By on May 25, 2009

The grand poobahs at the PTFOA are Wall Street bankers and political insiders. None of them have built or run real businesses designing, marketing, selling and supporting high priced consumer products. Everything they think they know they learned from books and lectures, not from actually doing stuff. The old story goes: “When your only tool is a hammer, every problem looks like a nail.” To the Wall Street types, slash and burn is the hammer they know. Even President Hope has taken to using their favorite motto “Lean and Mean.” Surely we need lean, productive companies, but who needs mean?

GM and Chrysler, under orders from the PTFOA, are decimating their dealer network in the perverse expectation that doing so will lead to higher sales and/or profits. The word decimate comes from the Romans’ practice of showing displeasure with the soldiers by randomly killing one-in-ten of them. While the famously brutal Romans capped their ritual slaughters at 10%, GM and Chrysler are killing off more like 30% of these formerly loyal partners.

Many have made the argument that the bloodletting is necessary to improve GMAC’s cash flow, reduce GM and Chrysler’s inventory costs and give the remaining dealerships the chance to make better profits with which to support future sales efforts.

All of those arguments point to second order effects, not primary effects. GMAC’s floorplanning business, for example, has historically been wildly profitable. Credit worthy dealers paying their floorplan loans on a timely basis are a benefit to GMAC, not a liability. What bank hates having good paying revolving loan customers?

Those dealers which do not demonstrate ongoing creditworthiness should have their credit lines pulled, which in many cases will force them to close down. The floorplan and other second order arguments duck the main reason why financially viable dealerships should not be wantonly shut down by decree from Detroit or Washington.

More sales outlets means more places for customers to buy cars, more places selling the highly profitable OEM parts and more places paying the various fees which go along with being a franchised dealer. Franchise discipline practices which enforce quality standards are long overdue, but swinging the hatchet pell mell is no solution to that problem.

The dealerships are in fact the customers of the factory. No manufacturer of any product in history has successfully maintained or increased its sales volume or profitability by decimating its customer base and sales channel. Surely it makes sense to get rid of crooked and/or financial weak dealerships. The speed with which the recent slaughter has been carried out demonstrates simple minded meanness and not smart management.

The dealer slaughter frenzy all started with Wall Street analysts pointing out the numeric sales per dealership advantage which Toyota, Honda and other enjoy over the Detroit-Washington 2.8. Financial analysts are often much better at describing the disease than they are at prescribing the best medicine.

In 1998 when Daimler merged with Chrysler, not a word was said about the excess dealership millstone around Chrysler’s neck. In the eleven years since then the problems with Chrysler have boiled down to a series of botched new products. Dealers didn’t create that problem and nuking dealers will do nothing to solve it.

The rational thing to be doing right now would be a selective culling of dealerships based on quality and financial stability criteria. Most of the really bad dealerships will self-destruct without any help from Detroit or mean spirited zone managers. Instead of this, we are seeing summary decimation carried out as a result of the “appear to do something bold” political imperative.

The contrast between Ford and its cross-town rivals on this subject is quite telling. Ford is selectively culling the dealer herd and will likely come out the other side of this period with the strongest vehicle sales and service channel in North America.

Books and articles will be written about how even with greatly reduced dealer numbers, GM and Chrysler will continue to loose sales at an accelerating rate as the remaining dealers do not in fact pick up the slack from their slain comrades. The real reason the dealer slaughter is going on is to offer blood sacrifice to the gods of Washington and Wall Street. God help us.

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49 Comments on “Editorial: Why Chrysler and GM’s Dealer Slash and Burn Won’t Work...”


  • avatar
    Matt51

    A fine article. As one example, I think Bob Rohrman is the largest Honda dealer in Indiana. He has several import franchises. He had a Chrysler dealership in Lafayette Indiana which was on the close list. Now here you had a well respected dealer, who was willing to run TV and print ads for Chrysler product, who was financially strong and selling Chrysler cars. It made no sense to close this dealership. This goes back to “Neutron Jack” Welch thinking. Wall Street always cheers cuts. But at some point, you have to build.

  • avatar
    DPerkins

    Great article.

    I was wondering how GM and Chrsyler will save any significant money cutting dealers. Especially good dealers. Locally, they have terminated a dealer that just had record sales for April, is in the top 10 (for Canada) in sales and CSI. WTF? How does cutting their supply of cars and parts help GM one bit????

  • avatar
    lw

    And this is why GM and Chrysler will be gone in a few years and Ford won’t.

    Once you take government “help” it’s all over. There are very few things the government can do for you and running your business is NOT on the list.

  • avatar
    Dynamic88

    The grand poobahs at the PTFOA are Wall Street bankers and political insiders. None of them have built or run real businesses designing, marketing, selling and supporting high priced consumer products. Everything they think they know they learned from books and lectures, not from actually doing stuff.

    This is often repeated, and true enough. But the implication, that the industry would be better off in the hands of the “pros” who’ve been there 30 years is demosntrably false. The guys who’ve worked all their lives in the industry are the guys who’ve run it into the ground.

    GM and Chrysler, under orders from the PTFOA, are decimating their dealer network in the perverse expectation that doing so will lead to higher sales and/or profits.

    I don’t think they expect higher sales. The D3 market share trend line for the past 3 decades is pretty clear -it goes down. They’re getting rid of dealers because they’re going to be selling fewer cars. Profit, on the other hand, may go up by not having to service as many dealers, or build as much inventory for display.

    All of those arguments point to second order effects, not primary effects. GMAC’s floorplanning business, for example, has historically been wildly profitable. Credit worthy dealers paying their floorplan loans on a timely basis are a benefit to GMAC, not a liability. What bank hates having good paying revolving loan customers?

    It may be good for GMAC, but not for GM, and not for Chrysler. The automakers need to be in the auto business, not the banking business.

    More sales outlets means more places for customers to buy cars, more places selling the highly profitable OEM parts and more places paying the various fees which go along with being a franchised dealer. …

    More places aren’t needed. The current number of dealers aren’t needed. I have six – count ’em, SIX, Chevy stores within 10 miles. If they get rid of half of them, what difference would it make? Chevy isn’t going to loose any business due to lack of stores -they aren’t selling gum or coffee- they’ll loose business for the same reasons they’ve been loosing for 30 years – most of their product is substandard when compared to the competition. If more outlets made up for substandard product, GM/Chrysler/Ford would not be in any sort of trouble.

    Franchise discipline practices which enforce quality standards are long overdue, but swinging the hatchet pall mall is no solution to that problem.

    I agree. The surviving dealers aren’t going to get better just because they have less competition.

    The dealerships are in fact the customers of the factory.

    In strictest technical sense yes. In reality, the end user (read retail customer) is the the customer. The D3 don’t seem to fully appreciate this.

    … No manufacturer of any product in history has successfully maintained or increased its sales volume or profitability by decimating its customer base and sales channel. Surely it makes sense to get rid of crooked and/or financial weak dealerships. The speed with which the recent slaughter has been carried out demonstrates simple minded meanness and not smart management.

    I’ve read that the 1/4 of Chryco dealers being axed account for 14% of sales. It does appear then that they are getting rid of weak dealers.

    The dealer slaughter frenzy all started with Wall Street analysts pointing out the numeric sales per dealership advantage which Toyota, Honda and other enjoy over the Detroit-Washington 2.8. Financial analysts are often much better at describing the disease than they are at prescribing the best medicine.

    While I agree with this statement, it also true that the financial anaylysts get something right every now and then. This is one of those times.

    In 1998 when Daimler merged with Chrysler, not a word was said about the excess dealership millstone around Chrysler’s neck. In the eleven years since then the problems with Chrysler have boiled down to a series of botched new products. Dealers didn’t create that problem and nuking dealers will do nothing to solve it.

    This is true. Fewer dealers peddling crap product won’t save Chrysler or GM. But less crap inventory sitting around will help.

    The rational thing to be doing right now would be a selective culling of dealerships based on quality and financial stability criteria. Most of the really bad dealerships will self-destruct without any help from Detroit or mean spirited zone managers. Instead of this, we are seeing summary decimation carried out as a result of the “appear to do something bold” political imperative.

    Again, it appears that at least one criteria is sales performance.

    The contrast between Ford and its cross-town rivals on this subject is quite telling. Ford is selectively culling the dealer herd and will likely come out the other side of this period with the strongest vehicle sales and service channel in North America.

    What is Ford doing differently? The implication is that the Chrysler/GM culling is not selective, but just random. That doesn’t seem to be the case . Why do you think Ford is doing it better?

    Books and articles will be written about how even with greatly reduced dealer numbers, GM and Chrysler will continue to loose sales at an accelerating rate as the remaining dealers do not in fact pick up the slack from their slain comrades. The real reason the dealer slaughter is going on is to offer blood sacrifice to the gods of Washington and Wall Street. God help us.

    No the real reson is sound business principles. Reduction of inventory, reduction in capital requirements, and “right sizing” in light of expected sales numbers.

  • avatar
    postman

    I’ve been seeing comments on this site since I started reading it that American auto makers have too many dealers. Then, as soon as Detroit FINALLY awakes from it’s stasis, and reduces it’s dealer network, people chime in that they shouldn’t make that move. I’m confused.

    Next, I’m sure that as soon as GM and Chrysler begin to cut models and brands, we’ll get people chiming in that, although they need to cut product, they shouldn’t have cut THAT product.

    If the people running Detroit are as confused as the people reading about Detroit, no wonder nothing productive gets done.

  • avatar
    Gardiner Westbound

    The scariest words a businessman will ever hear, “I’m from the government, and I’m here to help you.”

    The civil servants have targeted small town dealers selling less than 100 cars annually. These local family stores, many in business seven or eight decades, provide a superior buying experience, first rate customer care, and have the most repeat customers. It’s just plain nuts!

    End of dealerships, end of an era

  • avatar
    akear

    I heard somewhere GM is culling down its dealers in order to accommodate a future market share of 12%! With a marketshare that low Ford and Nissan are in stricking distance.
    Lutz is smart enough to see the writing on the wall. That is why he is leaving.

  • avatar
    N8iveVA

    They are definately going about it the wrong way. From what i gather, there are quite a few dealerships closing on their own due to the economy. The way i see it, let the econonmy kill off the bad dealersips all on it’s own. It’s natural selection.

  • avatar
    OldandSlow

    Axing dealers by a top down decree won’t build a better car – or – guarantee better dealer service to their customers. It may put off whatever loyal customer base remains though by giving the perception that these are dead brands walking.

    Any recovery by Chrysler and GM will depend on product and salesmanship. So far, I’m not impressed with the Wall Street insiders or government tinkerers to hit a home run on either, not to mention both.

    I’m glad that you mentioned Ford. They are actually at the point of getting some new metal to the factory floor. Ford won’t be the only game in town when it comes to next generation cars. So, with fingers crossed, let’s hope they get the marketing right.

    It’s tough market place out there. The interim period between promised products and their hitting the dealer showroom will not be GM and Chrysler friendly. The arbitrary closing of dealerships for now adds another layer of negative publicity to an already dismal situation.

    While killing off the small town mom and pop dealers looks great on paper from Washington or Detroit, it will turn off many loyalist who like me don’t want to endure a big box, big city store.

  • avatar
    mel23

    I agree with John Horner. It’s just amazing that we jump from one type of groundless accepted “fact” after another while we wreck our society. All the vehicles setting on dealer’s lots is inventory, but it’s NOT inventory on the manufacturer’s books. It’s been sold with the money quickly placed in the manufacturer’s account.

    When incompetent and dishonest management can’t think of, or don’t have the guts to take, constructive action, it’s easier to assign false cause to problems, get agreement from their underlings and useless board and waste time and money while they implement the cure du jour that predictably produces nothing of benefit to anyone except the phonies who’ve hung on to their jobs for a while longer.

    By then, they’ve concocted more bullshit ‘reasons’ to explain poor results. All beyond their power to avoid or fix of course. I remember one of Wagoner’s last press conferences when one of the media types ask him why Saturn had not worked. He responded with something close to “everything just fell apart”.

    Like the nearly two decades of uninterrupted losses hadn’t happened, and success was just around the corner until the economy went to hell.

    No doubt books will be written, but we should probably brace ourselves for some written by the likes of Wagoner too.

    Most of the really bad dealerships will self-destruct without any help from Detroit or mean spirited zone managers.

    And why is this basic truth so hard to grasp? In fact, having “too many” dealers serves to make this more likely by putting in place a kind of survival of the fittest process. A common complaint on Edmunds and other boards concerns shitty Toyota dealers. Setting things up so even poor dealers (from the customer’s perspective) thrive can not be good for the manufacturer long term.

  • avatar
    Steven Lang

    Actually many of the Wall Street bankers have established their own merits before getting into that world. The stereotype of a young graduate going to an investment bank and spending most of their life playing with numbers is not true. Most of these folks have been engineers, managers, and yes…. successful entrepreneurs.

    What you have now are two companies literally spewing red ink in the tens of billions. My solution would be for them to just go bankrupt and reorganize, if the business model justifies it. As it is they’re getting more help and support than any company in a capitalist society would ever deserve.

    We need leaders who are willing to make unpopular choices. Some of them are being made, some perhaps not. As for ‘decimating’, these companies are worse than bankrupt with the way things stands. They are unmanageable parasites of taxpayer dollars. Given that the dealerships shouldn’t be open at all for anything other than the planned reorganization and/or liquidation of a highly unprofitable business. None of them ‘deserve’ to be supported financially because the parent company has been hopelessly bankrupt for a long time now.

  • avatar
    50merc

    Decimation as practiced by the Romans wasn’t fully random. They used a one-in-ten lottery, but the pool of potential victims was made up of soldiers or units who had demonstrated cowardice or lack of fighting spirit.

    Just for the sake of argument, suppose GM sold cars over the Internet. Every on-line computer could become a “store.” Would it then be better for GM if there were fewer people with Internet access?

    I’m one of those who wonder why “natural selection” is insufficient to eliminate excess outlets.

  • avatar
    John Horner

    “… the pool of potential victims was made up of soldiers or units who had demonstrated cowardice or lack of fighting spirit.”

    As determined by management and documented by management’s favorite journalists :).

    “What is Ford doing differently?”

    Um, Ford isn’t doing a wholesale slaughter of a large fraction of its dealer body. To whit: “According to Jim Farley, Ford’s director of North American sales, Ford has been working to consolidate its dealers rather than close them and has already reduced its network by 700 dealers since 2005. Farley said that while Ford plans more consolidations, the numbers won’t be nearly as drastic as those proposed by Chrysler and GM. Ford currently has about 3700 dealers in the U.S.” http://wot.motortrend.com/6514810/industry-news/ford-announces-it-wont-close-dealers-reopens-plant-to-build-ecoboost-engines/index.html

    Careful rationalization of the dealer body over time makes complete sense. Sudden death decimation, on the other hand, is stupid.

  • avatar
    Packard

    It is fundamental nonsense to suggest that, because the “pros” ran the car companies into the ground, the government running them is a good idea.

    First, the “pros” didn’t run the car companies into the ground. The government did: unless you’re going to blame the “pros” for not having resisted the combined efforts of the UAW and the government to force automakers to produce cars under the Wagner Act unionism which allowed the UAW to not only pad their paychecks for work not done, but impose work rules that made profit impossible, then you’re not being realistic. If you want to indict the “pros” for that – fine. They’d deserve it, and they’d deserve it for years back.

    Absent that, though, the “pros” were dealing with a stacked deck – and a large part of the proof is in the moves Obama’s boys are now making – culling, at least on the surface, concessions from the UAW. True, those are largely illusory. But, they confirm the obvious point that the UAW is a huge part of the problem with the domestic auto industry. Most of this bailout is designed to save the UAW from the consequences of its own actions.

    And, of course, that leads to the second point:

    The car business is the single most capital intensive fashion industry in the world. Developing an all new car takes about 5 years and $10 billion. And, the point of no return on it is about three years in. At that juncture, it’s either go or no go on the large investments for production. If, at the end of that, tastes have changed and the vehicles don’t sell, then that money’s all down the drain. And even if it does sell at first, if tastes change during the model cycle, you can still lose your shirt. (Ask Mr. Wagoner about the taste for large SUVs.)

    There is no way that a government mandated anything can deal with public tastes – EXCEPT by doing what governments were designed to do: mandate conduct. Government can only make cars “profitably” by eliminating consumer choice and forcing consumers to buy what the government will allow to be sold.

    This whole Obama car industry thing is going to be a disaster in every conceivable way. It’s going to cost the taxpayers a mint. Right now, Obama’s stuck over $25 billion into GM just this year. None of that has done anything to recapitalize the company. None of that has done anything to develop new product. None of that has done anything to alter the GM cost structure. All of it has been wasted money.

    But the sum total of product vision from Obama’s crew is some sort of “green” car for a “green” world in which the government’s carbon taxes impoverish the consumer.

    Cars have always been about personal freedom. That’s why a kid always wants a car as soon as he or she is 16. It’s why people buy cars as their first big new ticket expense. It’s why cars are always fashion items – freedom leads to expression, and a car is often a form of both.

    People like Obama, however, dislike personal freedom. They want to force people to do what they consider superior. That’s why such people always want to force folks onto buses – it’s the antithesis of choice.

    Obama’s going to run into one large problem, in all of this. Money.

    Taxpayers are going to say they’ve had enough, a lot sooner than Obama thinks.

    And customers are going to be the first ones casting their vote against Obama.

    But, cars are only a preliminary. Wait’ll you see how these people want to screw up health care.

  • avatar
    Dynamic88

    John Horner

    Thank you for your reply.

    It appears then that Ford has been killing dealers since 2005 – exactly what all the D3 should have been doing. It also appears they are “killing” them in a kinder gentler way.

    I still don’t see why “sudden decimation” is “stupid”. We seem to agree that reducing the dealer network is necessary. Is it just the spirit in which it’s being done that bothers you?

    Consider the number of dealers here where I live;

    Chrysler – 4 within 20 miles.

    Dodge – 4 within 25 miles

    Jeep – 4 within 20 miles

    Chevy – 10 within 25 miles.

    Cadillac – 1 within 25 miles

    Pontiac – 4 within 25 miles

    Saturn – 2 within 25 miles

    Buick – 5 within 25 miles

    GMC – 6 within 25 miles

    Hummer – 1 within 25 miles

    Saab – 1 within 25 miles (Interestingly, the Saab dealer is also the Dodge dealer – selling both brands on the same lot)

    Tell me how to get rid of half these dealers w/o “decimation”. The dealer network is appropriate to 1978.

    Ford may not get as much bad publicity, but they aren’t going to get rid of excess dealers as fast as GM/Chrysler. My prediction – Ford will step up their own culling.

  • avatar
    Dynamic88

    It is fundamental nonsense to suggest that, because the “pros” ran the car companies into the ground, the government running them is a good idea.

    For the record, I wasn’t suggesting that. In fairness, maybe JH wasn’t suggesting the pros could do a better job either. I thought I saw an implication – but I may have read into it.

    First, the “pros” didn’t run the car companies into the ground.

    Baloney. Pure, complete baloney.

  • avatar
    George B

    The retail customer knows that the cars that they see sitting on the dealer lots for weeks and weeks will eventually go on sale. The real cost savings in reducing the number of dealers would come in the form of reducing the money manufacturers spend on rebates and incentives to move stale inventory.

  • avatar
    ruckover

    Packard,
    Thank you. I had forgotten that unions caused the decline of Detroit. Man, if only those shiftless workers had bolted the Cavaliers/Escorts/Horizons together with more skill and enthusiasm, those Civics/Corollas/Proteges never would have had a chance. Great engineering; crappy construction–it’ll get you every time.

    As a person who had no healthcare for a decade, I am willing to see how these people screw it up.

  • avatar

    I thought the first moves toward profitability would be to fire the UAW, move everything to Alabama, poach Hyundai’s factory designers and conduct public executions on the Washington Mall of everyone above the rank of project manager; -with especially medieval attention paid to the BOD and the designers of the Sebring.
    Oh well…

  • avatar
    The Walking Eye

    Matt, re: Rohrman

    He has dealers in Lafayette, Indianapolis (only Indy Honda West) and the Chicago area. He sells all the imports in Lafayette and is well known here for having the worst service and customer experience. I’ve never gone to a Rohrman dealership w/o being immediately pounced on by a slick-rick salesman. I say good riddance to them.

    They may have a large base and a healthy overall company, but this seems to be one where Chrysler’s culling a crappy service dealer.

    Edit: He also runs ads for the Lafayette area as simply Rohrman and not specifically Jeep. He doesn’t sell Chrysler here, only Jeep, and I can’t ever recall one of his commercials being targeted at a single make.

  • avatar
    mel23

    Thank you. I had forgotten that unions caused the decline of Detroit. Man, if only those shiftless workers had bolted the Cavaliers/Escorts/Horizons together with more skill and enthusiasm, those Civics/Corollas/Proteges never would have had a chance. Great engineering; crappy construction–it’ll get you every time.

    As a person who had no healthcare for a decade, I am willing to see how these people screw it up.

    Exactly. I have excellent health care, but for those who don’t, damn near anything will be a huge improvement.

    One societal benefit from this little downturn we’re experiencing is that thousands of haves will find out what life can be like when the ball bounces in a way not in their interest. Ross Perot never could get it through the heads of the other GM board members that many of the line workers were just as smart as they were. They just didn’t have the parenting, guidance and advantages that the more successful in society had.

  • avatar
    Qwerty

    I’ve been seeing comments on this site since I started reading it that American auto makers have too many dealers. Then, as soon as Detroit FINALLY awakes from it’s stasis, and reduces it’s dealer network, people chime in that they shouldn’t make that move. I’m confused.

    It is really pretty simple. If the businessmen who drove the company into the crapper make the decision then it is okay. If someone from the governement makes the exact same decision then it is a travesty of justice.

  • avatar
    afabbro

    When GM killed Oldsmobile, it paid $1 billion in costs to close all the Olds dealers. That I understand.

    In this case, since it is killing four brands (Pontiac, Saab, Hummer, Saturn), perhaps the bankruptcy courts/PTFOA allows them to circumvent paying that money to all the Pontiac/Saab/Hummer/Saturn owners protected by state franchise laws. I would understand that, too.

    But that’s not what’s happening. Among the mix, they’re closing Chevy dealers, Buick dealers, etc. I fail to see how this helps them.

    Let’s say that Nike had thousands of stores that sold its shoes. Additionally, it finances the inventory of these shoes, which is a profitable business. Over time, they face increased competition from Adidas. Does Nike go through and slash all of the stores? No. The stores are independent dealers, and they may order fewer shoes. In that case, the right thing for Nike to do is focus on making more desirable shoes. Closing stores only deprives them of selling outlets.

    Same thing for Chrysler, which doesn’t even have the “we’re chopping brands” argument.

  • avatar
    PeteMoran

    With the greatest of respect to the author and commentary here, the argument is just plain silly. The problem is saturation.

    I’m reminded of the Simpson’s Starbucks joke; Bart get’s a coffee at the mall, when he comes out, another Starbucks is opening next door to the one he just came out of! There just aren’t enough customers to go round. You know how that would end ultimately.

    Apply the analogy to cars and see why Dealers have to go. Ford too, but Ford will benefit not because they retain dealers, but because their market share might rise. What they MUST do is ensure those dealers are viable/profitable.

  • avatar
    Matt51

    Hi Walking Eye,
    He owns Honda on the south side of Indianapolis. That is a huge dealership. I never heard anyone complain about this dealership.

  • avatar
    John Horner

    “Let’s say that Nike had thousands of stores that sold its shoes. Additionally, it finances the inventory of these shoes, which is a profitable business. Over time, they face increased competition from Adidas. Does Nike go through and slash all of the stores? No. The stores are independent dealers, and they may order fewer shoes. In that case, the right thing for Nike to do is focus on making more desirable shoes. Closing stores only deprives them of selling outlets.”

    That is the nub of my argument. You don’t fix the product desirability problem by slashing the sales channel. The lack of product desirability is the first order problem, and nothing in the announcements from GM in particular addresses that core problem. Chrysler is trying to attack the desirability problem with a hurry up plan to retool Fiats for the US market. Renault-AMC tried that very plan with horrible results in the 1980s. Renault eventually gave up and sold AMC off to Chrysler whist retreating back to France.

    Swinging the hatchet through the dealer body is going to mean even lower sales and even lower profitability (uh, bigger losses) for GM and Chrysler. The most profitable aspect of being a car company is selling spare parts. Every time a dealer closes, some number of that dealer’s repair customers end up going to independent repair shops. Independent repair shops get the vast majority of their parts from aftermarket suppliers. Just one more way to shrink the revenue base for GM and Chrysler without a matching reduction in overhead or fixed costs.

  • avatar
    mkirk

    One societal benefit from this little downturn we’re experiencing is that thousands of haves will find out what life can be like when the ball bounces in a way not in their interest. Ross Perot never could get it through the heads of the other GM board members that many of the line workers were just as smart as they were. They just didn’t have the parenting, guidance and advantages that the more successful in society had.

    Ahh yes, the heroic, self sacrificing UAW worker striving to make the best of crummy designs created by those evildoer salried, tie wearing employees and singlehandedly keep the US auto industry on top in spite of evil managements best efforts…(Cue Aaron Copelands “Fanfare for the Common Man”)

    What a bunch of tripe!!!

    I had great health care but could not afford it. As health care and employment stability was a priority to me, I resumed my military career and joined the Army. There are a lot of people out there who have had genuine bad luck. I would venture to say however that most are in these situations either due to poor decision making or an unwillingness to work a job “beneath” them or more difficult than there current job. I have seen way too many foreclosure “victims” with 40k+ vehicles in said foreclosures driveway to feel too much sympathy anymore.

    Yes, It is a harsh attitude but sometimes we need to make tough calls and be responsible for bad ones. I had priorities for my financial stability and as such I will spend the upcoming year in Afghanistan or Iraq and must drive a 20 y/o NA Miata instead of the Solstice or Sky I wanted (speaking of bad decisions…I dodged a bullet there).

    Times change and the fact that people must change occupations and lifestyles as a result sometimes is part of that. No one bailed out Atari when Nintendo came about. And what of Kodak and the digital camera revolution. Drive in Theateres, hotels on Route 66, drive through liquor stores, The Milk Man…all largely gone, not propped up after there time had passed by still productive industry. America does not owe anyone much of anything short of staying out of ones way and ensuring folks have a shot, even if some folks have to work harder. Software Engineer to Combat Engineer is no picnic. Notice I didn’t mention healthcare. If that is your priority then McDonalds has great health care and is generally known to treat career employees well, or are you owed a better job?

  • avatar
    mel23

    @mkirk

    It’s not tripe at all. Look at the percent of kids now being raised by single parents with low education levels. Sure those kids will likely make poor life choices since what guidance they’re given comes from someone nearly as clueless as they are. Ever been lost and asked someone for directions? What happens when the directions are wrong? You don’t get to where you want to be. So apply that to life. So many kids are misdirected because they’ve been misdirected. I posted something a week or so ago about the percentage of kids here at risk of hunger. (Which really means going hungry). It’s about 20% nationally as I recall. Another recent article described recent research regarding how stress in kids raises cortisol levels which inhibits short term memory. Hence poor learning. So take all the pride you want, but lots of people never got a fair shot.

    IMO what america ‘owes’ people is what we thump our chests about providing. Equal opportunity. No way we’re even close without adequate care of our kids including nutrition, healthcare and education that is not dependent on the wealth of the neighborhood where their school is located.

  • avatar
    mkirk

    mel23

    As a former high school teacher I stand by my assertions. As I stated, goverment needs to stay out of ones way and in the case of public education, It is in the way.

    I do agree with you about children of single parents however. The erosion of the family unit and, I feel at risk of being flamed, the stay at home parent (mom or dad) has done more to hurt children than even government schools.

    The schools however do a great deal of damage by not enforcing accountability for ones actions. Many of the single parents that I taught (11th-12th grade) enforce this. I had a 16 y/o male with 5 kids, none of which he was remotely supporting. He as well as the 3 of the 4 mothers (one mother had 2 of his kids) all eventually dropped out. That kid should have been in a vo-tec program so he could provide as soon as possible and working rather than the required college prep program. His decisions pretty well ruled out college as he wasn’t much of an athlete or student.

    I did have some real tough luck cases (no parents, both cracked out and raising other family members), It’s heartbreaking but some went on and even got into college locally. Some didn’t. Schools could do a lot better in both instances.

    I totally agree with your assertions on “the wealth of the neighborhood”. I taught high school in a pre desegregation elementary school building. While the kids across the bridge went to a palace with a food court (my current MRE diet beats the lunches where I taught). I’d put em all in good quality quanza huts, cut administration above the principal level and let teachers negoiate there own contracts. I always resented getting paid the same as the lowest performing teachers.

  • avatar
    ruckover

    mkirk,

    I am willing to get flamed, also. Our society has lost its sense of shame. While shame can certainly be a personally debilitating emotion, there is an aspect of it that is good: it enforces societal standards; it keeps our actions in check, for we would not want to be seen failing to live up to the ideal. There is a reason the Homeric world used aidos (shame) as a battle cry; the hero reminded himself to live up to the “ego identity” he had created through previous heroic acts (Dr. Douglas Cairns).

    How can kids learn proper behavior when we refuse to demand proper behavior? Be it a deadbeat dad or a Bernie Madoff, we don’t worry about how we will be seen and remembered.

  • avatar
    folkdancer

    The first step in getting rid of an assumption is realizing you have one. I too had made the assumption that cutting dealers was a priority. Now I am not so sure. Thank you for this blog. Waiting for the management books that will explore what worked and what didn’t.

    In a previous blog I wondered what it cost an OEM to have a dealer. GM has to send out 7,000 information packets, memos, maintain “keep track of” files, etc vs. Toyota’s 1500.

    Even if killing dealers turns out to be a good idea this is a bad time to generate even more bad publicity. Ford’s quiet approach is certainly a better idea for now.

  • avatar
    John Horner

    Here is another thought to consider. Many of Toyota’s dealerships treat their customers infamously badly. How many potential customers has Toyota lost because of poor dealership experiences?

    One thing a sparse dealer body does is to minimize competition between dealers, and thus prop up bad dealers who do not have to deal with a better competitor taking their customers.

    The present fad is to assume that fewer dealers means better dealers. I don’t buy it. My experiencs with the big mega-chain dealers have been much worse than my experiences with carefully chosen family run dealers. Unfortunately, the great family run dealership is becoming another casualty of the bigger is better dogma. Will the world really a better place when Wal-Mart and Auto-Nation hold all the marbles?

  • avatar
    amadorgmowner

    This article is right on. PTFOA are bankers they are not car manufacturers or designers. The only thing having fewer dealers does is reduce the ability of customers to have local access to products (the ones they want to buy). The problem over the years is shitty product. That is not the fault of the loyal dealers.

    What a dealer closing does is anger the current customer base to the point in which they won’t buy any product anywhere because they feel betrayed by the manufacturer. Here in Amador County, California, we had a very successful GM/Toyota/Dodge-Chrysler-Jeep dealer get cut off by GMAC after the owner was 30 days late on his mortgage payment to GMAC on his less-than-one-year old facility. The owner tried before the closure to re-negotiate with GMAC but they would not. They get bailed out and still would not talk.

    Community rallies to save the dealerships – even calling in the national media (CBS News) to do a story on it. What it looks like to us locals is that the big guys get bailed out, but a local successful dealer (over one million in sales for GM since 1975) gets the shaft from GM and GMAC.

    Now there are NO local new car dealers within one hour and customers are so pissed they will never buy another GM car again (I won’t – I’ve owned GM cars for 20 years – but no more.) We’ve had our loyalty violated and frankly since GM and GMAC don’t care about their customers why should we buy from them again?

    We have a brand new facility sitting empty – and guess who’s now paying the bills on it awaiting the fire sale? Us customers and taxpayers. Let the marketplace close dealers. Arbitrarily closing dealers only further destroys the customer base and any remaining brand loyalty. Especially when the customers are footing the bill for the manufacturers and financiers survival.

  • avatar
    Dynamic88

    That is the nub of my argument. You don’t fix the product desirability problem by slashing the sales channel.

    True. But it doesn’t help to have an oversaturation of dealers in many markets – that doesn’t improve product either. Some of the captial expended supplying dealers could be used to improve cars.

    Swinging the hatchet through the dealer body is going to mean even lower sales and even lower profitability (uh, bigger losses) for GM and Chrysler.

    It’s not going to mean lower sales of cars, unless they are very stupid about which dealers to close. As I mentioned in a prior post, I have 10 chevy dealers to choose from if I’m willing to drive 25 miles. To me, a 25 mile drive is a long way. Some people drive that far for bread and milk when they run out. Getting rid of half the Chevy dealers in my area isn’t going to make it difficult to buy a Chevy.

    Here is another thought to consider. Many of Toyota’s dealerships treat their customers infamously badly. How many potential customers has Toyota lost because of poor dealership experiences?

    I agree, to a point. But who are they loosing to? My guess – the nearest Honda or Nissan dealer. Is anyone rushing to their nearest Pontiac dealer for a comparable car and better service than they get at the Toyota dealer? No. Aditionally, having too many dealers doesn’t seem to improve the customer’s experience either – plenty of anectdotal stories about lousy service at the local GM/Chrysler dealer, even though there is another one, just a few miles away.

    The present fad is to assume that fewer dealers means better dealers. I don’t buy it.

    I don’t buy it either.

  • avatar
    Dynamic88

    I just did a bit of research. I used Chrysler’s dealer finder to locate dealers by zip code. I went to the list of dealers closing in my state (Mich.) and entered the zip of each dealer to see if there was another within 25 miles.

    I found one and only one case where customers will have to travel more than 25 miles after their local Chrysler dealer closes -Riverside Auto Sales of Marquette. Riverside’s customers will have to go 57 miles to Riverside Auto and Truck Sales (presumably the same owner) in Iron Mountain. Or, if they prefer, they can drive 57 miles to Riverside Auto Sales in Escanaba. No other customers in the state of MI will have to go more than 25 miles to get to the next nearest dealer.

    Now some of the dealers are Jeep only, and technically there may not be another Jeep dealer within 25 miles – it’s hard to tell from the list because they don’t always list every line sold at each dealership. Anyway, I’d assume service can be done at any Chryco dealer, and if there is demand for the Jeep product, one of the other local dealers may pick up the Jeep franchise.

    So, I think it’s a fair statement to say that only in Marquette are loyal Chrysler/Dodge customers going to have to drive more than 25 miles to their next closest dealer. In reality, for the vast majority, there are 3 more dealers less than 20 miles away.

    I realize it will play out differently in KS or even rural CA – but hey, Michigan’s UP is pretty sparsely populated. There may be a few cases where the next dealer is 100 miles away. But for the most part, no, there will be no great difficulty getting to the next nearest Chrysler/Dodge/Jeep dealer to buy a car or have yours serviced.

    I’m calling baloney on the idea that fewer dealers will translate into fewer sales – to any significant degree. The saturation is such that few people will have to drive very far to find another Chrysler dealer. I would guess that it will play out the same way with GM.

  • avatar
    Dynamic88

    Just for the heck of it, I did Montana. Only 3 dealers are closing in MT. In 2 cases people will have to travel more than 25 miles (89 miles and 42 miles). I would assume people in Montana are used to traveling such distances to shop. What seems like a reasonable driving distance will be different, depending on what people are used to, which often depends on population density.

    In KS exactly NONE of the dealers closing are farther than 25 miles from the next nearest dealer.

    I don’t have the time to go through all 50 states, but I think this little bit of research gives lie to the notion that vast swaths of rural America will be any worse off after the dealer cull.

  • avatar
    Dynamic88

    I couldn’t resist looking at Hawaii, as I used to live there.

    The island of Maui is going to loose it’s Dodge dealer. The next closest dealers (either Chrysler or Dodge) are on Oahu. It’s not only a long swim, but you’d have to have the car ferried back to Maui. In this case I’ll have to agree with the editorial, the closing will impact sales. There will probably be fewer Dodges on Maui in the future.

  • avatar
    tonycd

    “The scariest words a businessman will ever hear, ‘I’m from the government, and I’m here to help you.’”

    “Cars are only a preliminary. Wait’ll you see how these people want to screw up health care.”

    That first clever bromide, of course, was delivered by Ronald Reagan. How’d all that deregulation work out for you?

    As for the second one, the richest nation in the world has the worst health care in the First World. We lag our peers badly in both lifespan and infant mortality, yet are burdened with health insurance costs so high they drive industry out of this country. Private insurers siphon something like 20% of their take into their own pockets, while Medicaid returns 97% of the expenditures to providing care. What’s the real evil here?

    The economy lies in ruins. Thousands more lose their livelihoods daily. We remain mired in two, count ’em two, ruinous wars. Your civil liberties have been gutted. All by the movement begun in 1981 and brought to its logical conclusion in the train wreck of the past eight years. And still, all that some of you can do is move your lips to tired nostrums fed to you by corporate-funded speechwriters who’ve got their forearms up your abdominal cavities. Don’t tell the rest of us how to think until you’ve tried it yourselves.

  • avatar
    cardeveloper

    mel23 :Ross Perot never could get it through the heads of the other GM board members that many of the line workers were just as smart as they were. They just didn’t have the parenting, guidance and advantages that the more successful in society had.

    Do you have any idea what you’re saying? There is no way a line worker making $25 per hour is anywhere near the intelligence of one of these CEO’s… probably smarter.

    But, as I’ve said many times before, the auto business is extremely complex. The press, many here, our wonderful govt, the high and mighty bankers, have over simplified the business, and we’re seeing an even bigger cluster F then before.

  • avatar
    John Horner

    “It’s not going to mean lower sales of cars, unless they are very stupid about which dealers to close.”

    Post slaughter there are soon to be no Chrysler dealerships serving San Francisco, Oakland, Berkley, Palo Alto and the surrounding cities. Over 4 million potential customers, many in the perfect demographic for Fiat designs, now will have no dealers. Toyota has over a dozen dealers over that same area. Therefore it seems crystal clear that Chrysler’s slaughter was done mindlessly.

  • avatar
    holydonut

    And here’s an example of a dealer that sells all 3 brands and has Chrysler’s “Five Star” designation (which presumably meant the dealership had adequate showroom investment and customer feedback). And the dealer asserts to sell about 60 cars a month and hasn’t missed the payments to finance its inventory.

    http://www.reuters.com/article/CARMFG/idUSN2553487520090526

    I guess it turns out his store is just located poorly as it’s situated with other Jeep stores on the West-Side of Chicago. I’m sure the other 7 or so neighboring dealerships will see an uptick in sales as some of the customers will gravitate towards other dealerships.

    But it is difficult to understand the decision to lump in this dealer in with hundreds of others and label them as all underperforming. Imagine if you operated that dealership – it’d make even less sense.

    I don’t think the dealer-cull was done with enough transparency and planning. Granted, the BK scenario has been used to explain how careful planning is the enemy of success… so it’ll be impossible to proceed in a well-planned manner.

    I believe Arthur Dent received a better explanation regarding cosmic eminent domain than what has been communicated thus far to some of Chrysler’s dealers.

    http://blog.chryslerllc.com/blog.do?id=684&p=entry

  • avatar
    geeber

    Dynamic88: First, the “pros” didn’t run the car companies into the ground.

    Baloney. Pure, complete baloney.

    People are talking about two different things here.

    There are “pros” in the auto industry, and there are people who actually understand the product – what are known as “car guys” (or car gals).

    Rick Wagoner is a good example of the former. He spent his entire professional career at GM. He knew the financials of the corporation inside and out. But he did too little to reverse its decline, and he knew so little about cars that he had to bring in someone from the outside – Bob Lutz – to revamp GM’s vehicle development processes. A telling move, although it was too little, too late.

    Car companies flourish when there is a proper balance of power between the financial people and the people who understand and love cars. This balance was present in GM through the late 1950s, and the corporation built some of the American automobile industry’s most memorable products during that time.

    In the 1960s, the relationship began to shift in favor of the financial people. It wasn’t an instantaneous process, so there were still pockets of enthusiasm within GM. But by 1965, the handwriting was on the wall (in retrospect, at least). This transition was chronicled by David Halberstam in The Reckoning (although his book focused on Ford more than on GM), Richard Stout’s book Make ‘Em Shout ‘Hooray!’ and John DeLorean’s book, On a Clear Day, You Can See General Motors.

    GM was run into the ground by financial men. They were automobile industry pros in every sense of the word. What they weren’t was “car guys.”

  • avatar
    Dynamic88

    Post slaughter there are soon to be no Chrysler dealerships serving San Francisco, Oakland, Berkley, Palo Alto and the surrounding cities.

    I’m not seeing a single closure in any of the cities you mentioned. The list I’m using is on Edmunds’ site.

    http://www.edmunds.com/industry-car-news/chrysler-dealerships-closing.html#CA

    I don’t know enough about CA to know what the “surrounding communities” are, so I can’t comment on that.

  • avatar
    laddy

    I’m not sure that closing list is accurate. There are at least two Chrysler dealerships in my area that received notice that aren’t on the list looking at either the city, dealership name, or dealership holding company.

  • avatar
    Dynamic88

    I’m not sure that closing list is accurate. There are at least two Chrysler dealerships in my area that received notice that aren’t on the list looking at either the city, dealership name, or dealership holding company.

    Interesting. The “official list”, exhibit A, isn’t arranged by state, or alphabetically. It would take for ever to double check the edmunds list against exhibit A.

  • avatar
    Rix

    Rumor has it that the senior Obama administration officials on the Presidential Task force specifically targeted Republican political donors and forced some of the specific shutdowns on the auto companies against their will. Specifically, the allegations are that Obama administration officials chose an ‘enemies list’ of dealers to be cut, not the auto companies. This rumor is all over the conservative blogosphere right now. Can anyone confirm this?

    Example A: Clinton associate Mack McLarty keeps his six Chrysler dealerships.
    http://gatewaypundit.blogspot.com/2009/05/hope-change-marxism-did-obama-target.html

    Example B: Many republican donors have their businesses closed.

    http://libertarianrepublican.blogspot.com/2009/05/government-shutting-down-gop-owned.html

  • avatar
    John Horner

    The political hit list rumors are rust more wingnut bs.

    http://www.fivethirtyeight.com/2009/05/news-flash-car-dealers-are-republicans.html

    For the list of the five bay area Chrysler dealers being shut down, look here:

    http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/05/15/BUC617KN5T.DTL&hw=chrysler+dealer+closed&sn=003&sc=155


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