Motown Analyst David Cole: GM Dealer Cuts Are Stupid
Well he would say that, wouldn’t he? For one thing, David Cole is a Big Three scion, the son of former GM president Ed Cole. For another, Cole’s “Center for Automotive Research” (CAR) is funded by unspecified automobile manufacturers (guess who) and equally secret “labor organizations” (guess who). You may remember CAR as the organization whose statistically corrupt pre-bailout report took center stage, what with its wildly exaggerated predictions of plague, pestilence and famine—if the feds didn’t throw money at the ailing American automakers. And now Automotive News [AN sub] reports that David is telling Uncle Sam that New GM’s decision to cut thousands of dealers doesn’t make sense. “These cuts didn’t make any sense to me,” Cole told a government toady, whose visit may or may not have been stimulated by a missive impossible to the Presidential Task Force on Automobiles. “By pulling out, GM and Chrysler are giving a beachhead to Ford and some of the imports.” Beachhead? Dude, they’ve been eating Detroit’s lunch for decades. Anyway, speaking of pulling out . . . “Cole said he has no research expertise or experience with dealers, but that his personal interest in the issue was piqued and that he has spoken with a number of dealers and GM executives.” Glad to see that the guardians of our tax money are kow-towing—sorry “consulting” with all the right people in their endless pursuit of political accommodation.
More by Robert Farago
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Cronies R Us It's a small world politics (ditto the automotive world) and don't we know how it all works by now. If this croney could be even more cheesy he'd be a blue cheese and there's few people the whiff doesn't get right up their nose!
Producing too much inventory in order to stock too many dealers costs the manufacturer money and ties up capital as the manufacturer waits for it to be sold. Contrary to that erroneous thought, the ability to produce units and ship them to dealers is what makes them money. All units are shipped to dealers prepaid or not shipped at all. The manufacturer never waits for payment and those vehicles in dealer inventories represent already realized cash flow. Those dealers who floor plan with GMAC are doing so with a company that is less than majority owned by GM and independent. GM sold a majority share to Cerberus some time ago in the dumbest move they ever made. GMAC is now a "bank" and a major recipient of their own "bailout" funds. All in all, your thoughts unfortunately represent those of many who do not fully understand the dealer/manufacturer relationship. Obviously this includes many of the Congress members trying to sort the situation out and even more unfortunately many of the pundits who bought the factory propaganda hook-line-and sinker.
This doesn’t even make sense in light of the first thing you said. If there were no costs associated with servicing retail points, and they were all profit sources, then there would simply not be such a thing as a dealer that GM didn’t like. What’s not to like? In fact, if what you said at the start were true, GM would be trying to sign up more dealers, and the PTFOA would let them. Your last comment also seems to acknowledge that the retail price sooner or later impacts the wholesale price. GM has long lusted after the Toyota model where the dealers accept anything the manufacturer proposes because they are so profitable. Toyota has in the past told their dealers how many they are going to sell next month and they do... to the public or themselves... simply to protect their franchise. This is another example of GM's failure to accept blame for inferior product and attempt to explain away their own failures by shifting them to the dealers. They somehow think a diminished number of dealers will maintain the same number of sales and therefore the smaller number of dealers will sell more units per dealership. This will afford GM the opportunity to demand more of their dealers at a lower margin point per unit. Not likely but a normal thought in their deluded state of mind. GM simply offered their favored dealerships a new contract that stated they would sell a certain amount of units(to be determined later) and would maintain a certain CSI rating (to be determined later) or they would also be canceled. It is the most one-sided franchise agreements in the history of the auto business but an offer that could not be refused when the option was cancellation and financial ruin. The dealers they don't like? Any of those who felt they had some smidgen of rights after investing millions of dollars getting the franchise. Anyone who actually owns one understands fully what I am saying!
Mind your P's and Q's when discussing dealers A and B then X and Z and sometimes Y and W.