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Dealership Cuts are an Unheard of Opportunity

Posted By admin || 25-Aug-2009

Bankruptcy process allows GM to cut dealerships without dealing with each franchise separately.

An article on pointed out that GM has a "once-in-a-lifetime opportunity" to get out of franchise contracts that they hold with several dealers.  History shows that these contracts can be extremely expensive to get out of, but since bankruptcy is on the horizon, GM is being given a unique break.  Normally, GM would have to negotiate with each dealership separately.

Now, do not let all of this fool you, there are negatives to cutting the number of dealers.  One of the drawbacks is substantial job losses.  These job losses are of course in the auto industry, and job losses in the industry were touched on in an earlier blog entry, "Auto Industry Job Losses Push Unemployment Upwards".

Another negative to cutting the number of dealers is there will be substantial short term costs for the automakers.  In more plentiful times, other dealerships could absorb some of the excess inventory left over from the shuttered dealerships, but currently the carmakers themselves will have to buy back some of the vehicles.  Of course, this is not good for GM, because they are already closing for several weeks over the summer due to an abundance of inventory.

Many of the expected closures are supposed to take place in dealer-saturated urban areas.  This is both a negative and a positive.  A simple rule of economics says that this will reduce competition and therefore drive up prices.   This is terrible for consumer's pocketbooks, but as you will see in a second, it will turn out positive for the service experience.

Gary Dilts, who was once the head of sales at Chrysler, theorized that a positive to the closed dealerships will be nicer and more modern dealerships.  This is assuming that the remaining dealerships will eventually pick up the lost sales of closed dealerships.  The remaining dealerships will in turn have more profit to invest into their own infrastructures.

One common misconception of the casual observer is that dealerships are costing the automakers a large sum of money.  This isn't true at all, because dealerships are separate entities, that in reality, purchase cars from the manufacturers.

You also might believe that GM's goal is to just drastically lower their number of dealerships, but that is another myth.  Their goal is to find an optimal number of dealerships for their current market share in today's economy.

For instance, GM currently has an advantage over some foreign car dealers, because GM has dealerships in rural areas.  People that live in rural areas feel more comfortable purchasing a vehicle from a local dealership.  This means that GM is trying not to be overzealous with closings, and it means that they will likely stay in areas where they own a large portion of the market share

GM's situation could be loosely compared to many of you.  GM was a magnificent company, but economic conditions began to cause GM's misfortunes to pile on top of each other.  Their bankruptcy is allowing them another rare opportunity to straighten out their business through these dealer cuts.

Please think about the companies that have contributed to putting you in a bad situation.  Many of those companies are getting similar opportunities as GM.  GM is accepting help where it is due.  If you are in a bad financial situation, you should also consider what all of your options are.  Please contact a Dallas-Fort Worth bankruptcy attorney if you want to learn about the options you have.

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