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1,100 GM dealers getting closure notices

Posted Friday, May 15, 2009, 1:31 pm in Employee News

About 1,100 underperforming General Motors Corp. dealers started receiving notices today that their franchises will be eliminated, a day after Chrysler LLC released a list of 789 dealers targeted for closure, The Detroit News reported.

The moves are part of GM’s plan to cut its U.S. dealership ranks by about 40 percent from 5,969 to 3,600 by next year, a deeper and quicker cut than what was included in a Feb. 17 plan rejected by President Obama’s autos task force, the News said. GM will shed about 500 additional dealerships by eliminating the Saab, Hummer and Saturn brands and another 400 to 500 dealers might be consolidated with other franchises, the paper said.

GM expects 400 to 600 dealerships to terminate the franchises voluntarily based on the struggling sales environment and economy, the News reported. As part of the cuts, GM will buy back inventory, signage and parts, the story said. (The Detroit News)
 

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Dealer Math

Dealer Math in GM, Chrysler Cuts Is More Sales at Fewer Stores

May 18

-- General Motors Corp. and Chrysler LLC, borrowing from the playbook of Toyota Motor Corp., are betting they can sell more cars with fewer dealerships.

Plans announced last week to shed almost 2,000 retail outlets are designed to bolster the survivors, GM and Chrysler said. Reducing competition from stores with the same brands is supposed to allow the remainder to boost prices and profit, and to reinvest in their businesses to keep adding customers.

That echoes the strategy of Toyota, the world’s largest automaker, in growing to second behind GM in U.S. market share. U.S. stores for Toyota and Honda Motor Co. each averaged more than 1,100 sales in 2008, almost three times as many as GM’s and Chrysler’s, consulting firm Grant Thornton found.

“There’s the school of thought that if they want to emulate the success of brands like Toyota and Honda they should emulate their dealer structure,” said Jack Nerad, an analyst for car-pricing company Kelley Blue Book in Irvine, California. “That certainly seems to be the view of the automotive task force.”

Nerad was referring to President Barack Obama’s car task force, which steered Chrysler into bankruptcy on April 30 and set a June 1 deadline for GM to finish restructuring outside of court. The panel said it wasn’t involved in the dealer cuts.

GM, based in Detroit, is paring domestic dealers to a range of 3,600 to 4,000 from 5,969 by the end of 2010. On May 15, it notified about 1,130 retailers their franchise accords won’t be renewed, meaning they would stop selling cars in a year and won’t be able to order new inventory. A day earlier, Chrysler told 789 outlets they would stop selling cars by June 9.

Dumping Dealers

Dumping dealers isn’t part of the cuts in costs and debt at GM and Chrysler. Instead, “underperforming” stores, as GM put it, were targeted to ensure the automakers’ future retail networks will be stronger for when the companies reorganize.

GM’s U.S. dealers sold 2.9 million vehicles in 2008, while the total for Auburn Hills, Michigan-based Chrysler’s 3,188 stores was 1.5 million. Toyota City, Japan-based Toyota had 2.2 million sales at 1,459 U.S. dealers.

“The strategy at Toyota is pretty simple: keep the dealer count rational, don’t locate them too close to each other and maximize their units per outlet,” said Mike Michels, a company spokesman in Torrance, California. “A profitable dealer can invest in their dealership and personnel.”

Average new-auto revenue was $14.3 million for GM dealers and $12.8 million for Chrysler last year, compared with $40.9 million for Toyota, based on data from auto-research company Edmunds.com. Dealers also make money on used vehicles, parts and service.

Store Averages

Each GM store averaged 444 new-auto sales, while Chrysler had 405, according to consulting firm Grant Thornton. Ford Motor Co. was similar, at 483. Japan’s three biggest automakers dwarfed those totals, with 1,200 for Toyota, 1,150 for Honda and 764 for Nissan Motor Co., Grant Thornton found.

Shrinking GM’s dealer ranks to about 3,600 would push the automaker’s retailers to an annual average of 750 sales, said Paul Melville, a Grant Thornton auto-retailing analyst in Southfield, Michigan.

“It’s heading in the right direction, but it’s still only 65 percent of where Toyota is,” Melville said. “They’ll still have a lot of low-volume stores.”

Mark LaNeve, GM’s North American sales chief, said the dealer cuts are needed to match the shrinkage in the company and in the U.S. auto market. GM plans to dispose of Hummer, Saturn and Saab and will end the Pontiac brand to focus on Chevrolet, Cadillac, Buick and GMC vehicles.

‘Too Little Sales’

“Too many dealers, in actuality, is not the problem,” LaNeve said on a May 15 conference call. “We’ve got too little industry and too little sales we have to contend with.”

Chrysler President Jim Press said on a May 14 call that “a powerful new dealer body” would be a pivotal part of the automaker’s restructuring, which includes an alliance with Italy’s Fiat SpA.

GM and Chrysler may never match per-store sales with Toyota or Honda because the U.S. automakers have more dealers in rural areas, where profitable pickups are top sellers. Toyota’s dealer network is concentrated in urban and suburban areas.

That means the focus must be on cutting overlapping stores in urban areas, where dealers tend to compete with each other by cutting prices rather than winning business from other automakers, said Melville, the Grant Thornton analyst.

Among those stung by the practice is Gordon Stewart, who owns a Toyota store in Alabama and Chevrolet outlets in Georgia, Florida and Michigan. His Garden City, Michigan, Chevrolet store competes with 45 others for the brand in metropolitan Detroit.

Price wars drain much of GM dealers’ profits, leaving little money left to market autos to new buyers, said Stewart, who wasn’t on GM’s cuts list last week and backs the efforts to thin the dealers’ ranks.

“Imagine how much money we could spend advertising if we had the whole market area to ourselves,” Stewart said. “Right now, you’ve got so many weak dealers in the market area that nobody can afford to promote.”

LINK:Dealer Math in GM, Chrysler Cuts Is More Sales at Fewer Stores - Bloomberg.com
 
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