You may remember that a while back, Chrysler and G.M. announced that they'd be cutting a whole bunch of dealerships as part of their bankruptcy reorganization. Having too many dealerships has been a bad, well, deal for the big car-makers, but one they were cemented to maintain until they hit bankruptcy. In fact, it's one of the major good parts of going through all of that crap for them -- they can shed these obligations, which were making them less competitive. There's resistance to how those cuts were made, though. I lamented the loss of the small-town dealer culture, myself. Congress is taking that one step further: the House passed a bill that says those closures -- hundreds of which have already happened -- should be reversed.
Earlier this week, Ron Bloom, the new head of the auto-task force (pictured in the NYT with the their favorite task force member, Brian Deese) told the House Judiciary Committee that's a bad idea. He also suggested something I think is quite a good idea (emphasis mine):
I understand that several members have raised concerns about the processes the Companies have taken with respect to the dealers. Specific questions about the criteria used in the process or individual dealer determinations are best posed to the Companies themselves. However, throughout this process we have played an oversight role and sought to help ensure transparency in the process. Over the past several weeks, New GM and New Chrysler have worked to explain their processes, and have made several accommodations and clarifications in response to important issues raised by members of this committee and others. We have been assured that any dealer which seeks detailed information about the decision criteria and its specific case will receive this information promptly from the companies.
Two things: First, isn't it about time that the House actually talked to these companies again about how that whole government-funded rebirth thing is going? It was all fun and dramatic to have the Big 3's owners fly in for chastisement earlier this year, but honestly, if Congress wants to get involved, holding some hearings and interviews with the heads of these companies would be a nice start. It might even be a better way to hold the administration accountable than calling up the administration.Second, if the administration is promising that any dealership can find out exactly why it was shut down, it seems like that might be a good path for these members of the House to pursue with their constituents -- i.e., instead of saying, let me pass a bill to fix all your problems, Bob Dealer, they could say, That's terrible; have you talked to the company?
It's ironic to have House members crying that political decisions were at fault for closing their local dealerships when they're trying to solve the problems through political action, isn't it? In some ways, though I dispute their ultimate logic, I at least understand why Democrats would get behind further government intervention into business, but the Republicans who voted for this bill (like Illinois's own Don Manzullo, who co-sponsored it) have a bit more explaining to do.
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Catherine Forsythe
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Emily Holleman
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Leslie Harpole
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Additionally, dealers compete against each other and competition drives down prices, which has caused GM and Chrylser vehicles to be heavily discounted as compared to Hondas and Toyotas. This results in a tarnished brand image, at the very least - and also a bunch of impoverished, desperate dealers instead of fewer, financially healthy dealers.
I used to work for a company that provides software to auto and truck dealerships.
Auto dealerships are NOT like an ordinary business. If I open a toy shop, I buy all those toys, and I put them on my shelves, and I hope that someone comes in and buys them. The risk is mine. If I chose poorly and bought too much of that and not enough of this, well, tough beans for me. Buy better next time.
A car dealership, by contrast, does NOT own all those cars on the lot. The manufacturer does. There are all sorts of byzantine agreements on how much the dealership gets for the sale of each car, based on sticker price, sales, end of the model year, yadda yadda. But the risk of owning the unsold vehicle (unless its a used car) is entirely the manufacturer's, NOT the dealer's.
It is absolutely in the manufacturer's best interests to have fewer dealers in lean times. Where those dealers end up, and which ones get shut is another matter entirely, and I don't know much about that process. I do know that the manufacturer cares very much about unsold cars, because they own them.
My main problem with Manzullo, however, is the fact that he was one of the enablers of the worst of Bush's abuses. If interested, I posted a little bit about him on my blog here:
http://open.salon.com/blog/procopius/2008/11/02/breakfast_with_my_congressman
Those places weren't selling cars.
I remember reading about the dealerships that Chrysler wanted to close. Know how many cars they sold in the month before they were closed?
An average of five. Five cars in a month. One per week.
They closed the underperforming dealerships, which is exactly what they should have done. And if you can't sell more than five cars a month, you SHOULD be closed.
Procopius, I will definitely check that out! He seems from his statements that I perused today to be a particularly egregious pork-barreler toward business, in a manner of speaking.
Everywhere in the world besides in India perhaps, sales of cars are going down. That is how it is. And I think it is good. People should start using older cars. All car made later than in the early 70'ies can run at least 20 years, if the basic maintenance and the necessary repairs, which cost much less than buying a new one, have been done.
Typically the answer I would receive would be Chevy or Dodge or Toyota.
"No, your main competitor is the next Ford dealer down the road!"
--or Honda dealer if you're looking for an Accord, etc--
This costs dealers thousands and thousands of dollars each and every week.
And continuing with the Ford example; there are 5 Ford dealers within 25 miles of where I live 1 @ 1 mile, 2 @ 10 miles, 1 @ 18 miles and 1 @ 25 miles. That's insane!
Froggy--dealers OWN the vehicles they sell. There's this thing called "floor planning" which is rolling financing of inventory--new and used! Do you know how manufacturer's count a new vehicle as sold? When it is delivered to a dealership! Which then has it in inventory for retail sale. Dealers pay interest on that piece of inventory sitting on their lot. Holding costs (the total expense of having a vehicle in inventory) are one of the biggest factors at dealerships negatively effecting their bottom line. The inability to "turn" new or used inventory (or manage it effectively) has been one of the main factors in the demise of dealers.
Hannu--remember one thing, you can't get a used car to sell unless at some point it was sold as a new car (even "program" cars were once sold new to someone, somehow). And, 5 sold new vehicles is a recipe for disaster at most dealers unless they're "enjoying" at least a 5 to 1 ratio of used to new sales which would still be only 30 units a month.
One of the greatest problems in the "variable operations" (sales) side of dealer ops is the ratio of used to new sales. Ideally, it should be at least 1 to 1 (2 to 1 used to new is even better). One of the other greatest challenges with dealers is a failure to fully integrate variable and fixed operations. (Fixed ops are parts, service & body). If you're not selling new cars you're not creating potential business for fixed ops. If you're not selling used, you're not doing reconditioning in your service dept and you're not creating potential business in fixed ops based upon "own make" used sales (selling used cars that your "nameplate" manufactured).
You are right that sales profits come from used sales--as do sales person's commissions. It is essential that all these elements be integrated which many dealers do not do well enough and which manufacturers do too little in assisting dealerships in accomplishing.
This is one of the differences in "franchise" agreements. McDonalds sells the franchise and also tells the franchisee exactly how to make its hamburgers and fries as well as having some pretty strict requirements on management. That is not the case with auto dealers--and over the years it has led to some incredible problems. These problems are not solely the province of GM, Chrysler and Ford. It impacts dealers from all manufacturers.
These points are just the tip of the iceberg. It will not be possible to completely restructure the domestic car industry with addressing BOTH the manufacturing side of things AND the dealer-body.
I think that this is right and important. Car dealers should have in their business many services integrated, not only to sell a car and then forget the customer. Cars are such kind of complex and long lasting items that the customers who bought cars should be served by the salesman to able to use that product long times. In the longer run for any country's total economy it would be best not to waste working machinery, where many people's hard work has been invested. In my opinion it would be best to do the things such ways that you could use the car you bought almost the half of your your lifetime. The whole busniess should be changed such ways that car dealers would concentrate on services, spare parts and repairing works to keep the sold cars on the road long times.
One in thing. In the States, do the car dealers in general won the cars they are selling? I know that one big obstacle with motorcycle dealers here, where I'm living is that they have to buy the bikes from the importer to be able to sell them at all and naturally it is very difficult to estimate beforehand, how many they can sell. Small dealers go easily in bankrupt such ways.
Nate Silver at fivethirtyeight.com debunked that myth.
Then I took a look at it from a financial standpoint. You can read my post at http://buyandholdplus.com/blogweb/index.php?/archives/79-The-Phony-Controversy-over-Closing-Car-Dealers.html
Chrysler closed 25 percent of its dealers. The percentage of cars those dealers sold was five percent of the total. Those are underperforming dealers, and they needed to go.
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