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.
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.
Which would be a perfectly logical explanation for dealerships closing. But it doesn’t explain why dealerships are being closed.
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.
Wait, what?
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.
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.
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.
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.
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.
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.
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.