My first thought on GM and Chrysler dropping some of its dealers is that the move seems counterproductive. The more outlets to sell cars, the more cars I think could be sold. On the other hand, I wonder if autombiles will be sold the way major appliances are sold. In many communities, there are Ford, Chevrolet, Toyota, etc. dealerships all under the same name and presumably owned by the same group of people. I wonder if the thought is to sell automobiles of different makes in the same large superstore dealerships. In the major appliance world, H.H. Gregg, Lowe’s, Sears and other big stores sell Maytag, Bosch, GE, Whirlpool and other makes of washers, dryter and refrigerators along side each other. Service is contracted out to independent repair shops in many for many of these stores. The independent shop that sells and services a particular line of appliances, GE for example, is long gone in many areas of the country. Is this what the auto indutry has in mind?
I don’t fully understand the business structure, but there may be liabilities for the manufacturers involved in their financing arms that they use to provide financing for the dealers to purchase the vehicles from them. Dealers don’t generally own the vehicles, they’re purchased from the manufacturers with special loan arrangements. If vehicles don’t sell and the loans default the manufacturer’s financial arm ends up with many millions in unsellable excess inventory.
In short I think they’re doing it to reduce the “bad loans” they currently hold with the dealers. I could be wrong.
Toyota and Honda dealers now sell 3-4 times as many cars per dealership than GM and Chrylser. There is no way for these dealers to stay profitable. If Sears or J C Penney had stores that peformed that poorly, they would shut them down! Every dealership involves a large fixed support cost for the manufacturer.
So, the move makes sense; it’s just tough to face the fact that you don’t need a dealeship any longer on your street corner. I grew up in a small town of 1000 people; the local Chrysler dealer was also the International Harvester dealer. Only 12 miles up the road either way there was also a Chrysler dealer in each town. These are long gone.
Do you have any idea how “Colt Heros” mystery car managed to stay on the lot when the fianiancing is as you say? I never could grasp that part of his story.
It is hard to see how the franchise number reduction will greatly affect the manufacture, possibly a path to increased sales, customer satisfaction? I would have to look at a franchise agreeement to make a firmer call.
Again, I’m not well versed on their business structure, but I think what it affects is their book balances. Right now I think they’re holding loan papers on large amounts of what is basically unsellable inventory. If they reduce the overall amount of that liability they basically can become more profitable. The best way to do that is not renew the franchises on less productive dealerships.
I’m open to correction from any of you guys that may understand the business structure better, so don;t hesitate to join in. I’m guessing here.
You sent this to the wrong folks. It should be addressed to the administration. The new loans are only available if GM and Chrysler force dealers to shut down. It could be done by attrition, and has been until now. President Obama’s crew just saw to it that the effort was greatly accelerated.
Does it make sense for GM and Chrysler to close dealerships?..This was not CHR decision. It was the fed gov telling them to close the dealers. Since they let the gov get their tentacles in the gov calls the shots.
Are their to many dealerships? Probably.
I do not know the reasons why certain shops were closed. A new Chrys. franchise took a crappy dealership and increased sales 5x’s a month, took a CSI score from the toilet and sent it through the roof and it was closed.
For some dealerships the nail in the coffin is owing to much on their floorplan which is actually financing.
Gm closed the dealerships on their own. Chrysler was directed by the gov
It might make sense because the owners are compensated by GM. If they close on their own, they probably get a lot less. Some may spring back to life if the business picks up. Not going to happen if the government does not control gasoline prices, which killed the last economy.
Product vendors are very aware of placement of their items in supermarkets to increase sales. Bottom shelf is bad because people won’t look there and will go for stuff easy to see and easy to reach. That and market exposure, Diane Sawyer was saying some people may end up driving 1 or 2 hundred miles for warranty service, would you drive that 1 or 2 hundred miles to purchase a specific brand of car? Another problem I have is that the dealers are franchises from what I understand and Chrysler dealers are not going to get reimbursed for parts they have in stock. The outcome I see is less sales due to market presense, Dealers closing, lost jobs, dealers loosing money due to fire sale tactics needed to get out of the chrysler game, dealers selling imports instead as they have the space equipment staff and reputation. How many things can you do to kill american brand names?
I am so glad someone else thinks gas prices precipitated the last (current) collapse. I remember years ago hearing some grand statistic of 65% of americans were one paycheck away from disaster. $4 a gallon gas for the commuter, I think over the months ate up that 1 paycheck away to the foreclosure disaster that is going on today.
Could you see driving 100 miles and get told “no trouble found”? Probably happens everyday but I am on the end saying “no trouble found”.
"The independent shop that sells and services a particular line of appliances, GE for example, is long gone in many areas of the country. Is this what the auto indutry has in mind?
Posted by: Triedaq
Fewer, high volume dealers will be more profitable and will be better able to compete in a shrinking market.
I think Old School brings up a good point. Consumers will REJECT complex, expensive vehicles that are full of bugs and almost IMPOSSIBLE to repair. Why pay $40,000 for a vehicle loaded up with toys that crap out in a year or two, nobody can fix, CEL’s that lead to four figure emissions repairs, people are getting tired of that. The best selling cars have the best reliability and repair record, it’s as simple as that. There are 280 different models of vehicles sold in the U.S. That’s insane. Culling the herd will be painful but it will be over quickly…
“It might make sense because the owners are compensated by GM.”
What compensation do they get? Shut downs before Black Friday included buy-backs of cars on the lot for GM. But the Chrysler announcement a few days ago does not include buy-backs of any cars on the lot. I’m not sure how that works, since the manufacturer doesn’t get the money for the car until it’s sold. But that’s the way it was reported in this morning’s paper. The newspaper could be wrong, but this one usually provides the straight story.
“…would you drive that 1 or 2 hundred miles to purchase a specific brand of car?”
Not on the east or west coast, but maybe it’ll come to that in large, inland western states.
“There are 280 different models of vehicles sold in the U.S. That’s insane.”
Perhaps that is insane, but in Europe there are probably well over 400 different models sold.
If it works over there, why should it not work on this side of the pond? I am not taking issue with your reasoning, but I am trying to figure out how European nations, car companies, and dealerships deal with far more diversity in car models than the US does.
I am looking at the problems in the auto industry and trying to put a connection to the housing industry. What I mean is, housing just kept going up in terms of sqft. that people wanted and the price they were willing to pay, then the bubble burst. Can we make a connection to how much people want in their cars and how much they are willing to pay? is this bubble going to burst also?
Caddymans observation on four figure emission repairs deserve consideration. I am not a big government nanny state indidual, but, the government mandates these systems and a look on protecting people from expensive emission repairs deserves another look. I don’t have a answer that I would like to put forward at this time.
“Consumers will REJECT complex, expensive vehicles that are full of bugs and almost IMPOSSIBLE to repair. Why pay $40,000 for a vehicle loaded up with toys that crap out in a year or two, nobody can fix, CEL’s that lead to four figure emissions repairs, people are getting tired of that.”
Then why do Benz and BMW have such a large following in the USA? Does anyone actually like i-drive? Yet, these models seem to have a large following. I understand that the basic mechanical components are reliable. It’s just the whiz-bang stuff that keeps breaking.