By on July 20, 2010

It is not at all clear that the greatly accelerated pace of the dealership closings during one of the most severe economic downturns in our nation’s history was either necessary for the sake of the companies’ economic survival or prudent for the sake of the nation’s economic recovery

Whoops! Who could have thought that the biggest political fight of the bailout era was picked over something never really needed to happen. At least, not according to the SIGTARP, the Special Inspector General for TARP, Neil Barovsky. In his latest report on the GM and Chrysler dealer cull [full document in PDF here], Barovsky explodes a lot of the myths surrounding the move to accelerate dealer closings, and even goes so far as to assign real blame… and not to GM or Chrysler either.

Which is not to say that GM and Chrysler’s behavior wasn’t worth noting. The SIGTARP report points out that there were real discrepancies between the way the two firms handled the dealer cull.

Chrysler decided which dealerships to terminate based on case-by-case, market-by-market determinations, and did not offer an appeals process. SIGTARP did not identify any instances in which Chrysler’s termination decision varied from its stated, albeit subjective selection criteria.  GM’s approach, which was conducted in two phases, was purportedly more objective, and it offered an appeals process.  However, SIGTARP found that GM did not consistently follow its stated criteria and that there was little or no documentation of the decision-making process to terminate or retain dealerships with similar profiles, or of the appeals process.

Which would you rather have you business be at the mercy of: a consistently subjective cull or an inconsistently objective cull? Though GM and Chrysler took different approaches to the dealer cull, both have had to back off under heavy political pressure brought to bear by the congressionally-mandated arbitration process. But now we’re getting ahead of ourselves. First we need to look at how the dealer cull happened.

Like so many stories of government run amok, the GM and Chrysler dealer culls were dreamed up by smart people who had locked themselves into a room until they fixed a problem; in this case, turning GM and Chrysler into viable companies. As they sought solutions, Obama’s Auto Team heard advice from a number of financial and industry experts, many of whom identified dealer network size as a major obstacle to GM and Chrysler’s long-term viability. Indeed, GM and Chrysler had already both been working on dealer reductions for years before the Auto Team was even assembled. In their February 2009 viability plans, GM  submitted accelerated dealer reduction plans (above), confirming the Auto Team’s growing consensus that this was a key factor in the restructuring of the troubled automakers. Chrysler did not give details about dealer reductions at that point, and the Auto Team would go on to reject both plans, in part because neither culled dealers fast enough. Barovsky explains:

In its restructuring plan, GM initially proposed closing 1,650 dealers by 2014, but following the Auto Team’s response, it instead identified 1,454 dealerships to be wound down by 2010 during its 2009 bankruptcy proceedings.  Chrysler also accelerated its dealership terminations – it had planned to reduce its network from 3,181 in 2009 to about 2,000 dealerships by 2014 through Project Genesis (its effort at consolidating dealerships) and instead immediately terminated 789 dealerships during bankruptcy proceedings.

But before that happened, the Auto Team spent several months convincing itself (with the help of outside consultants) that an accelerated dealer cull had to take place. With Boston Consulting Group and Rothschild advising, the Auto team began lured with a perennially popular concept in the auto industry (until more recently, anyway): be more like Toyota.

Much of the information that the Auto Team received about the benefits for dealership determinations was based on the “Toyota Model,” which suggested that smaller dealership networks would reduce competition among dealerships and increase sales volume for the remaining dealerships.  It was believed that this would then allow the dealerships to invest more in their facilities, thus improving the brand equity of GM and Chrysler.

Surely there was some validity to this approach. It was certainly a theory that floated around TTAC during and prior to the bailout, but

A former Chrysler Deputy CEO told SIGTARP that the “Toyota model” studied by the Auto Team — that fewer dealerships, located mostly in metro areas, would lead to higher sales and profitability for the remaining dealerships — would not work for Chrysler.  This is because Chrysler sells trucks in rural markets as well as cars in Midwestern states where imported cars are less popular.  He said that Chrysler will “never” get to the same throughput level as its import competitors.  The former Chrysler Deputy CEO likened applying the Toyota model to Chrysler to “trying to turn our sons into daughters.”

In short, graphs like this one are a fact of life for a Chrysler corporation.

In fact, some of the only consultants to complain about the accelerated cull to the Auto Team were JD Power analysts who argued that, especially in the case of Chrysler, the move would “create a wave of chaos amidst [an economic] crisis.” The Center for Automotive Research also pointed out that culling rural dealers ignored the oversaturation of certain urban markets and attacked GM and CHrysler’s strength in rural markets.

But the Auto Team and Treasury had their course so inexorably plotted out that the Auto Team didn’t even analyze the job loss impacts of an accelerated cull until it had already decided to push it through. And on the other side of the decision-making analysis, the financial benefits for the dealer cull were almost entirely window dressing. GM and Chrysler both submitted estimated cost savings of shutting down dealerships (below), but they only did so in order to be able to answer questions from congress.

As you can see, most of GM’s claimed cost savings were listed in the form of a nearly million-dollar incentive saving… which GM would have to pay anyway if its remaining dealers improved their volume per the plan. Barovsky reveals that:

key members of the Auto Team — including Messrs. Rattner and Bloom — stated that they did not consider cost savings to be a factor in determining the need for dealership closures.  Nevertheless, GM officials stated that they developed the cost-savings estimate shown in Table 6 after being “pressed” during meetings with congressional representatives to explain the cost savings that would result from the dealership terminations.  A Chrysler official said that the cost savings estimates had been originally developed in 2006 and 2007, before the issue of dealership terminations arose, and were updated based on SIGTARP’s request. GM officials reiterated that the plan to reduce dealerships was based on making the remaining dealership network more profitable by increasing their sales volume.  In fact, when asked by SIGTARP what GM will save by closing any particular dealership, one GM official stated the answer is usually “not one damn cent.”

Furthermore, a GM official stated that removing a dealership from the network does not save money for GM—it might even cost GM money—and that savings cannot be attributed or assigned to any one dealership.  According to one GM official, it was a “math exercise” to assign a savings amount to one dealership; it was difficult to estimate savings for a particular dealership because the savings are expected to be achieved when the entire dealership network plan is accomplished.

GM did also indicate that it would save $200m on local advertising assistance, as part of a total $415m annual administrative cost savings associated with the dealer cull (Chrysler estimated administrative savings at $36m). Regardless, neither the Auto Team nor Treasury appears to have considered these estimated costs significant factors in the decision to accelerate GM and Chrysler’s dealer culls, nor did GM or Chrysler use them for any part of their implementation of the cull.

How GM and Chrysler went about the dealer culls was something of a running mystery for some time, but if any questions remain, Barovsky’s report can surely help answer them. In essence, GM used a set formula for the cull, but used it inconsistently while Chrysler developed an entirely subjective system for determining a dealer’s viability, and analyzed each dealership market-by-market. Both screwed up, both made enemies and alienated long-standing dealers. Chrysler did so in a completely mystifying manner (above) whereas GM allowed dealers who fell beneath its standards (below) to survive because “they were recently appointed, were key wholesale parts dealers, or were minority- or woman-owned dealerships.”

Barovsky’s conclusions about this fantastic brew-ha-ha are understandably bleak.

Here, before the Auto Team rejected GM’s original, more gradual termination plan as an obstacle to its continued viability and then encouraged the companies to accelerate their planned dealership closures in order to take advantage of bankruptcy proceedings, Treasury (a) should have taken every reasonable step to ensure that accelerating the dealership terminations was truly necessary for the long-term viability of the companies and (b) should have at least considered whether the benefits to the companies from the accelerated terminations outweighed the costs to the economy that would result from potentially tens of thousands of accelerated job losses.  The record is not at all clear that Treasury did either.  The anticipated benefits to the companies of accelerated terminations were based almost entirely on the not-universally-accepted theory that an immediate decrease in dealerships would make them similar to their foreign competitors and therefore improve the companies’ profitability, and the theory arguably did not take into account some of the unique circumstances of the domestic companies’ dealership networks.  Although Treasury consulted with several experts on the subject, it undertook no market studies to test the counterintuitive theory until after making its Viability Determination.  More importantly, there was no effort even to quantify the number of job losses that the Auto Team’s decision would contribute to until after the decision was made, and the effect on the broader economy caused by accelerated dealership terminations similarly was not sufficiently considered.

Stated another way, at a time when the country was experiencing the worst economic downturn in generations and the Government was asking its taxpayers to support a $787 billion stimulus package designed primarily to preserve jobs, Treasury made a series of decisions that may have substantially contributed to the accelerated shuttering of thousands of small businesses and thereby potentially adding tens of thousands of workers to the already lengthy unemployment
rolls — all based on a theory and without sufficient consideration of the decisions’ broader economic impact. That the automakers have offered reinstatement to hundreds of terminated dealerships in response to Congressional action without any apparent sacrifice to their ongoing viability further demonstrates the possibility that such dramatic and accelerated dealership closings may not have been necessary and underscores the need for Treasury to tread very carefully when considering such decisions in the future.

Luckily the odds of this ever happening again are not good. On the other hand, why risk it? Ladies and gentlemen, listen to the SIGTARP.

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36 Comments on “The Truth About The GM/Chrysler Dealer Cull...”

  • avatar

    WOW. At the risk of eye-strain, I read that whole thing. So what many of us on TTAC have been saying for more than a year is true? The only dealership closings that would make sense is when you have two or three dealers of the same make in the same metropolitan area or in close proximity. For example I know a few counties back where I grew up in Ohio that have 2 or 3 Chevy dealers. Don’t close your rural dealerships just for being rurual but if you’ve got over saturation, you’ve got oversaturation. Just don’t think you need to look like Toyota.

  • avatar

    Flexibility to adapt to the market.
    The automakers should be able to have/not have dealers as they choose to operate their company. The existence of a dealer should not be determined by some esoteric/antique franchise law. Or by the whim of the Senate or White House friends or the Auto Czar. We now have people in the District of Control lobbying for auto dealer existence. Does this make sense?

  • avatar

    If I understand the logic of the social justice league; to avoid redlining and to provide “access”, GM should be required to have Cadillac dealers in the even the most economically depressed communities.

  • avatar
    John Horner

    Hmmm, pretty much exactly what I said back when this was going down. The dealer slaughter was a bad idea put forward by highly paid MBA-Simpletons, which are today’s business management version of idiot savants. They know a lot about a few things, but rarely get the whole picture. Consequently, they make disastrous decisions whilst having those decisions backed up by megabytes worth of PowerPoint slides.

    Reducing sales outlets rarely results in increased sales.

    Killing franchise locations off does not improve the sales or profitability of the franchiser.

    • 0 avatar

      Less competition doesn’t help the franchiser? I don’t know how many dealers you’ve negotiated with for terminations, but you can almost always get the surrounding dealers to pitch in because it helps them.

      Why do you think that Penske has so few GM dealers? It’s not the vehicles, because he bid for Saturn after all and sells smart cars. It’s the principally the over-dealered footprint.

      Asked another way, what would you pay an OEM not to put an Penske owmed Chevy dealer across the street from your Chevy dealer if the market area rules in franchise law didn’t exist (as they are below federal bankruptcy law in the pecking order, and so weren’t a constraint in this case).

      I’ve no doubt that on average, an OEMs sales and gross profit (not margin) will go down for years, maybe permanently ex other factors, but those other factors are the reason to do it.

      These two companies botched the politics of the culls big-time and the administration bowed to the political power of the dealer lobby. And given what happened, GM’s decision to accept dealers back is understandable, but don’t mistake it for GM wanting more dealers.

      I am honestly interested to know why you think adding dealers in metro areas is a good thing for an OEM that has very low throughput to do.

    • 0 avatar
      John Horner

      I never said that adding dealers in metro areas would be a good idea.

      Look at retail sales results over the past year. Ford is up much more strongly than GM is and has left Chrysler in the dust. Although Ford has been doing some very selective dealer network consolidation, they haven’t had a wholesale slaughter like GM and Chrysler. In my view, Ford wins every time GM or Chrysler close another shop, especially in areas where there only was one GM or Chrysler dealership to begin with.

    • 0 avatar

      If you’re just taling rural, then I totally agree.

      On the Ford side, I would say that it’s larger than the GM/Chrysler mis-managing of the PR on dealer cuts that is driving Ford’s momentum. When I look at the surveys for the drivers of Ford’s consideration improvement, it is the concept that they got bailed out by the govt and product more than that they cut some dealers and got a washington licking for it. In fact, the dealer issue is rarely brought up by customers.

  • avatar

    The number of dealerships has very little to do with the amount of discount needed to move metal.

    It really depends on how good or how crappy the car is. Sebring will still be a tough sell even if Chrysler cut the number of dealerships by half or even 2/3.

    • 0 avatar

      I’m not so sure. I frequent a Mini Cooper forum, and one of the recurring questions is how much of discount you can wangle off the sticker. The consensus is that in areas that have a few dealers you can do OK, in areas with only one dealer it’s tougher to negotiate. I know Chryslers aren’t Minis, but I don’t see why the same principal wouldn’t apply.

  • avatar

    Although GM’s fork was to big for the pie left, it was still Christmas for GM. Here was their chance to get rid of dealers with bad CSI, and those who wouldn’t tow the line, like taking a bunch of over produced cars when you have them coming out your ass. All those studies and charts above don’t make any financial sense because they weren’t meant to. GM knew exactly what they were doing, and in the end picked the candidates for the bus driving, like Wagoner.

    • 0 avatar

      And if they could prove that they cut the say 2000 dealers with the worst CSI, those of us on TTAC would be doing the freaking dance of joy. But as the article said, there’s not enough documentation to prove it.

  • avatar

    For me, the most telling image is “Figure 2”, which shows that the imports experience 2-3x the throughput in each franchise compared to the Big 3.

    Whacking substantial numbers of dealers can’t be a bad thing.

  • avatar

    @John Horner

    Reducing sales outlets rarely results in increased sales.

    Actually, sales have mostly risen since 1950, while at the same time the number of dealers has DECREASED dramatically. We’ve lost thousands of dealers since 1950, yet more cars were sold than before. The only real difference is that we lost them to market forces, rather than the “auto team”.

    There is a lot of legitimate criticism to level at the “auto team”, but declining sales isn’t due to closing dealers. We demonstrably don’t need the dealers to make the sales. Counter intuitive, I know, but that’s the reality of the last 60 years – an ever declining number of dealers, but generally increasing total sales (looking at the long term trend line, rather than year by year peaks and troughs)

    In 1950 there were about 47000 new car dealers in the US. By 1970 about 31000. Now, less than half the number as in 1950. We’ve seen many record sales years since 1950, so clearly more cars can be sold through fewer dealers.

    • 0 avatar

      You really had to stretch for that didn’t you? I don’t know what you were trying to prove because your logic just made you quit taking anything you said seriously.

      Fewer dealers sold more cars? And you used 1950 as a baseline? Why? In 1950 the population is a third to a half what it is now? Did in not occur to you that a lot more people will buy a lot more cars? Standards of living have increases dramatically since then and more people can afford cars and 2 cars families are the norm now, they weren’t then. So just what does it prove that more cars were sold by fewer dealers? What is your point?

    • 0 avatar

      MikeAR, I believe that point he is trying to make is that the reduction in dealer count did not appear to impair sale growth. A valid criticism would be that we don’t know if sales would have increased even more with more dealers, but your criticism (and sentence structure, by the way) leaves something to be desired. His point is that even with the macro trends growing demand, that demand was satisfied by less dealers. Or putting it more bluntly, how many people you know are riding a bike or taking the bus because the dealers are just too far away from them? Seriously, we drive 20 miles to go to Costco and drive 40 miles to go to work and back. I made those numbers up, but people are certainly driving more that they did in the 1950s by any measure. The tougher question is at what point do you jump out of the slowly boiling pot. The answer to GM regarding dealer cuts was never, and they had dealers competing against each other, great dealer principles focusing on toyota stores and top salespeople vying for jobs at import and luxury stores. Selling Chryslers was not the pinnacle of auto retailing.

    • 0 avatar

      Daga, don’t critcize sentence structure because you didn’t like what I said. I am right and you know it. Plus my point was clear, his post was pointless. If you don’t like it, tough. You are pretty much defending the indefensible, that is politically based dealer terminations. There were and are too many dealers but the whole process was botched by the incompetent ideologues running the companies.

    • 0 avatar

      Fair point about the sentence structure dig. I’m guilty of it enough myself, so I apologize for that one. I was frustrated by the superficial comment and by having to read and re-read the line “I don’t know what you were trying to prove because your logic just made you quit taking anything you said seriously.” to make sure it really meant what it seemed.

      On the other points, I think you are flat wrong, especially if you mean that the dealer terminations were politically based in a Rep/Dem way. If you mean just that the dealer guys at Chrysler and GM wanted to do away with dealers that had been trouble for them even though they sold lots of cars, that is not what I call political. More to the point, that business judgement is allowed in bankruptcy court by law. The law does not require that a quantitative ranking be the sole determinating method of contracts to reject or not.

  • avatar

    I’ve questioned whether dealerships are the best car-distribution method. To me it seems the best way to sell cars would be to two kinds of auto-malls one selling regular cars and another kind selling luxury cars. Have the salespeople earn their pay on how many vehicles they sell, regardless of brand. The idea is that a person can get the vehicle that best suits their needs regardless of which brand it is. A chevy salesman at a chevy dealership will try to sell you a chevy even though the vehicle that best suits you is a mitsubishi or some other obscure brand. Although many people nowadays often research on the internet, and have already found their ideal car. I also think very few cars should be bought (by the dealer) before the sale, I would think car buying would be easier and more efficient if dealers let people configure the cars they will buy. Dealers will let you do that but it should be more common. That way people get more choice, which I think is best. The point of this scheme is to give the consumer maximum choice and variation in car products.

    I know the idea is naive, but I just wanted to put it out there.
    about the dealership culling, I think it was a good idea, the manufacturers have every right to cull any dealership they wish to cull. One thing that leads to failure in the business world is over-expansion.

    • 0 avatar

      Stationwagon said: “the manufacturers have every right to cull any dealership they wish to cull.” You are so far from wrong. The manufacturers do not have a right to cull dealerships they wish to cull. That is why there are state franchise laws to protect the little guys. Furthermore, the overexpansion or too many dealers will eventually take care of itself naturally. There have been a great number of “good” people lost jobs and livelyhoods over this bad decision.

  • avatar

    OK. So the firms that built the Cobalt and the Sebring screwed up a necessary dealer reduction by doing things in an arbitrary and capricious manner? That’s surprising???

    Well, boo-freakin-hooo. Bankruptcy sucks. Although, I guess it’s supposed to suck a lot less when Uncle Sugar has his check book out for the politically connected.

    What’s obviously necessary is another stimulus to bring back the Bill Heard family of dealerships. Oh, wait – how about Oldsmobile! New Oldsmobile franchises in areas that move a lot of GM product would be great for additional sales – I’m certain.

  • avatar
    bumpy ii

    “or prudent for the sake of the nation’s economic recovery”

    Oh well, nobody was looking after those barn doors anyway.

  • avatar

    This is silly. SIGTARP was assigned the task by Congress, who are in the pocket of local deaerships, generally. The auto task force was appointed by the Treasury, effectively the administration, and given the mandate to “make decisions like a private investor” specifically so we wouldn’t all be driving Homermobiles and lining the UAW and dealers’ pockets. Given the constant lobbying they must have got from Congress and the Senate, they seem to have done a decent job. I would have left the rural dealers far more in place, but don’t have any arguments with the cutting of suburban and urban GM and Chrysler dealers. I’ll bet that the dealer guys at Ford were looking on longingly when they first realized that in bankruptcy, GM and Chrysler wouldn’t have to spend billions to cull dealers.

    Of course cutting dealers will cost jobs. The whole point of bankruptcy law is to make cuts that allow a company to exist, usually smaller, and thrive rather than be liquidated. There’s no way anyone made a snap decision to put GM and Chrysler in bankruptcy, and no way that the companies wanted it. But once there, there is a clear priority of obligations and dealers are executory contracts (near the bottom). The UAW and Dealers got pushed up the ladder due to political pressure (In court, they frequently had to rely on the argument that “the 363 buyer wants X to happen” and unless someone else offers more for the assets, then the lead buyers gets their way).

    This also explains the difference between the pre-bankruptcy cull and the bankruptcy cull. This is what is supposed to happen in bankruptcy. Since pre-bankruptcy the mgmt of both companies were doing everything they could to stay out of bankruptcy, of course they weren’t going to bite the bullet and reduce as fast as they wanted because it would have cost them billions that they didn’t have and the benefits would be in the long term.

    If it was so great to have lots of dealers, why aren’t OEMs adding to their count like mad? If GM thinks more dealers are better, why don’t they add dealer beyond the ones welcomed back in to just get it behind them? Does anyone think GM actually wanted more (non-rural) dealers when they did their ‘give back’? No, they wanted to get the dealer body focused on selling cars rather than hiring lawyers and having Congressmen bash their brands in every local paper, and if it costs a bit in the long term competitiveness, so be it.

    I find the furthering of the political propaganda of the dealer “movement” extremely frustrating and would have hoped it would not be furthered here.

    • 0 avatar

      “I find the furthering of the political propaganda of the dealer “movement” extremely frustrating and would have hoped it would not be furthered here.”

      yes, finally someone said it right.

  • avatar
    Glenn Mercer

    I find it fascinating that virtually all discussion of the GM and Chrysler plans to close car dealerships (whether by the TARP Special Inspector General, the Obama Auto Task Force, Congress, or other parties) revolves around the issue of cost: costs saved or not saved by the automakers in pruning their networks. I agree that the cost question is crucial. However, in my mind the greater benefit of shrinking the dealership networks may come in the form of price: higher prices charged by dealers, and then in turn by the factories supplying them. Many car buyers visit 2 to 4 same-brand dealers in the last week or so before buying a car, playing each off each to receive the lowest possible price offer. This is nothing more than a sensible negotiating strategy by consumers. But after network pruning perhaps there are only two Chevy dealers left in town, rather than four or five, and the shopper’s price leverage for that new Malibu is reduced. If the effect is only a 2 or 3 percent price gain by dealer and supplying automaker, on an average car transaction of some $25,000, that is $500 or $750 in pure profit. And indeed, GM and Chrysler have both announced they have been achieving higher retail prices recently.

    I can only conclude that this very important price effect was almost completely ignored in the TARP auto debate (though there is indeed passing mention of it in the SIG report) because no one in government would like to be seen backing a taxpayer-funded program that allows car companies to raise prices to consumers (even though this may be one of the best ways to ensure GM and Chrysler become healthy enough to pay back those very same taxpayer dollars). Thus the near-total but certainly incomplete emphasis on cost savings, which I must agree with the TARP SIG are probably illusory at worst and overstated at best.

    (And before someone tells me “the factory doesn’t get the higher price, the dealer does, and keeps the difference;” yes, that is true for cars already purchased by the dealer, already on the lot, or maybe the next few month’s worth of orders… but over time as the factory sees a dealer reliably getting say $500/car more at retail, the wholesale price is hiked to compensate. No factory wholesales a car at levels ignoring shifting retail price realities.)

    • 0 avatar

      Actually, I would expect higher transaction prices to end up helping automaker margins. The automaker has insights into several key metrics of the individual dealers.

      If transaction prices are going up, you can rest assured incentives on vehicles will be reduced so the benefits will not be soley captured by the dealer. The automaker will expect the dealer to eat some of the improved margin to close a sale with a customer.

    • 0 avatar

      That’s very clearly the reason and the report alludes to it – the task force not putting much stock in cost savings either and the OEMs feeling boxed in by Congress, so producing the cost savings argument reflexively. While I think you’re exactly correct, I assume the OEMs and task force were afraid that making the argument on that basis would have raised holy hell in testimony as Congressmen grandstanded against an anti-competitive action.

  • avatar

    The criteria GM used seem incredibly simplistic and quantitative. But it also looks like they subjectively reviewed the quantitative output then made decisions. It’s too bad for them that they claimed that their process was purely quantitative, so they deserve wrath for that, but it isn’t purely objective. Seems like both used some data upfront, then reviewed each market for judgement based decisions.

    As for deviating from the formula, as I read it, two of the GM dealers that performed above the 2 metrics got the boot. that’s not much and I can easily imagine GM having a couple dealers that sell well but are royal pains in the butt. Your highest selling store is not always your most profitable to serve. A bunch more were on the fence quantitatively and half of them got the boot. And then once asked about why, they couldn’t or wouldn’t explain those decisions. Again, this seems damning to GM’s communication capabilities but not to the dealer cull process. The processes look quite similar, but the documentation and explanations look botched at GM.

    The only thing that still looks wrong to me is the rural cull, and that looks mostly like a misguided decision by the Cadillac guys.

  • avatar
    Robert Schwartz

    They will also be running your Doctor’s office.

  • avatar
    John Horner

    Someone explain to me why Ford is kicking GM and Chrysler’s butts without the benefits of a massive dealer slaughter.

  • avatar

    This reminds me of a business review presentation I went to a few years ago. When asked by some smartypants in the crowd why his business had the lowest amount of sales per employee, he responded “obviously we don’t have enough employees!”

  • avatar

    1) Compare Toyota to Honda. Toyota has 40% more cars sold per dealership, and yet the average discount of a Toyota is 50% more than a Honda. So a directly correlation between the density of dealership and the discount needed to move metal CANNOT be established.

    2) If several dealers choose to fight for a customer and offer dealership discount, why is GM worried? I mean, it’s out of the pocket of the dealers, as long as GM sticks to its invoice price. The weakest dealer will die by itself.

  • avatar

    Looking at the example of Chrysler dealers kept and terminated I don’t see much of the “subjective criteria” mentioned in the report. You are either under capitalized or you are not. You either meet your sales targets or you don’t. If those standards were arbitrary you would have a point but I don’t think they were as it was the company’s desire to survive as a going concern and whacking random dealers for the fun of it is not the way to achieve that. The only argument you could make for subjectivity was for dealer A. His sales were good but he was blocking the awarding of Jeep franchises to other dealers and preventing the progress of Project Genesis.

  • avatar
    M 1

    “dealer culls were dreamed up by smart people who had locked themselves into a room until they fixed a problem; in this case, turning GM and Chrysler into viable companies”



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