Fallacies from GM and Chrysler
I've given a great deal of thought to, and studied about, GM and Chrysler's plans to close big percentages of their dealerships. And I have concluded that they will be shooting themselves in the foots. Here are some conclusions and how I reached them.
1. They are lying to Congress and the bankruptcy court by saying that the dealerships they are choosing to close are being selected by pure economics. A spokesperson at Chrysler has already stepped in doo-doo by admitting that other factors come into play. A Chrysler dealership in Tennessee is being closed, in part, because of its failure to invest in some sort of architectural feature that Chrysler wanted it to buy.
2. Fewer dealerships means less competition between dealers of the same brands, which means higher prices, which means fewer sales. Ford is positioned perfectly to profit from this situation. If I go to Chevrolet of East Harlem, for example, and price a new Silverado pickup in fire engine red, when I really want midnight blue, I couldn't go to Chevrolet of West Harlem to find out if they had midnight blue. Or even to price a different truck in fire engine red. But while driving back home, I might pass a Ford dealership that has a truck in red, blue, green, black and white. That leads perfectly into point #3!
3. Fewer dealerships means fewer outlets to place inventory. I realize that Chrysler and GM are planning to emerge from bankruptcy "leaner and meaner," but there will be fewer parking spots to put the new vehicles on display for consumers to see. That means lower unit sales. If UAW was really paying attention, they would see that down the road this means more furloughs. (By the way, automakers are required by law to sell to all dealers at the same price. It's called "antitrust" laws. So a higher price at the dealer does NOT mean higher revenue for the automaker.)
4. The automakers don't own the dealerships. They don't own the inventory; they don't own the real estate; they don't own the toilet paper; they don't own the service departments and they don't own the replacement parts. There is minimal investment on the automakers' parts. It usually takes the form of glossy booklets promoting their vehicles.
5. Fewer dealerships means fewer authorized service centers. When word gets out that when you call for an appointment to get an oil change and the first available time is 60 or 90 days away, consumers will be miffed. Don't doubt for a second that word will get out. That will result in fewer sales.
6. The dealers who remain will be forced to pay higher prices for automaker services. Remember, the automakers don't own the dealers. That means that when a salesperson or maintenance worker goes for training at an automaker's facility, the dealer pays for it. And based solely on economies of scale, dealers will pay more, causing their fixed prices to rise, causing higher sales prices, resulting in fewer sales.
I'm not smart enough to figure out the *real* reason that the two automakers want to close so many dealerships. I'm sure there are "problem children," and they should deal with those children. But claiming economic reasons for displacing so many workers is laughable. Even beyond displacing the workers at the dealerships, it is also bad business for the automakers in the long run. If I did know the *real* reason, I might look at the facts differently. As it stands, if I were in the market to buy a new vehicle in the next several months, I guarantee it would not be GM or Chrysler. Not because I worry about the vehicle quality but rather because it is just too damn inconvenient.
1. They are lying to Congress and the bankruptcy court by saying that the dealerships they are choosing to close are being selected by pure economics. A spokesperson at Chrysler has already stepped in doo-doo by admitting that other factors come into play. A Chrysler dealership in Tennessee is being closed, in part, because of its failure to invest in some sort of architectural feature that Chrysler wanted it to buy.
2. Fewer dealerships means less competition between dealers of the same brands, which means higher prices, which means fewer sales. Ford is positioned perfectly to profit from this situation. If I go to Chevrolet of East Harlem, for example, and price a new Silverado pickup in fire engine red, when I really want midnight blue, I couldn't go to Chevrolet of West Harlem to find out if they had midnight blue. Or even to price a different truck in fire engine red. But while driving back home, I might pass a Ford dealership that has a truck in red, blue, green, black and white. That leads perfectly into point #3!
3. Fewer dealerships means fewer outlets to place inventory. I realize that Chrysler and GM are planning to emerge from bankruptcy "leaner and meaner," but there will be fewer parking spots to put the new vehicles on display for consumers to see. That means lower unit sales. If UAW was really paying attention, they would see that down the road this means more furloughs. (By the way, automakers are required by law to sell to all dealers at the same price. It's called "antitrust" laws. So a higher price at the dealer does NOT mean higher revenue for the automaker.)
4. The automakers don't own the dealerships. They don't own the inventory; they don't own the real estate; they don't own the toilet paper; they don't own the service departments and they don't own the replacement parts. There is minimal investment on the automakers' parts. It usually takes the form of glossy booklets promoting their vehicles.
5. Fewer dealerships means fewer authorized service centers. When word gets out that when you call for an appointment to get an oil change and the first available time is 60 or 90 days away, consumers will be miffed. Don't doubt for a second that word will get out. That will result in fewer sales.
6. The dealers who remain will be forced to pay higher prices for automaker services. Remember, the automakers don't own the dealers. That means that when a salesperson or maintenance worker goes for training at an automaker's facility, the dealer pays for it. And based solely on economies of scale, dealers will pay more, causing their fixed prices to rise, causing higher sales prices, resulting in fewer sales.
I'm not smart enough to figure out the *real* reason that the two automakers want to close so many dealerships. I'm sure there are "problem children," and they should deal with those children. But claiming economic reasons for displacing so many workers is laughable. Even beyond displacing the workers at the dealerships, it is also bad business for the automakers in the long run. If I did know the *real* reason, I might look at the facts differently. As it stands, if I were in the market to buy a new vehicle in the next several months, I guarantee it would not be GM or Chrysler. Not because I worry about the vehicle quality but rather because it is just too damn inconvenient.
posted by Michael Vernon at Tuesday, June 09, 2009
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