General Motors Death Watch 54: GM Dealers Must Die

If there's one group of people within the GM universe who elicits less sympathy than the current management team, it's the legions of loud-talking, loudly-dressed GM dealers. Despite the media's fixation on the corporate mothership, the survival of the world's largest automaker depends just as much on its dealer network's success as any new initiative coming from GM's RenCen HQ. All the flailing and failing in Detroit shows you that all is not well on the sharp end. In fact, GM's dealer network mirrors the automaker's ancient, costly production process: a fundamentally flawed institution in need of radical restructuring. Ah, but who will bell the cat?

Actually, euthanasia would be a better option. It's a little known fact The General's dealer network is roughly the same size as it was forty years ago. Back in the day – when GM owned the US car market lock, stock and double-barreled carbs – The General's network provided a significant advantage to both franchisees and the corporation. (Potential customers were never more than a twenty-minute ride away from their local GM dealer.) Now that GM buyers are increasingly thin on the ground, dealers must squander precious resources warding off "poaching". (Disgruntled customers are never more than a twenty minute ride away from a rival GM dealer.) Internecine warfare for conquest sales is even more damaging, forcing each store to engage in cut-throat pricing and blanket advertising. And that's without considering competition from rival brands, some of which may be closer than they appear…

GM single-line dealers have traditionally relied on solid sales within the lower end of the luxury market. Sales at this price point tend to flow outwards, towards other models sharing the same badge. (Dad buys a nice big sedan; Mom gets an SUV, Junior settles into something a bit smaller and sportier.) As competition has grown fiercer and niches multiplied, GM has launched a wide variety of rebadgineered vehicles to help dealers keep customers within a given brand's fold. The 'everything for everyone' strategy has unintended consequences. It's all well and good for The General if a customer buys a Chevrolet Equinox instead of a Buick Rendezvous, but it's a catastrophe for a Buick-only dealer. At the same time, GM's epic multi-branded line extensions have made the automaker slow, lazy and inefficient. Instead of hitting target markets dead-on with killer products, it's strictly spray and pray.

In short, the size of its dealer network forces GM to make too many (crap) products, which leads to (crap products and) too many incentives. There's only one way to untie this Gordian knot: cut it into pieces and throw away the excess bits. In other words, hundreds of GM dealerships must bite the dust. Terminating a third to a half of GM's existing single-line dealers would be a win-win situation for GM and any dealers that remain. There'd be less internal competition, less feeble product, less confusion in the marketplace, less incentives and less bureaucracy. Oh, and more profit.

Eliminating whole product lines would be the best way to make the necessary change. Of course, killing brands is hardly an "easy" option. Contract law– originally written to stop GM from pushing dealers out of profitable territories– guarantees that the cost of the cuts would be stupendously expensive. Killing more than two thousand Olds dealers cost GM billions. Axing Buick would be at least as expensive; Pontiac even more so. And if both of those brands are killed, GMC may as well go as well. Unfortunately, now that the situation calls for desperate measures, GM probably doesn't have the cash to make it happen.

If and when The General files for bankruptcy, dealercide would be relatively easy. Federal bankruptcy court would offer The General the legal protection it needs to do the deed. Unfortunately, surveys have shown that Americans aren't all that excited about the idea of buying a car built by a bankrupt automaker; a nation of boarded-up GM dealers could make the perception problem insurmountable. No, the only way to trim the dealer fat is to do it now, take the hit and move on. And why– aside from cash considerations– not?

The dealers. No GM dealer wants to be the first store eliminated, or, if GM starts throwing around real money, the last. Give these battle-hardened entrepreneurs credit: they know a thing or two about business. If GM does [somehow] make a comeback, the value of their dealerships will be a significantly greater than the sell-out price. They're hardly likely to "take one for the team". Remember: self-interest built this powerful dealer network. Only self-interest can dismantle it. But time is running out. Unless GM can "bell" this cat before it devours the remaining mice, both the manufacturer and its dealer network face imminent extinction.