By on September 23, 2009

(courtesy files.gorongosa.net)

One of our sources e-mailed me a copy of GM’s pre-bankruptcy dealer strategy, including the formula deciding which dealers lived and which ones died. [Download PDF here] According to the doc, the proto-nationalized automaker pegged its ‘ideal’ dealer total at 3,380. Only, Fritz Henderson’s mob overshot their target by 220: “objective performance criteria yielded approximately 4,100 dealers vs. 3,380.” Flash forward to today, and Automotive News [sub] reports, “The House’s No. 2 Democrat said lawmakers may try to revive stalled legislation to reverse dealer terminations if General Motors Co., Chrysler Group and dealer groups don’t sit down soon to begin negotiating a settlement.” Hang on; where’s the Presidential Task Force on Automobiles in all this? Meanwhile, Senator Grassley said “it’s important for Congress to get an explanation from the manufacturers as to how they determined which dealers would be terminated and which would be retained.” Well, now you know.

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25 Comments on “The Truth about GM’s Dealer Cull...”


  • avatar
    segfault

    Where’s the complete list of the winding-down dealers? (The ones that have announced as well as the ones who haven’t.)

  • avatar

    segfault:

    I’ve been trying to get that list since the cull was announced. Despite the fact that we OWN GM, the company and senators Whitehouse, Shelby and Rockefeller refuse to help me get the list.

    [You may recall that Rockefeller demanded the “dead dealers trading” list from Henderson during Congressional hearings. Henderson said “I would do anything for transparency. But I won’t do that.” Rockefeller said “OH YES YOU WILL.” Henderson said, well, OK then. You’ll have it by tomorrow. And then . . . nothing.]

    PS Please excuse the typos. I no longer have the ability to edit my posts post post.

  • avatar
    motownr

    Great find, RF.

    I think the ‘savings’ can be best summarized by “Look at how much money we can save for every customer we lose!” They have the savings per store/deal…but what about the gains for each incremental sale?

    The Chrysler ‘analysis’ is the one to wait on; from personal experience, the whole ‘system’ is laughable.

    One great example: in GM factory towns, Chrysler estimated that GM’s presence in the market cost each Dodge dealer ONE car a period in lost sales. The factory’s position was/is that even though the typical Chrysler lease payment for a midsize vehicle averaged $75-100 MORE/month (due to wide availability of GM discounts), the difference wasn’t enough to really make a difference in total sales penetration.

    Would anyone of sound mind really pay $1/month more for a Sebring than a Malibu/Aura? Chrysler’s model equates to “YES INDEEDY!”

    The sad thing was that the stat guys in the room knew that the model was GIGO…it was the factory retread reps that bought the output hook, line, and sinker.

  • avatar
    gslippy

    Aren’t there crickets and spiders in these dealerships now? Seems a little late for the politicians to be interfering; I thought they were done with that already.

    Nobody can possibly argue the revival effort has anything to do with good business sense (“I don’t know where to buy a Chevy!”), but everything with politics… more precisely, with buying votes in Congressional districts by restoring zombie jobs.

  • avatar
    WetWilly

    Chrysler has already previewed their math, and it’s really, really good. When Jim Press testified before the Senate, his calculation was that the 789 underperforming dealers cost Chrysler $1.5 billion. How did they arrive at that figure? Press said that those 789 dealers should have sold 55,000 more units than they did; the loss of those sales cost Chrysler $1.5 billion. That’s also ignoring the $232,000 per dealer Chrysler claims they incurred supporting those dealers ($150 million in advertising/marketing and the $33 million in administrative costs).

    http://abcnews.go.com/Business/wireStory?id=7799642

    With math skills like that it’s no wonder Jim Press is in trouble with the IRS.

  • avatar
    segfault

    @WetWilly:
    I get it! If it weren’t for the underperforming dealers, Chrysler would have 30% market share in spite of their awful product lineup.

  • avatar
    motownr

    @WetWilly:

    The actual Chrysler sales effectiveness methodology isn’t that much more sophisticated once you strip out the mumbo jumbo (topo maps, crop yield histories, etc). If the factory hadn’t pissed away untold millions on the junk science, and used it to harass countless dealers, it would be high comedy.

    Sadly, all it did was contribute to an implosion whose cost is far from being over for the taxpayer.

    One of the Lutz-era guys who quietly consulted with Cerberus once they realized that Press and Nardelli weren’t the answer has let it be known that the ‘New’ Chrysler isn’t going to make it. FWIW.

  • avatar
    flintisover

    Even though this strengthens the TTAC snarky position, I have to point out that 4100 – 3380 = 720. I guess there is no sense in double checking math or facts during the middle of the feeding frenzy.

  • avatar
    rnc

    It doesn’t matter what congress does, unless they amend the constitution any law they pass regarding the dealers (culled under bk) will be thrown out by the courts.

  • avatar
    TexN

    There was a plan!?!?! Color me impressed!!! I would have thought these idiots would have just brainstormed dealer names on the back of a cocktail napkin after having a few pints or the always popular “darts thrown at a list of dealers” option for decision making. A plan?!? Who knew?

  • avatar
    segfault

    GM’s owned by the taxpayers now, and the taxpayers want to see its “source code.” Time for the world’s first open-source car company.

  • avatar
    John Horner

    It is interesting that nothing in GM’s analysis even attempts to account for the future sales which would be lost with fewer dealers. The smaller dealer body is going to sell fewer units than the larger dealer body did.

  • avatar
    CyCarConsulting

    If Toyota has approx. 1,500 dealers, why would GM need 3,380? Last time I checked Toyota had a much larger market.

  • avatar
    fincar1

    We know less about the biography of the current President than of any previous President. We do know, though, that he steeped himself in the Chicago way of running things before he became President. I do not understand why anyone would think his administration would be “open-source”.

  • avatar
    rnc

    CyCarConsulting:

    The main reason is that Toyota (16%) is dominant on the coasts (California, mid-atlantic, NY and NE) where the population is much more concentrated, and GM (19%) has retreated to middle america and the rural area’s of the east where the population is dispersed. But yes having fewer dealers will help. TTAC used to say that GM had to many dealers and now that they got rid of some that’s wrong? Having so many dealers has GM competing with itself basically (4 dealers in the same area will compete with each other on price rather than competing with toyota and ford)

  • avatar
    rnc

    fincar1 :

    Yuppers and that last administration was the beacon of liberties and freedom of information.

  • avatar
    pnnyj

    “TexN :

    There was a plan!?!?! Color me impressed!!! I would have thought these idiots would have just brainstormed dealer names on the back of a cocktail napkin after having a few pints or the always popular “darts thrown at a list of dealers” option for decision making. A plan?!? Who knew?”

    Of course there was a plan. You don’t think GM and Chryco execs would be able to complete such an ambitious work of outrageous stupidity without a plan do you?

  • avatar
    George B

    “The House’s No. 2 Democrat said lawmakers may try to revive stalled legislation to reverse dealer terminations if General Motors Co., Chrysler Group and dealer groups don’t sit down soon to begin negotiating a settlement.”

    Does anyone think lawyer congressmen (or GM and Chrysler management) will do a better job of picking the correct number of dealers than the consumers and creditors of the market? Central planning will always make stupid mistakes due to the lack of local knowledge.

    http://www.virtualschool.edu/mon/Economics/HayekUseOfKnowledge.html
    …Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to co-ordinate the separate actions of different people in the same way as subjective values help the.individual to co-ordinate the parts of his plan…

  • avatar
    kurkosdr

    John Horner: The smaller dealer body is going to sell fewer units than the larger dealer body did.

    No. You got it backwards. The big body is yet another remainder of the glorious past, when GM owned half or more of US car sales. In these times (and yes, most of the dealers date back to those times, why someone would like to start a GM dealer when it started going under?) the many dealers where necessary to service the high demand. Now, they are just redundant and overlapping to each other.

    If you have one steak and there are 20 persons to feed, it’s better to feed the 5 of them and let the other 15 out, rather than share it fair and have everybody starve. But GM not giving any list to the public that bailed them out, and the method they made the cut is bad for them.

  • avatar
    Deepsouth

    Terminated dealers will remain deceased. Our family held one of those points killed by GM. My family worked our buns off for GM. Now, we painfully understand it’s gone forever. Luckily, our family also acquired and held multiple import franchises in separate locations. Who would ever thought a Hyundai store would eclipse a GM franchise? Hate to say it, I think it’s just a matter of time with GM’s demise.

  • avatar
    FreedMike

    CyCarConsulting :
    September 24th, 2009 at 11:18 am

    If Toyota has approx. 1,500 dealers, why would GM need 3,380? Last time I checked Toyota had a much larger market.

    GM has kept lots of dealers in small towns; you can’t find a Toyota store in anything smaller than a city of 30,000 or so.

  • avatar
    FreedMike

    From my little corner of the world, the closures make sense and may have been a case of overprofileration in a growing market (Denver).

    Two Chrysler/Dodge/Jeep dealers closed, but there are two far stronger stores within 15-20 minutes. Ditto for the local Chevy dealer, which is slated get euthanized. Rumor has it they’ll switch to Buick/GMC.

    The common thread: all three dealers are in newly developed suburbs, and all opened after 2000.

    It’s a shame, but anyone who had ever shopped these stores knew they weren’t setting the world on fire sales-wise.

  • avatar
    FreedMike

    Deepsouth :
    September 24th, 2009 at 7:29 pm

    Terminated dealers will remain deceased. Our family held one of those points killed by GM. My family worked our buns off for GM. Now, we painfully understand it’s gone forever. Luckily, our family also acquired and held multiple import franchises in separate locations.

    My condolences – I know this must be difficult for you and your family. I do have question, though – how was your GM store doing sales-wise compared with other local stores?

    In my area, the Chevy store that is set to close is a new dealer (opened 2004) that was within 20 minutes of a very high-volume Chevy dealership. Similar story with the local Chrysler store.

  • avatar
    Deepsouth

    @Freedmike. The store made it’s sales and CSI factory mandated goals on a consistent basis. However, it was in a less populated area. The bulk of the sales came at the expense of a larger volume GM dealers in a neighboring towns. While it’s not pleasant to take the loss. It was not completely unexpected.

  • avatar
    FreedMike

    @Deepsouth:

    Thanks for the info. That sounds pretty consistent with what happened here in Colorado – dealers in outlying areas got whacked in favor of dealers in more populated areas.

    Hope all goes well for you.


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