GM Declares War on GM Dealers

As part of Viability Plan III, GM announced its intention to close 42 percent of its bloated dealer network, reducing the number of stores to 3,600. That’s a cut of 2,600 dealers. Our take on that part of that part of the new new new new new new new new turnaround plan: a Mandarkian laugh. American car dealers are covered by 50 states worth of franchise laws; politicians don’t get elected without the support of their local or state dealers’ council. Any dealer cull would have to wait for a bankruptcy judge. Nuff said? Apparently not. Wards’ Dealer Business reports that The General is laying the groundwork for an anti-dealer jihad, regardless of the “niceties” of C11.

The zombie automaker is looking to weasel out of their agreements by, get this, voiding thousands of contracts on the basis of dealer-perpetuated customer satisfaction index and export-related fraud.

“Already, the company is informing dealerships it is auditing customer-satisfaction- index (CSI) scores going back five years to evaluate whether fraud occurred. In cases where GM determines a dealership submitted fraudulent CSI scores, the auto maker can terminate the franchise agreement, says Michael Charapp, an attorney with Charapp & Weiss, LLP, in McLean, VA.”

GM’s dealer audit might also include “warranty claims and sales in which vehicles may have been exported to foreign countries, a practice all auto makers prohibit.” You gotta wonder: what IS the point? When GM files, all the dealer contracts can be rendered null and void. Fin. And after that, buh-bye floor planning (dealer loans to buy inventory) costs. Fin II. In other words, the perfect storm bearing down on dealers will leave few survivors for “good” GM to kill.

A large Chevrolet dealer in Tampa, FL, believes GM’s recently announced 2-month plant shutdown this summer will force many dealers out of business.

“There are a lot of dealers who are carrying thin inventories,” he says. “Because of floorplan costs, they’ve cut their days’ supply to less than 60 days. Those guys are going to have a tough time making it two to three months without inventory.”

Dealers will not be able to rely on used-vehicles, because they won’t be taking trade ins with no new cars to sell. They also won’t be generating cash, which means they won’t be able to buy vehicles at the auction.

Additionally, banks providing floorplan loans that let dealers buy new vehicles from manufacturers likely will pull the financing from a large number of GM dealers should the auto maker file for bankruptcy. The result being GM may watch its dealership count plunge far lower than its 3,600 target.

And then, finally, reality.

In the end, GM might not have to do anything. It’s likely to sit back and watch the market take care of closing its dealerships.