair basis for new cars.

[Statistical]

7. Competition.

In Hampton Roads (7 cities in Southeast VA) there are 12 chevy dealerships.

Go to dealership #1 get best deal.
Goto #2 "can you beat #1".
Continue until margins crushed to 0.000001%

GM sold more vehicles than anyone else with smaller profit margin than anyone else.

A recipe for bankruptcy.

Ever look at map of Toyota delerships.
Just enough that it isn't too far but far enough to make driving down the road for better deal difficult.

[lithiumbomb]

9. having more dealers doesn't mean selling more cars

"Both Chrysler and GM have expressed interest to shrink their dealer base. Company officials cite various data points related to choosing these dealers, but the main one is performance.

GM said that the average dealer of the 1,100 affected only sold 35 cars in all of 2008. Chrysler cites similar numbers, with half their closing dealerships selling less than 100. But, even after these reductions by Chrysler and GM, they still have more dealers than other manufacturers.

Using April 2009's sales data as a proxy, Toyota has approximately 95 dealers per 1 point of market share in the U.S., while Chrysler has 256 and GM will have 172 (at the end of 2010). This means that, effectively, Toyota is able to sell more vehicles per dealership"

http://www.cnn.com/2009/LIVING/wayoflife/05/20/aa.dealer.closing.info/

Also, I believe, the more dealerships you have the more unsold cars have to remain in the total inventory waiting for buyers, and that just costs everybody money.

[OHdem10]

10. I wonder if they are just beating around the bush and do not want

to come out and say-- GM and Chrysler are going to be very small
companies when all is over. Therefore, they are not going to
be producing great numbers of cars.

I have noticed how they seem to be gradually preparing the American
People for what this country is really going to be like when we
finally get through this crisis.

[lithiumbomb]

11. well they're already much smaller

Even before bankruptcy, their market shares have been in a long decline.

Looking at GM sales figures back to 2001 (as far back as they go on their own website), they sold 4.9 million vehicles in the United States in 2001. In 2008 they sold about 3 million. They're still selling plenty of cars, but much less than they have in the past.

Unfortunately this isn't all in a single handy chart, so if anyone else wants to peruse their data:

http://www.gm.com/corporate/investor_information/sales_prod/hist_sales.jsp

A quick glance shows:

2001 4.9 million
2002 4.85 million
2003 4.75 million
2004 4.7 million
2005 4.5 million
2006 4.1 million
2007 3.87 million
2008 2.98 million.

[jmowreader]

12. It's time for "expand your vocabulary with Jim!"

The word for today is Floorplanning.

Auto dealers finance their inventory using "floorplan financing," which they generally get through their automaker's credit arm--GMAC, in the case of GM and now Chrysler. (Does anyone know if Chrysler handed over ALL its financial functions to GMAC, or just consumer financing?) The fewer dealers there are, the less money the finance company has to tie up into floorplanning.