# What is the rationale for closing dealerships? **URL:** \ **Category:** Great Debates\ **Created:** [May 17, 2009, 4:35pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755 "2009-05-17T16:35:37Z")\ **Posts on this page:** 12\ **Page:** 2
**Author:** ![Tim\_R.Mortiss](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tim_r.mortiss/32/142_2.png) [@Tim\_R.Mortiss](https://boards.straightdope.com/u/Tim_R.Mortiss)\ **Post date:** [May 18, 2009, 5:40pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/21 "2009-05-18T17:40:02Z")
> [@BrainGlutton](#): > > I could be wrong, but I always assumed auto dealerships are independent franchises, like fast-food-chain restaurants – meaning each dealership is owned by a private businessman, not by the corporation, and the overhead is solely the owner’s problem. I don’t know how much cost burden is borne by the franchisee, and how much by the corporation, but ANY business relationship has a certain level of drain on your funding. If the dealership isn’t bringing in enough to justify it, they have to go. ---
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [May 18, 2009, 7:02pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/22 "2009-05-18T19:02:00Z")
GM is also cutting dealerships with bad customer-service ratings. That one isn’t too hard to understand, as it strongly affects the brand’s image and repeat-sales prospects. Don’t forget that GM is downsizing itself - they already shut down Olds, Pontiac is next, and they’re trying to sell Saab, Saturn, and Hummer. With a similar number of dealerships left after the company is down to only Chevy, Buick, Cadillac, and GMC Trucks, they’d all just be trying to cannibalize each other’s sales, and GM itself would have a higher administrative cost burden based on sales. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [May 18, 2009, 7:11pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/23 "2009-05-18T19:11:18Z")
> [@](#): > > A few years ago, the economy wasn’t in the toilet. Most US businesses have seen their profits drop, and as I understand it, car dealerships have been hit especially hard. So most of these dealerships were probably profitable five years ago, but can’t keep up in the current economic situation. Which would be a perfectly logical explanation for dealerships closing. But it doesn’t explain why dealerships are being closed. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [May 18, 2009, 7:21pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/24 "2009-05-18T19:21:26Z")
My point was that either these dealerships were turning a profit or they weren’t. If the dealerships were losing money then they should have been closed long ago. If Chrsyler and GM have been subsidizing dealers all these decades then no wonder they’re in trouble. So I’m going to assume this wasn’t the case and these dealerships were earning more money for Chrylser and GM than Chrysler and GM were paying to them. I’m not saying they were making the largest possible profit but a small profit is still a profit. And Chrysler and GM are not in a situation where they can afford to snub any profits for being too small. A rich man can walk down the street and see a dime on the sidewalk and decide it’s not worth bending over to pick up anything smaller than a dollar bill. But a poor man can’t afford that option; he’s going to pick up any money he can even if it’s just a coin. ---
**Author:** ![Miller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/miller/32/481_2.png) [@Miller](https://boards.straightdope.com/u/Miller)\ **Post date:** [May 18, 2009, 7:33pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/25 "2009-05-18T19:33:02Z")
> [@Little\_Nemo](#): > > Which would be a perfectly logical explanation for dealerships closing. But it doesn’t explain why dealerships are being closed. Wait, what? ---
**Author:** ![Telemark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/telemark/32/372_2.png) [@Telemark](https://boards.straightdope.com/u/Telemark)\ **Post date:** [May 18, 2009, 7:34pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/26 "2009-05-18T19:34:27Z")
> [@Little\_Nemo](#): > > My point was that either these dealerships were turning a profit or they weren’t. They can also be cannibalizing sales from other dealerships, making them both less profitable then either would be alone. In better times, that wasn’t a problem. Now, it’s dragging down profitable sales because they’re competing against each other. GM has to offer incentives to keep both alive, when then wouldn’t have to do so if one was shut down. ---
**Author:** ![ElvisL1ves](https://avatars.discourse-cdn.com/v4/letter/e/5daacb/32.png) [@ElvisL1ves](https://boards.straightdope.com/u/ElvisL1ves)\ **Post date:** [May 18, 2009, 7:41pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/27 "2009-05-18T19:41:55Z")
> [@Little\_Nemo](#): > > But it doesn’t explain why dealerships are being closed. To be annoying for a moment, only the affiliation contracts are being terminated. The dealerships are free to find some other way to stay in business if they can, including finding new affiliations, or just as used-vehicle-only facilities. ---
**Author:** ![Kalhoun](https://avatars.discourse-cdn.com/v4/letter/k/3bc359/32.png) [@Kalhoun](https://boards.straightdope.com/u/Kalhoun)\ **Post date:** [May 18, 2009, 7:52pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/28 "2009-05-18T19:52:04Z")
> [@smiling\_bandit](#): > > Most people (even after repeated explanations) don’t understand that investment and margins control business decisions. > > That is to say that costs and alternatives are key considerations. It’s easy to make sales, and the dealership may have made a lot of money on them. However, GM might have lost a fortune overall, if each car was being sold at a loss to it. Likewise, cutting some dealerships may enable them to use fewer (and more efficient) plants and suppliers, thus drastically reducing their investment while increasing service levels. So that 1% number is units sold, but not dollars raked? That wasn’t made clear (or I missed it) in the piece I saw. ---
**Author:** ![Projammer](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/projammer/32/559_2.png) [@Projammer](https://boards.straightdope.com/u/Projammer)\ **Post date:** [May 18, 2009, 9:19pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/29 "2009-05-18T21:19:03Z")
And to further this question. What happens to the dealerships that get shut down? Do they just throw a chain on the door? Switch to a different auto manufacturer? Make their own financing arrangements to keep selling the same cars? I suppose that some of the mega lots that have 6 different brangs in the yard will just quietly remove the Chrysler logo from their signs and carry on. Assuming that any of the mega dealers get discontinue notices. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [May 18, 2009, 9:34pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/30 "2009-05-18T21:34:59Z")
> [@Kalhoun](#): > > So that 1% number is units sold, but not dollars raked? That wasn’t made clear (or I missed it) in the piece I saw. Well, it could be. It’s not actually clear. Additionally, GM has had to make so many huge sales that the dealership might be making money, and GM fincnaicng could even be making money, but the company as a whole might not be. I will also grant that there might some guesses on the part of GM that this might be the best dealership to close in that region because existing customers can easily go to other dealerships. Which they might use as an excuse to close the dealership or not. But it could also be a huge mistake and somebody did something stupid. Businessmen are fallible: they just get punished for making mistakes. C’est la vie. There’s just not enough info to know. Secondly, Dealerships are almost always private (at least, I’ve never heard of one which wasn’t). However, they have very strong contracts with certain companies (or sometimes brands). This has made it very difficult legally to close those contracts or brands. Secondly, financing is indeed so closely tied to the car companies that who owns what can differ by dealership. It’s a pretty weird business with some very old and complex laws, which differ by state. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [May 18, 2009, 9:44pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/31 "2009-05-18T21:44:26Z")
> [@](#): > > Which would be a perfectly logical explanation for dealerships closing. But it doesn’t explain why dealerships are being closed. > [@](#): > > Wait, what? My point is that is that the dealerships are being closed by an outside entity, the car company, not by the owners of the dealerships. Any loss of sales at a dealership is going to have a much greater and more immediate effect on the dealership owner than on the car company so the owner would have closed the dealership long before it became an issue for the company. ---
**Author:** ![Dangerosa](https://avatars.discourse-cdn.com/v4/letter/d/22d042/32.png) [@Dangerosa](https://boards.straightdope.com/u/Dangerosa)\ **Post date:** [May 18, 2009, 9:44pm UTC](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755/32 "2009-05-18T21:44:39Z")
> [@Kalhoun](#): > > So that 1% number is units sold, but not dollars raked? That wasn’t made clear (or I missed it) in the piece I saw. Its also possible that dealer had leverage issues - they borrowed so much (on the floor the Rick is talking about) that when the credit crunch happened and sales slowed, they couldn’t make their credit payments. A lot of businesses with good cash flow during good times are having issues because poor sales mean less cash flow, but they still have their finance payments to make. [Previous page](https://boards.straightdope.com/t/what-is-the-rationale-for-closing-dealerships/496755.md?page=1)