GM Done Fighting with Dealers Over Closures; Now Fighting Over Facility Upgrades
General Motors declared it was finished with its retail channel makeover and in the same announcement, announced a makeover of the actual dealerships themselves. The twin agenda items illustrate the ambivalent relationship between car companies and their dealers.
Dealers and car companies are inseparable allies and natural enemies. The way the retail auto business works is fundamentally simple. Dealers buy cars from the factories at a wholesale price and sell them to consumers at a retail price.
The setup guarantees that factories and dealers have inherently conflicting interests. The car companies make most of their money selling cars to dealers. The more the dealers pay for cars relative to how much it costs to build the cars, the better for the factories. But the more dealers pay, the more they have to charge consumers. To be sure, the consumer marketplace rules, which tends to keep both parties in check.
On top of that inherent conflict, the obvious issue between GM and its dealers is that GM terminated about 25 percent of its dealerships in bankruptcy restructuring, starting last year. That inevitably left some hard feelings among the dealerships that were dropped. GM said it got rid of dealers because it had too many, so many in the same market in many cases, that they competed with each other rather than against the Toyota (TM) dealer down the street.
Some dealers fought the terminations in arbitration, and GM ultimately reinstated 661 dealers out of about 2,600 it originally marked for termination. What GM announced last week was that it completed the remaining arbitration cases.
The terminations still leave GM with the nation's largest network, with about 4,500 dealerships. The company also reported that many of these dealerships are participating in a major facilities upgrade program, with more than 300 updates already completed and about 1,000 projects scheduled through the end of 2010.
Obviously, dealers pay for their own dealerships. So when a car company announces, "a major facilities upgrade program," like GM did last week, the car company doesn't always add, "a major facilities upgrade program... which the dealers carry out at their own expense."
To be fair, sometimes the various car companies will foot part of the bill, for instance for design work. And sometimes the dealerships sorely need an upgrade, which dealers might not do without pressure from the factory. The point is, dealership upgrades are a perennial flash point.
At any rate, when GM and its dealers declare they're back to business as usual, most people don't realize what "business as usual" means. In this case, it could be taken to mean switching from open hostilities back to merely the usual sniping.
Related:
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GM to Have 4,500 Dealers Left by Nov. 1
GM confirms new dealer network
Photo: GM