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80 Comments
- Dewhead, on 06/13/2009, -3/+27This doesn't pass the BS test to me. Dealers make the money for the manufactors.
- avengingturnip, on 06/13/2009, -4/+20Only a Wall Street investment banker could convince himself that closing franchise dealerships would increase profitability for car manufacturers.
- dunderballer, on 06/13/2009, -4/+17There are way too many domestic car dealers. Even though they carry their own costs, they add costs to the logistics of the Big 3. With fewer dealers, the remaining dealers could operate more efficiently with higher volume requiring a lower markup and increased overall sales to the manufacturers. The government needs to get the hell out of trying to manage businesses. Costs need to be cut which means jobs will be lost in the automotive industry--both internal and external to GM and Chrysler. Car purchases are the second largest purchases families make...they are willing to drive a little farther to get to a dealer.
- user500, on 06/13/2009, -3/+14This will defiantly cut cost in the short term, on the backs of the customers. Little things that are repairable under warranty will be cut down if dealerships are not conveniently located and the remaining shops are over capacity.
- SwiftKick34, on 06/13/2009, -1/+12I'll be buying Ford or foreign anyway. I'm just pissed that we will have to continue to subsidize these monstrosities until it becomes blatantly apparent that they are not viable profit-making entities.
- timshepard, on 06/13/2009, -5/+16This doesn't make sense. The dealers are independent and absorb their own losses if they aren't competitive. There is some "behind the scenes" political interest being served by the shutdown.
Think about it:
1. The government is "saving" the companies to preserve jobs
2. The unions are coming out whole in this process. Those that are severed are getting over $100k in payout with 10 years service.
3. Closing the dealerships is going to decimate local economies. Think about high schools, newspapers, radio stations, etc. that are all served by the local dealers.
This doesnt' pass the smell test! - Barackalypse, on 06/13/2009, -4/+14I'm hesitant to trust the word of two companies that received tens of billions of taxpayer money and still ended up in bankruptcy.
- PopcornDave, on 06/13/2009, -0/+10What I've wondered is why the dealers that are being forced to close don't
a) bitch louder since they're forced to relinquish their inventory and not being allowed to sell it
b) turn around and open as repair shops for the make of auto that they sold since they've got trained mechanics for those vehicles and turn around and undercut the manufacturer as a big ***** you for the shafting that they got. - alais, on 06/13/2009, -0/+8Less people working = good?
Lots of families will suffer from these dealerships being forced to closed. - inactive, on 06/13/2009, -0/+6Ford made some pretty big cuts just before the ***** hit the fan, so they are doing better. They are still losing boatloads of money though, don't kid yourself. The entire auto industry has been decimated the past year.
- cawpin, on 06/13/2009, -4/+9You mean the American companies who build more fuel efficient and more reliable cars than the Japanese or German makers? Yeah, I thought so.
- inactive, on 06/13/2009, -6/+11They really need to grill Obama and the other inexperienced government hacks to find out why this is happening. That is if Congress is actually interested in what's really going on...
- SamSks, on 06/13/2009, -3/+8Geeze people! You've been sucked into the dealer propaganda about how they're "just poor local business guys struggling to make a living". They've a strangle hold on the manufacturers - a legislated stranglehold - and they had a great business. They were guaranteed by law not to have much competition.
See here for an example of what a sweet deal car dealers have had:
http://www.thetruthaboutcars.com/the-truth-about-c ...
"As a result, car dealerships have gained territorial monopolies (called geographic areas) from their manufacturers, fending off anyone who might want to muscle in by opening a competing franchise."
ALL of the states have laws like this and it cost us consumers more for our cars. A sweet deal for the dealers and a guaranteed way to get rich.
The auto manufacturers have been trying to do what they're doing for YEARS. - akatsuki, on 06/13/2009, -5/+9Dealers are a huge part of the problem of the car manufacturers - there are tons of them in the same territory, thus they cut prices to the bone. Plus the dealers generally prevent a lot of innovation in how cars are sold - ever wonder why you can't go online, spec your colors and details and have a car show up at your driveway direct from the manufacturer? That'd be dealer protection laws. They are the ones that killed no haggle fair pricing.
Frankly, dealers tend to be rich, local, prominent businessmen who bribe politicians for laws to protect them and avoid actually increasing service standards to anything near reasonable.
And closing down even a profitable dealer doesn't necessarily mean that people will automatically go to another brand.
So let em burn. - darkened, on 06/14/2009, -0/+4Except the dealerships are all independently owned and operated any every single cost you said is actually shouldered by the dealer owner not the auto maker...
- inactive, on 06/13/2009, -0/+4How do they add to logistics costs?
- alais, on 06/13/2009, -1/+5Blame the victim I guess?
- mollydog12, on 06/13/2009, -2/+5i won't buy a gm or chrysler car. i've given them enough.
- Trick07, on 06/14/2009, -0/+3The one thing I really haven't seen much about is the competition... In any given area maybe there are dealers competing for sales on price alone... both have crappy service and support and sales practices. Now one of them is about to be closed.
With no competition I guess the dealers will no longer have crappy service and sales practices right? I doubt it... it seems it will only get worse now. - publiclurker, on 06/14/2009, -1/+4When these dealers lose the right to sell the cars, they may well lose a lot of the support needed to repair the cars. I go to an independent repair guy, and he has told me that his access to the diagnostic systems and the like that are needed by today's cars is severely restricted.
- inactive, on 06/13/2009, -0/+3Inventory is shipped FOB origin, meaning the dealers own the inventory and pay all shipping costs as soon it leaves the maker's marshaling yard (sooner if it's a special order) so transportation/inventory costs isn't a real reason. The company's reps will also likely remain relatively unchanged, due to geographical considerations. Even if then, that's such a minuscule cost that it wouldn't warrant closure of dealerships. There just aren't that many of those people running around checking up on dealers to make a difference.
As for quality and motivation, it seems like the determinant factor in who stays and who goes wasn't exactly how good you were, but rather how big you were and how much clout you had. It feels like the govt somehow decided that dealers had to go so GM and Chrysler just cut the bottom guys loose. There really hasn't been a sound business explanation so far and there is really no benefit to the auto makers to have less customers at this point in the game, so why do this? - akatsuki, on 06/14/2009, -0/+3Who is complaining of high prices with domestic manufacturers? With rebates cars are ridiculously cheap from them. Go try and buy a Camry and a Malibu.
- SamSks, on 06/13/2009, -2/+4And those car dealers have a bunch of protections under state franchise laws. The auto manufacturers have been wanting to get rid of the excess dealers for years. Those dealers had really sweet deals. Of course it cost us consumers more for cars.
If it weren't for the legislation anyone could open up a dealer anywhere they wanted. - avengingturnip, on 06/14/2009, -1/+3What a bunch of crap. There used to be GM and Chrysler dealerships all over the city. Now...not so much. Forget developing a relationship with the local dealership or its maintenance department. Forget shopping around for a good price. Forget options. And you are claiming that they had monopolies before? You don't even know what the word means.
- avengingturnip, on 06/14/2009, -0/+2Shutting down dealerships makes it less of a monopoly? Are you arguing that there were too few dealerships now?
- SamSks, on 06/13/2009, -2/+4Ahem. Here's an example -
http://www.thetruthaboutcars.com/the-truth-about-c ... - SamSks, on 06/13/2009, -3/+5They're bitching load enough.
- avengingturnip, on 06/14/2009, -1/+3They failed because the government started running their business. Ford is still around because they were smart enough not to take government money with all the strings attached.
- Thistlejack, on 06/13/2009, -2/+4I have a lot of experience managing dealers for a well-known heavy equipment manufacturer (not cars), and I can give you several reasons. I have no specific knowledge of the auto industry or why certain dealers were chosen (I can certainly guess), but I thought I'd try to give you an answer to your question.
1) Logistics costs are dramatically reduced when you're consolidating shipments to fewer dealers. It costs a lot of money to send a half-load to a small dealer.
2) Sales Force - it costs almost as much for a manufacturer to service a small dealer as it does a large dealer. By sales force, I mean the manufacturer's rep whose job is to keep an eye on inventory on the lot and generally act as a conduit to the manufacturer for orders, parts, etc.
3) Inventory - Some dealers have a better sales : inventory ratio than others. Since the manufacturer usually foots the bill for inventory on the lot, it benefits the manufacturer to push more sales through these dealers.
4) Dealer Quality - I think this is the true reason for this consolidation. Bad dealers reflect poorly on the manufacturer. Granted, GM/Chrysler have bad reps already, but they can't dig their way out of the hole on the backs of bad dealers. A bad dealer experience can often kill a sale as much as a bad product experience. That lost sale is as much a loss for the manufacturer as for the dealer. It's much easier to maintain quality at a few, large dealerships than at many, smaller dealerships.
5) Dealer Motivation - Some dealers go after business and some don't. Some dealerships are passed on by a successful dad to a lazy kid who really is more interested in mooching off the business than growing it. Working with these guys is a pain for the manufacturer when you're trying to increase sales in an underperforming region. - ulcards2033, on 06/13/2009, -0/+2So there problem is that their cars are not priced high enough? Seriously? Did I read that wrong? And surely dealer competition doesn't effect the price GM/Chrysler gets for the car, I mean I know they obviously have unsound business practices but I can't imagine that they would accept a different price for every car sold to dealers depending on the price the dealer sold it for.
- PopcornDave, on 06/14/2009, -0/+2Really? Since when? I was always under the impression that dealerships made most of their money doing repair work since the profit margins on the automobiles was so slim to begin with.
My point was that they could easily undercut the surviving dealers on labor costs, keep people employed and hopefully survive this major screwing over. - jbmcb, on 06/13/2009, -0/+2> they were a house of cards long before the stock market crashed
So was Ford, they just restructured their debt and laid off more people beforehand. - avengingturnip, on 06/14/2009, -1/+3Fewer dealers means fewer sales.
- lead2thehead, on 06/14/2009, -1/+3That's a myth. My Sport Trac has 160,000 miles on it and has never needed a single repair, short of routine maintenance like tires and brakes. My wife's "superior" German VW Beetle is in the shop with an electrical problem every couple of months and the engine in my sister's Honda Civic seized at 60,000 miles. You people put too much stock into brand names.
- SamSks, on 06/14/2009, -1/+2You couldn't open a dealership for the same cars in the same sales area. That's a monopoly.
You don't know what you're talking about. They had a LOCAL monopoly. You don't have to have a WORLD monopoly to be a monopoly. Cable companies also have local monopolies. In many areas, if you want cable television or even internet, you have only ONE supplier.
Geeze! - SamSks, on 06/14/2009, -1/+2Agreed. No, you pretty much got it.
I was just attacking the dealerships because that's what this article was about. - zigardne, on 06/14/2009, -0/+1I've worked at a car dealership, and we made 73% of our profit from used car sales that we got from trade ins and auctions. The other 27% came from new car sales (usually only about $200 per new car). The service shops on most new car dealerships, including ours, operate at a net loss because the majority of the work done is warranty work.
warranty work = non paying customers.
I don't know how other brands operate, but we were able to charge Ford for the parts, but had to eat the labor costs. All dealerships make their money from the used cars on the lot, not from the service department. - acknotSW, on 06/13/2009, -1/+2I can't imagine who would digg you down for this.....
- acknotSW, on 06/13/2009, -1/+2Just add them to the list.
What killed GM:
Greedy executives
Greedy unions
greedy dealers
promoting finance managers instead of people who know how to make cars
outsourcing 99% of their R&D while putting MBA's with no engineering knowledge in charge of those projects.
Creating brands that compete with existing company brands
I'm sure I'm missing more than a few so feel free to expand on my list. - taichi82, on 06/14/2009, -0/+1Someone can correct me if I'm wrong but doesn't GM pay dealership a monthly fee to keep their cars on the lot?
- publiclurker, on 06/14/2009, -0/+1Actually, I would think that they they would get hurt in the co-marketing area. With co-marketing, the dealer pays for at least part of the advertising. If they have fewer dealers in an area then they will have to either have fewer ads, pay a higher amount to keep the add number up, or have the remaining dealers pick up a higher percentage.
- publiclurker, on 06/14/2009, -0/+1Strange, we have a few dealers around here with no-haggle pricing. Also, If I understand you correctly, more dealers equals lower profits due to lower prices. Since one of the complaints with American cars is higher prices, how are they going to be able to increase the prices? Fewer choices and higher prices will not make people rush to buy these cars on any planet I'm familiar with.
- jhusker4, on 06/15/2009, -0/+1No the dealers pay GM a "Floor Plan Cost" for the vehicles they have on their lots. Dealers really don't cost GM anything they pay for training, special tools for new cars that come out, everything down to all of the car brochures.
- rignopolis, on 06/15/2009, -0/+1Ford has a European operation that actually makes money.
The sad part is now that the government runs Chrysler and GM, they'll be able to put Ford under by mandating whatever rules they want. Chrysler and GM will survive on the backs of the US tax payer. - publiclurker, on 06/14/2009, -3/+4My parents last American car was a GM, my last one was a Chrysler. Both were junk.
- ulcards2033, on 06/14/2009, -0/+1I shouldn't be sustainable if the manufacturer isn't sustainable. And the manufacturer can't compete because there prices are too high already (costs are probably too high as well). Do you know anyone in the market for a volt? If you do ask them for me why they are paying a 15,000 premium instead of buying a prius.
- kdor, on 06/13/2009, -0/+1I contend that this approach is a throat cutter. You can't just put all these dealers out of business. All you can expect is that they will not be selling your cars. Many have buildings, staff, family businesses, local loyalties that they cannot or will not abandon. They are ripe for the picking by low cost Chinese and Indian manufacturers like Cherry and Tata looking for American inroads. Some of these being screwed will become the Walmarts of the auto market. If a couple of my manufacturers decide to concentrate on a handful of big distributors (and did) I do what I have to and resort to alternates. My clients never see them again and they do not get to even be considered for replacement equipment.
- CaptSS, on 06/14/2009, -0/+1I suppose cutting the number of dealerships translates into cutting the number of support people at the corporate level. I realize dealerships are independently owned but I am sure corporate has areas that provide dealer support and assistance. So instead of 100 people providing marketing support to 100 dealerships you now may have 50 doing it for 50 dealerships.And instead of 100 logistic people handling the sales, shipping, etc.. of new parts to the service dept.'s of 100 dealerships you now reduce that in response to the reduced number of dealerships.
That's how I see it being a positive financial move for corporate. - ulcards2033, on 06/14/2009, -0/+1Won't cutting dealers substantially hurt the manufacturer then?
- darkened, on 06/14/2009, -0/+1ulcards, every car manufacture is paid different prices for it's vehicles depending on the volume the dealership sales. The great the volumes, the cheaper they sell the cars to the dealerships. That's why the majority of dealerships have no problems selling cars below even black book price it's because they still pay substantially less do their volume pricing.
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