By on August 28, 2018

2018 Chevrolet Silverado Centennial Edition

The never-ending, weirdly symbiotic, and often counterproductive relationship between OEMs and their dealers wrote another chapter yesterday, as a court in California may force GM to rethink the way it measures and administers sales effectiveness at the dealer level.

Sacramento-area dealer Folsom Chevrolet was deemed by The General as having failed to meet sales expectations and pursued the revocation of its franchise a couple of years ago. Folsom was having none of it, dragging the state’s New Motor Vehicle Board into the fight — an entity which handed down its decision in Folsom’s favor on August 13th. GM remains unhappy.

Remind me again how the dealer model is such a good idea?

Retail Sales Index (RSI) is a performance measurement to gauge the retail sales performance of a dealer. This is then compared to a statewide average. GM is not alone in deploying this tool. The company then sets the target for individual dealers by applying the brand’s market share in the state for each vehicle segment.

From that projection, a store’s RSI is shown as its retail sales as a percentage of that target. If GM expects a dealer to sell 50 vehicles in a month but it sells only 30, its RSI score is 60. Unofficially, you can be pretty much guaranteed this score determines a dealer’s allotment of product, too.

Folsom Chevrolet was apparently at or near the bottom of the RSI barrel when GM tried to pull the plug. According to Automotive News, the dealer’s RSI was 40.9 in 2013, 44.4 a year later, and 57.1 in 2015. This placed them 129th out of 133, 124th out of 128, and 115th out of 131, respectively.

Our other takeaway from those stats should be that GM’s total number of California dealers swung on a +/- 5 store pendulum over three years. Take from that what you will.

The dealer in question protested that construction scuppered its performance during some periods of the above RSI calculation. It also argued vehemently they should be given consideration for their fleet business, which is apparently quite robust. GM said non but the state apparently agreed, leading the New Motor Vehicle Board to rule in Folsom’s favor.

Administrative Law Judge Evelyn M. Matteucci and the board determined GM’s reliance on RSI was a violation because it failed to account for a number of market circumstances, including brand preference, geography, and demographics. The board also found that The General failed to meet its burden of establishing good cause for termination because it failed to submit sufficient evidence as to the business transacted by Folsom relative to the business available.

“The decision puts General Motors and all manufacturers on notice that termination cannot be based on flawed sales performance metrics such as the Retail Sales Index, commonly known as ‘RSI,’ and similar sales efficiency metrics,” explained Scali Rasmussen Partner Halbert “Bert” Rasmussen, who, along with Senior Associate Jade Jurdi, led the legal team’s victory.

Unsurprisingly, GM spox Jim Cain said the company “strongly disagrees” with the decision and has no plans to alter its RSI measurements. They’re likely to appeal. A partner at the legal firm representing Folsom noted that the board’s decision cited GM’s attempt to yank the franchise as a violation of California law. What this does for future measurements is anyone’s guess.

Similar flaps reared their head in New York state a couple of years ago. There, the court found that GM’s RSI formula was not a reasonable sales performance formula, as required by New York law, because it failed to take into account local market circumstances out of the dealer’s control.

[Image: General Motors]

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32 Comments on “What’s the Score? Cali GM Dealer Wins Against, erm, GM...”


  • avatar
    davewg

    To quote you…”Remind me again how the dealer model is such a good idea?”

    Because apparently only dealers know what the buying public wants to buy. Or at least dealers will buy what it wants the public to swallow.

  • avatar
    Car Guy

    There is no doubt dysfunction in the dealer system. But given the choice between franchised dealers and the Tesla model, I think consumers ultimately benefit under the franchised dealer system.

    Dealers are forced to compete with one another and ultimately the customer wins where there is competition. With Tesla, it’s one price take it or leave it. There is no bargain hunting for the best price or putting one dealer against another to win the customer.

    I’m sure some people are intimidated by dealers but for the rest of us who can drive a bargain its ultimately better for the pocketbook.

    • 0 avatar
      TDIandThen....

      You have wayyyyy too many assumptions in that argument. saturn and a lot of other experiments prove that probably a super-majority of us dread or hate the dealer negotiating experience.

      I’d have no problem if dealers provided real value. As it is, they could run the used market and manufacturers sell to me directly, and I think we’d all be much happier.

      • 0 avatar

        Did you just use Saturn as an example of some sort of success? That was a bottom feeder company that took advantage of the lowest new car buyers inability to research in a time before internet marketing really was able to take off.

    • 0 avatar
      anomaly149

      I love the whole set of assumptions behind “for the rest of us who can drive a bargain.”

      Why do you think Dealers (and OEMs) are making gangbusters these days? Because there’s this sea of people that can make the F&I guys sweat? The number of people who actually get a *deal* on a new car is preciously small. Most get close to the expected average transaction price, which is a pretty open secret. A few get completely robbed (think grandma getting charged 10k ADM for a stripper Equinox).

      Only a very, very few catch a dealer at the exact right moment on the exact right day on the exact last unit before a major volume incentive payout that’s been on the lot for just before the turn limit, and manage to negotiate maybe a few hundred off where the dealer would normally stop. And even then, they’re only getting a nominal deal because the dealer is eyeing a lot more money.

      Essentially no one gets a “deal.” The overwhelming majority gets somewhere vaguely around ATP pretty much no matter what they do. A few get outright robbed (read: the elderly, minorities, women). All the dealer process does is add this level of opacity to the pricing where no one is really sure how good they got their car beyond what the dealer managed to make them feel.

      • 0 avatar
        DenverMike

        Most of dealer’s profits/raping happens quietly in the service dept, used cars and parts dept, day in, day out. New cars are just the eye candy, loss leader, for the most part, that are BTW essential for the whole circus to happen.

        So what if I go to the trouble waiting to the end of the month, end of the year, and end of the (generation) production run? I get nothing? Full sucker price?

        When you leave it all up to the dealer/OEM, it’s “Heads” they win, “Tails” you lose. Every time.

        Also look for cars with fading dealer paper/vinyl plates with whites ‘browning’ and fluorescents dulling. Then check the production date. Flat (clearcoat) Bright Reds are hard to sell, but also my favorite color pickup.

      • 0 avatar
        Car Guy

        As someone who has bought more than 10 new cars in the past 30 years and I can definitely tell you there are deals to be had if you are willing to shop different locations and push them to do better on the prices.

  • avatar
    whynot

    I don’t agree with the dealer model, but this is a case where it helps the consumer in the Folsom area. Because if it was a directly owned store GM would have just closed Folsom Chevy and nobody could stop them. Which makes the “Remind me again how the dealer model is such a good idea?” statement a little out of place with the rest of the tone of the article.

    • 0 avatar
      PrincipalDan

      How do you know a company owned store wouldn’t have performed better?

    • 0 avatar
      healthy skeptic

      @whynot

      >> I don’t agree with the dealer model, but this is a case where it helps the consumer in the Folsom area.

      How does it “help” them? If Chevys aren’t selling well in the Folsom area, it appears those consumers already aren’t that interested. Therefore, most of them aren’t going to miss an unpopular brand.

      >> Because if it was a directly owned store GM would have just closed Folsom Chevy and nobody could stop them.

      How do you know that? Maybe the company store would have fared better. And if not, and it closed, is that necessarily a bad thing? I repeat my point above, as well as the question of why Chevy should be expected (or forced) to keep open a money-losing store.

  • avatar
    theBrandler

    I think the main argument against the dealership model is it shouldn’t be codified into law that you have to let someone else sell your product while you are simultaneously prevented from doing so on your own.

    Granted most things in life are this way out of necessity, but that’s entirely by choice of the manufacturer. There is no law mandating you buy your Tupperware from a retailer instead of from them directly.

    But what hte manufacturers are dealing with is morally equivalent to it being illegal for you to sell your own home. What if you were forced to sell through a Realtor, and you couldn’t drop them if you felt you were being hornswaggled unless the state approved the reasons for your letting them go?

    That’s in essence what is going on here. We would scream and riot if this crap was forced on pretty much anything else in life but somehow this craptacular model is ok for cars? I don’t think so.

  • avatar
    I_like_stuff

    While Elon Musk is nothing more than a conman, I do have to give him props on one thing: fighting the insanity that is the car dealer model.

  • avatar
    I_like_stuff

    “Administrative Law Judge Evelyn M. Matteucci and the board determined GM’s reliance on RSI was a violation because it failed to account for a number of market circumstances, including brand preference, geography, and demographics. ”

    Well yeah but wouldn’t the RSI be based on all those factors too? For example a GM dealer exurban Dallas would be expected to sell 50 trucks a month. People in exurban Dallas buy lots of trucks. A dealer in Berkeley, CA would probably be expected to only sell 10 trucks a month since few people in that area buy trucks. So the baseline is set based on factors like demographics, geography, etc. If the Dallas store sells 40 and the Berkeley store sells 5, the Berkeley store’s RSI is awful, but it’s already accounting for all the variables.

  • avatar
    R Henry

    The issue here is not the “dealer system” but the wisdom of having the heavy thumb of government weighing in on the relationship between a manufacturer and its dealers. GM must be free to determine who it wants selling its products.

    • 0 avatar
      golden2husky

      The dealer has a franchise agreement with GM so GM obviously did not have a problem with the dealer selling their products initially. GM didn’t like the volume based on a flawed process. The dealer had sales held back by road construction. Each year they showed marked improvement over the prior year. They sell a lot of fleet vehicles which are not counted, yet provide volume and profit for GM. Hardly the “heavy thumb”; the courts got this right. The measurement process is defective. Why should a business be forced to close (and cause that cascading effect to all those employed there) and lose all the money and life they poured into the business because they are being evaluated by an illogical, flawed process?

      • 0 avatar
        healthy skeptic

        @golden2husky

        >> The dealer has a franchise agreement with GM so GM obviously did not have a problem with the dealer selling their products initially.

        What, 50 years ago? Times change. Products change. Technologies change. Consumer buying habits change. Obviously the relationship went sour somewhere, at least for GM.

        >> Why should a business be forced to close (and cause that cascading effect to all those employed there) and lose all the money and life they poured into the business because they are being evaluated by an illogical, flawed process?

        Why should a business (GM) be forced to remain in a partnership against its will? In GM’s own analysis, the dealership sucked, and the relationship was no longer symbiotic. You might disagree with GM’s assessment, but it’s GM’s judgement call, not yours.

        A business partnership should only exist because both parties feel it is mutually beneficial. If one or the other feels that is no longer the case, they should be free to exit. They shouldn’t have a government agency forcing them to stay in the relationship forever.

        • 0 avatar
          87 Morgan

          They shouldn’t have a government agency forcing them to stay in the relationship forever.

          The problem with the relationship is that it is not one of equals. The dealer model is flawed in that the factory requires the dealer to take all of the risk, put up all of the cash to build the facilities (to the factories specs) and all of the cash to buy the product to sell up front AND all of the specific equipment to repair the cars/trucks.

          So, yes, the dealer needs protection from the whims of the local factory rep who may have a buddy who really wants a franchise in the area, or even the factory rep himself.

          This nonsense that cars would be less expensive without the dealer is tiresome. Like the dealer or not, they assume all of the risk in retailing the car, the factory has zero. The entity that takes the risk should be the one who makes a profit.

  • avatar
    Jerome10

    I have an idea if GM wants them to close.

    Stop sending them product to sell.

    Genius!

    (probably also against state law)

  • avatar
    James2

    This dealer wasn’t *quite* the worst of the bunch in Cali. Did GM go after the others below Folsom as well?

    However! Both NY and Cali authorities seemed to have come to similar conclusions, suggesting that GM’s formula is –shock! who would have thought?– half-baked.

  • avatar
    IBx1

    It’s not solely the dealership’s fault that nobody wants to buy their cars.

    • 0 avatar
      jpolicke

      All the Chevy dealers get the same product to sell. Presumably some, probably most, dealers are making the quota. That puts the focus on the dealer. While it’s not impossible that that specific area just isn’t that into Chevy, one certainly can’t rule out the possibility that the dealer is just not competent, pleasant, or honest.

  • avatar
    jalop1991

    “Remind me again how the dealer model is such a good idea?”

    Right here is why:

    https://www.cnbc.com/2018/08/28/tesla-owner-frustrated-so-fixes-his-own-model-s-easy-as-legos.html

    Anything that makes owning a used BMW seem like a better idea, is a bad idea in and of itself. It sure seems the dealers should be crowing about this crap as they defend their business model.

    • 0 avatar
      healthy skeptic

      You’re referring to service, not sales. The two don’t have to be joined at the hip. You can have a world where cars are purchased from the OEM, and can be serviced either by the OEM or third-party repair shops.

      That story raises legitimate concerns about car repair, but has little to do with why OEMs are forbidden from selling their own cars.

  • avatar

    alienate your dealers, and now with the announced absurd changes to employee purchase, these clowns are gonna go BK again. China will buy the carcass, sales will be done online thru delivering dealers service centers. partnering with the General is suicide.

    Buickman
    Founder
    GeneralWatch.com

  • avatar
    healthy skeptic

    Per article: ”Remind me again how the dealer model is such a good idea?”

    Let’s take away the franchise laws mandating middlemen and let the free market figure out how good the dealer model is. Maybe it is, maybe it isn’t. I suspect the truth is somewhere in between, but certainly not the 99% stranglehold the dealer model certainly enjoys.

  • avatar
    Erikstrawn

    Should dealers be franchised like McDonalds? Both company owned and privately owned stores with rules on how close they can be? The manufacturer having rights to buy back failing stores to save their corporate image? I would be for it.

    In the late ’90s there was a Ford dealership in Edmond, Oklahoma that had been there for ages. “Broadway Ford, and that’s no bull!” was their tag line. The dealership was poorly managed and was slowly dying, and Edmond was a very healthy market. Ford desperately wanted to put a solid dealership in Edmond. At the same time Ford was trying to break the dealership stranglehold with their “Auto Collection” model. The dealer group I worked for was Ford’s local focal point for Auto Collection, and they ended up buying out Broadway Ford for far more than the business was worth, simply because due to Ford’s franchise rules there could not be another Ford dealership in Edmond.

  • avatar
    Buckwheat

    I doubt that the OEMs would be better at retailing cars than the dealers are. Poorly run dealerships generally take care of themselves, either by going belly-up, or by selling out. It seems like the manufacturers can screw up plenty of things on the wholesale side, let alone trying to effectively run the sales/service network. Then factor in the BILLIONS of dollars they would have to invest to develop said network.

    I also suspect the manufacturers would have a handful of “mega stores” in each state, and no representation in rural areas. Not a selling point for those of us “in the sticks”.

    • 0 avatar
      WildcatMatt

      This is where a hybrid approach seems viable. Let the manufacturers set up big stores in big cities and let the mom-n-pop types run smaller stores in the small cities and rural areas.

      When we bought my wife’s 2011 Hyundai Elantra Touring we looked at two dealerships, one was local in Vestal, NY; the other was stack-em-deep-and-sell-em-cheap in Syracuse. We decided for the $500 difference in price between the two places we wanted to support our own community. Others may have reached a different conclusion.

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