Buick and the Detroit Zombies

By Andrew Dederer
April 25, 2008 - 13,841 Views

There’s an often-repeated statistic: U.S. Buick dealers sell just four cars per dealer per month. It’s true, but c’mon; that was last year’s totals. In March, Buick sales slipped to three cars per dealer. Thanks to TTAC’s Frank Williams, I’ve had a chance to examine the exact dealer and sales stats for the Beyond Precision people. Having deconstructed the data, I can declare that this seemingly absurd three cars a month number, while strictly true, isn’t the whole story. The “whole story” is much worse.

First, to be strictly accurate, the 36 cars per Buick dealer per year stat doesn’t include trucks. Add-in Enclave sales and you’re up to 60 sales per dealer per year. (Only Ferrari, Isuzu and Rolls have lower averages.) You may wonder how any car dealer could survive on such meager portions. The short answer is, they don’t. GM’s 90 “exclusive” Buick dealers sell quite a bit more than a car per week. The problem isn’t these Buick stores; it’s the “dualed” and “tripled” Buick franchises; 29 of them for every solo dealer.

To help you wrap you mind around those numbers, there are over 2700 places where you could, if pressed, buy a Buick. That “coverage” includes as many franchises as Toyota, Lexus, Honda and Acura. Combined. All to support numbers slightly larger than sales of Honda’s Odyssey. The scariest part ISN’T that the average Buick dealer sells a car a week (probably less). The bigger problem is that these franchises can survive selling so few.

One of the less-mentioned side effects of The Big 2.8’s massive brand spread and bloated dealer networks: “franchise bloat.” GM, Ford, Chrysler have about 6500, 4000 and 3500 “dealerships” (i.e. buildings) respectively. Toyota/Lexus and Honda/Acura have about 1100 stores each; Nissan/Infiniti 1000. Now, let's talk franchises. Detroit automakers have 13,000, 6800 and 8300 franchises. Toyota clock in at about 1500; Honda and Nissan have about 1200 franchisees.

Franchise glut means dealers are frequently bidding against each other on price, and fighting for product allocation. But there’s an even bigger downside for Detroit: multiple franchises give dealers greater leverage. A dealer receiving cars from two or more streams can concentrate their efforts where it’s most profitable (e.g. on whichever line is getting a marketing boost at the moment). The languishing brands can be milked for limited-allocation cars until a particular model catches fire. Or, in Buick’s case, not.

While it's been argued that single-line dealers lead to too many models spread across too many price points, at least a single-line car dealer can’t play Peter off against Paul at similar price points. In other words, they’re not hurting one brand by helping another.

But the single biggest problem caused by franchise bloat down Detroit way is that it’s made killing brands more difficult, rather than easier.

In theory, bringing in additional lines reduces the damages dealers can claim when you kill a given brand (Chrysler did this when axing Eagle). Yes, but– lopping off brands does nothing to trim the bloated number of dealers. A two or three-headed dealer may not be a money machine, but there is no real way to “starve” it.

So, when you get right down to it, the real obstacle to killing Buick isn’t those 90 stand-alone dealers. They can be bought. It’s the 2600 other guys who will still be selling GM cars when the smoke clears.

Having to pay off 2700 dealers to reduce the “footprint” by less than 100 wouldn’t work even when GM was flush. Ford is in better shape; they at least only have effectively two brands (Mercury does not exist away from Lincoln or Ford). Of course, that makes terminating Mercury completely useless from the “reducing dealers” standpoint. And pity poor Chrysler/Cerberus. It really is a three-headed dog; some 75 percent of their dealerships are multi-branded, often offering all three marques.

Hang on. If franchise glut is such an enormous problem for Detroit, why is GM consolidating their dealer networks (Buick/ Pontiac/GMC; Cadillac/Saab/Hummer)? Hell if I know. The new multi-franchise system leaves GM with the same dealer glut as before. And now, if they really want to cut Buick dealers, they’ll have to kill Buick AND Pontiac AND GMC together.

In the meantime GM will have four competing “mainstream” distribution channels (including Chevy and Saturn). Well, at least sending one or two of these mega-franchises into that long good night is [theoretically] doable. Ford and Chrysler lack even that option.

And so three-cars-per-dealer Buick is, at the end of the day, a zombie. And now that GM (and Chrysler) doesn’t have the multiple billions needed to make these problems go away, there’s only way out of this entire over-dealered, over-franchised mess. But will anyone buy a car from a bankrupt automaker? From Buick NA’s perspective, it doesn’t really matter anymore. Now that’s scary.

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64 Responses to “ Buick and the Detroit Zombies ”

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dwford :
April 25th, 2008 at 5:29 pm

At least at Ford you don’t have the same car competing against itself in the same showroom. Yes Ford and Mercury overlap on price, but you’d surprised at how few customers are willing to cross shop them. And the Lincolns, despite sharing the same chassis and most mechanicals, are differentiated enough style and content-wise and price wise to make up or downselling very hard. Try to put an MKZ buyer into a Fusion to meet a payment - ain’t happening.

Over at GM, you have the Malibu, Aura, G6, and LaCrosse all competing for the same market, with lower end G8s and Lucernes thrown in for good measure.
Dynamic88 :
April 25th, 2008 at 5:34 pm

I think GM realizes that they simply can’t get rid of dealers. Not right now. But the combined sales channels at least offer the opportunity to eliminate the model overlap between divisions. Well, sort of.

I can’t see shutting down GMC, at least as long as there is a sales channel separate from Chevy. The B/P/G dealers must be very dependant on GMC for their survival. And for that matter, GM could use those half million a year high margin sales. GMC accounts for about 13% of GM’s total sales (at least if we go by ‘07 numbers)

My question about closing GMC is this - where do the sales go?
Are we sure they go the Chevy truck? I’m sceptical because there is a Chevy dealer within a stones throw of most GMC dealers so if people wanted a Chevy truck, wouldn’t they already be driving one? I think it’s time for us TTAC branding experts to admit that sometimes badge engineering really does result in increased sales.

Getting back to dealerships - while I agree that some trimming of the ranks is necessary, I wonder how far it should be taken. Surely one reason GM still sells more vehicles in the US than Toyota and Honda combined is that some of its dealers are so far away from a Toyohon dealer that they don’t have to compete.

But then, this was an editorial about Buick wasn’t it. Sorry.
KatiePuckrik :
April 25th, 2008 at 6:04 pm

Don’t think this is just a US problem. In 2007 Cadillac sold just 4508 cars across 181 dealers across europe (this included 17 “experience centres” whatever they are). That works out to be just under 25 cars per dealer PER YEAR!

Also, Cadillac aims to sell 20000 units per year by (you guessed it) 2010. What’s the betting that’ll miss that target?

The funny thing is, GM had SAAB in Europe which was an established (pseudo) luxury brand. It could have been GM’s luxury brand for Europe and concentrated on ORGANIC growth.

Cadillac is a pointless marque for Europe. Although, technologically, the cars are good, styling wise, they are hideous! The CTS is the only one which I manage to look at without hurling! I just don’t see this brand having a meaningful future in Europe. Especially, when SAAB had some brand value to work in Europe. I think GM would have been better off using Buick over here. The cars are more curvy, rather than the straight edges of Cadillac.

The other thing I don’t get is that GM lashed out loads (and I mean LOADS) of money to set up a dealers infrastructure across Europe. Why didn’t they just allocate some space across the Vauxhall/Opel dealerships across Europe? It would have been cheaper, plus they could have a bigger flow of potential customers seeing the Cadillac range, since Vauxhall/Opel are their mainstream brands. At least this would have put the feelers out to see whether using the Cadillac maruqe in Europe would bear some growth.

Same old story, same old GM…
Jonathon :
April 25th, 2008 at 6:10 pm

I wonder if this same pattern—that standalone dealers sell more cars than ones grouped into sales channels—holds true for GM’s other divisions, too.

And I’m still trying to wrap my head around those franchise numbers. How on earth are the Detroit 3 not losing MORE money?
morbo :
April 25th, 2008 at 6:12 pm

I don’t see the problem as being too many brands for GM. The problem is too much overlap between brands due to badge engineering.

Take B-P-G. Buick’s lineup can be replicated in one division or another throughout GM. Pontiac’s lineup sans G8 and Vibe is the same thing (and the Vibe can be bought in uglier trim at the local ToMoCo dealer.

Now, instead of having all this cross compete, if Pontiac were only ‘true’ sports cars: G8, hot-rodded Solstice, maybe a blown G6 Convertible trim only, Pontiac could be a draw for consumers. Similarly, bring over some of them Chinese Buicks or bring back the ‘good’ old days of a Roadmaster, LeSabre, and Riviera (hardtop and convertible), all plush luxury + electronic goodies for the sensible doctor/lawyer, and Buick lives strong. Make GMC either pure commercial, or move all commercial, low-trim level product to Chevy and make GMC the upscale truck division, and it’s good to go.

The problem is such thinking would have to be GM wide. All Chevy’s are the value leaders, meaning no luxury Chevy’s, no Chevy (including SUV’s and Corvettes) over $30K. You want leather in your Impala, go down to the BPG store and look at a G8. You want something fancier than a 4-banger cloth interior, manual window Cobalt, go look at a Vibe at the Pontiac store. STS too expensive, the LeSabre is 80% Cadillac at 50% cost.

Saturn, I got nothing. Sell the dealer franchise to someone that wants it.

Cadillac is in pretty good shape, although alpha-numerics and FWD do not befit a Cadillac. Saab is a dead man walking, let it rot. Hummer will either become the new Jeep (complete with ripping off every Jeep design that has withstood the test of time) or Hummer will wither and rot.

Is there any reason GM can’t re-align there car production to 2-3 models per brand, and just the let the dealers that can’t live on that die?
TriShield :
April 25th, 2008 at 6:34 pm

morbo, with eight brands and so many dealerships how can GM afford to provide unique vehicles to each one? How in the world can they not badge engineer cars? It’s about the only thing they can do to afford to feed all these hungry franchisees.

If one brand gets a crossover, franchisees who have other brands will want a crossover they can sell too. That’s the crux of GM’s problem.

The point of combining sales channels was to trim each brand down to a couple of vehicles except for Chevrolet and Saturn while still providing dealers a “full line” to sell. Small cars, midsize cars, fullsize cars, trucks, SUVs and crossovers.
CarShark :
April 25th, 2008 at 7:07 pm

@KatiePuckrik

Cadillacs ugly? Not a chance! The CTS is the best-looking car in its sector, by far. I think you’re right in saying that the bold razor-edged American styling may be too much for the less adventurous Europeans. Also, since Europe holds more pretentious badge snobs per square inch than anywhere else in the world, they may like the styling but shy away because their BBC News-watching, Guardian-reading friends disapprove.
tms1999 :
April 25th, 2008 at 7:13 pm

Spot on Analysis. I bought my Mazda from a Pontiac, Buick, GMC, Mazda, Toyota/Scion, Nissan, Subaru dealership, in one convenient location.

They offer high pressure sales techniques for walk-ins, and friendly 15% under invoice no BS if you contact them through the Interwebs. ($23,000 Mazdaspeed3. No, not a Touring, a GT)

If they don’t sell you a Buick, they’ll sell you something else. And no dealer go without a service department. Cars for razors, services are their blades. Sales of car help feed the salespeople, but the beef is in the service.

GM does not have “too many brands” They have “Too many undifferenciated brands”. Pontiac/Chevy/Saturn fight in the same price range, with cars built from the same platforms, with the same engines, same transmission and same feel.

Even as an armchair CEO, I don’t see how I would get GM turned around. And as a witness, I don’t see GM’s management stopping digging in their hole.
zerofoo :
April 25th, 2008 at 8:22 pm

Katie,

Right on about Cadillac styling! It’s the reason I bought a G35X instead of a CTS - well, that and the dealer experience.

-ted
rtz :
April 25th, 2008 at 9:07 pm

Just stop building Buick’s? Nothing official and no press release, just cease building them. You can’t buy what’s no longer available.