What's the Score? Cali GM Dealer Wins Against, Erm, GM

Matthew Guy
by Matthew Guy

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]

Matthew Guy
Matthew Guy

Matthew buys, sells, fixes, & races cars. As a human index of auto & auction knowledge, he is fond of making money and offering loud opinions.

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  • Erikstrawn Erikstrawn on Aug 29, 2018

    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.

  • Buckwheat Buckwheat on Aug 29, 2018

    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".

    • WildcatMatt WildcatMatt on Sep 17, 2018

      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.

  • Mike Some Evs are hitting their 3 year lease residual values in 6 months.
  • Tassos Jong-iL I am just here for the beer! (did I say it right?)
  • El scotto Tim, to be tactful I think a great many of us would like a transcript of TTAC's podcast. 90 minutes is just too long for most of us to listen. -evil El Scotto kicking in- The blog at best provides amusement, 90 minutes is just too much. Way too much.
  • TooManyCars VoGhost; I was referring more to the Canadian context, but the same graft is occurring in the US of A and Europe. Political affiliation appears to be irrelevant.
  • The Oracle Going to see a lot of corporations migrating out of Delaware as the state of incorporation. Musk sets trends, he doesn’t follow them.