Four Reasons Why 2000+ Domestic Car Dealers Had to Go
1. Floorplan costs The more dealers you have, the slower the inventory turn. The slower the turn, the longer it takes to repay the debt. The longer it takes to repay the debt, the more money that’s required. By cutting dealers, the manufacturers cut GMAC’s capital requirements, which run into the billions.
2. Inventory Excess inventory ties up capital and increases the burden of the floor plan, due to the longer sales cycle. (Chrysler and GM have far higher days of inventory than Toyota, Honda, BMW, et al. All that metal sitting around wastes a lot of money delaying the conversion of assets to cash). If the automakers have fewer dealers to serve they should be able to produce fewer vehicles.
3. Resale value More dealers means more competition within the brand which means lower transaction prices.
4. Profit at the dealer level One would hope that you end up with better dealers if they can make more money (although that’s debatable).
More by Adrian Imonti
Comments
Join the conversation
Bearadise, Do you think the remaining dealers can survive while operating entirely within a 'given market' that has been contracting for years? The break-out will come when the product's content/price sweet spot is attained.
ravenchris@"Do you think the remaining dealers can survive while operating entirely within a ‘given market’ that has been contracting for years? The break-out will come when the product’s content/price sweet spot is attained." The content/price sweet spot will never be attained, because onerous Federal Government safety and emmissions mandates inflate the cost to build a car much more than what the content is worth. A new car won't be worth another $1,300 just because it meets the Messiah's new CAFE standard, but $1,300 is the estimated increase in cost to meet the requirement. I still don't understand how you project that the sales price per unit will decrease by virtue of there being fewer dealers and higher gross profit per unit. Wouldn't both of those factors lead to an increase in selling price?
Bearadise, Do you think the remaining dealers can survive... All the manufacturers will pay to meet CAFE. Do you believe their estimate is accurate? Do you think these companies can survive if they raise prices?
Their estimate of what it will add to a car's cost to meet Obama's arbitrary mileage requirement will probably end up being too low. Of course, the cost in American lives will be much greater than that of the war in Iraq but what's a few thousand extra dead people every year compared to showing how much we love our planet? (We can't waterboard terrorists but we can damn sure force our own citizens into vehicles that we know with certainty will kill a higher percentage of them. Makes sense, doesn't it?) Will the companies survive if they raise prices? It's a sure thing that they won't survive if they don't raise prices when their manufacturing costs go up. And when hyper-inflation hits in the foreseeable future as a result of the Federal Government's uncontrolled borrowing, prices are going to skyrocket anyhow.