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The Dealership Disaster: GM, Chrysler Again Fail to Lead

Charles Krome
by Charles Krome
May 19, 2009

Things are continuing to shake out in the U.S. auto industry, and right now it's the dealers turn to get shaken.

Last week cut about 800 dealers and axed about 1,100. The General will also cross nearly 600 other dealerships off its lists when it closes up , , and .

The damage to the economy will look something like this: roughly 100,000 employees will lose their jobs; untold others who relied on dealership business, like the billions in dealership advertising that keeps local media operations afloat, will be out of work; the billions spent by dealerships on community- and charity-oriented activities will be gone; and let's not forget the state and local taxes paid by both the dealerships and their employees, all of which will dry up.

However, that being said, I just don't see any good alternative to thinning the dealer ranks. The industry is at a crossroads, with the entire business model going through a series of major changes that will affect the entire business.

Just consider the stark contrast between , with 1,200 U.S. dealers, and GM, which currently fields about 6,400 dealers. The same way the General has about five times as many dealers as Toyota, the U.S. automaker also spends some five times as much money and resources supporting its network when compared to the Japanese company. That's a cost disadvantage a 'new' GM just can no longer bear.

I understand this, and a lot of dealers do, too. The real problem with the dealer contraction is the way GM and Chrysler are going about it '” or, depending on how you look at the situation, the way the government is letting them do it.

Here's the thing: A lot of analysts looked at new unemployment filings earlier this month '” a seasonally adjusted 637,000 of them the second week of May '” and said that the numbers meant unemployment rates had crested after the mass layoffs at the beginning of the year.

Now, I don't know what these people consider a 'mass layoff,' but lopping at least 100,000 individuals from the work rolls meets my definition. And what are the car companies and ye olde Presidential Task Force doing to make it easier on the dealers and the economy? It looks to me that the answer is 'nothing.'

What's worse is that I'm not seeing anything being done to create a better situation for a 'new' kind dealer-OEM relationship to match the 'new' car companies. As I've tried to point out over and over again, just making cuts in this business is no kind of long-term solution.

Especially when it comes to the core of the industry '” areas like manufacturing, design and, yes, dealerships '” you can't just throw an entire piece out because it's broken. You have to fix it.

Of course, that would take a kind of leadership that seems to be in short supply around Detroit nowadays.


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