Closing dealerships is a benefit to auto manufacturers?

I’ve not heard a good explanation to this question yet:

How is reducing the number of dealerships a good thing for Chrysler and GM?

AFAIK, the dealerships don’t cost the manufacturer a dime, so wouldn’t more dealers equal more potential sales? Fight my ignorance, Dopers!

  1. In the past GM & Chrysler had more market share. Less market share means less cars sold and less sales per dealer.

  2. Dealers compete with each other. Most people will drive a little further to buy the vehicle they want, so having 2 similar dealers in an area causes them to complete against each other. If only 1 dealer remains, then naturally it is more profitable (even if it does not gain all of the other dealers business it should gain a lot of it). As it is more profitable the remaining dealer can have better facilities and flashier showrooms to potentially sell even more vehicles overall than the original two dealers combined. The auto makers don’t lost since they are selling the same number or even more cars to the remaining dealer.

  3. Distribution costs are lowered. Same with hiring of regional reps, and other distribution related administrative jobs.

  4. With the internet it is easier than ever to research the value and quality of a car before walking into a dealer. Having distributed dealers close to every customer is arguably less important because many have already decided what car they want before they even look at a map to see where the dealers are located.

We did a thread on this within the last two weeks. Check GQ or GD.

Here is one such thread. And here is a Slate magazine article that attempts to answer the same question.

Ah, thank you. Don’t know how I missed that earlier thread.

Also, most of the cars on a dealers lot are not paid for yet. The auto manufacturer loans money to the dealer to buy them, and then waits to get paid byt the dealer later. (Or in some cases, not get paid. A local dealer that is going bankrupt, Denny Hecker, apparently owes car manufacturers several hundred million dollars.)

More dealers means more money fronted by the manufacturer to ensure that each dealer has an attractive inventory of cars on the lot.

Dodge dealers tend to see nearby Dodge dealers as the competition. It is in the manufacturer’s interest to have Dodge dealers competing against Ford, Chevy, Toyota, etc., instead of among like dealers. Dealers are on a 30-day mindset to make sales now, this keeps the retail price down. Manufacturers want to increase the value of the brand and the stock price. Different–and competing–priorities. I believe the manufacturers are moving toward online configuration, just-in-time manufacturing, and a few hundred bucks for delivery to local dealers. The days of a car dealership being like a license to print money ended five years ago.

[nitpick]This is not entirely correct. Yes it is true that the cars on most dealer lots are not paid for. What is not true is that the car maker is loaning the money. Well not exactly. The car dealer either gets the money from a bank, or from the finance arm of the car maker. Such as GMAC, or Ford Motor Credit. So a Chevy dealer may or may not have his flooring (loaning money on unsold cars is called flooring or floor plan) from GMAC you can say he does not get it from GM, since GMAC is a separate corporation.

If I could hijack a little, I was involved in a discussion yesterday where someone claimed that the Chrysler dealerships that are being de-certified will still have the cars they ordered from Chrysler, but will not be authorized to sell them…is this true? I assume we’ll see a lot of lawsuits arising from something like this.

Actually Chrysler is being a bit of a bitch about it. Back in the old days when a dealer closed, the car maker would buy the new cars back. But this time due to the large number of dealers and the very large number of cars, Chrysler is not doing that. They are telling the remaining dealers nearby to buy inventory from the closed dealer (cars as well as parts). If the nearby dealers balk, they have been told that if there is another round of closures then their name will be on that list.

From what I’ve read, they’ll still be entitled tos ell the cars on their lot, but they won’t be able to offer Chrysler’s pricing and financing discounts – those things which are the subject of every car commercial you ever see. So the exact same new car will either cost a few grand more at the de-listed dealer, or he’ll have to eat the difference to make the price competitive.


Such a shame. My dad used to work for Chrysler (not at a dealership, but at the HQ), and genuinely loved his job. Now he just shakes his head.