Saturday, June 20, 2009

Chrysler, GM and the Dealer Fiasco

WASHINGTON - MARCH 26:  U.S. President George ...Image by Getty Images via Daylife

Chrysler and GM needed to pair their dealer count. Some of the dealers they got rid of needed to go. They were under performing in sales, service and customer satisfaction. Some were in markets that had too many dealers. Some did not fit the channeling guidelines of all models under one roof. Others were just not politically astute and had made the wrong person angry. Still others and perhaps the majority had done nothing wrong.

Family owned and operated stores serve most of the smaller markets. Many are second, third or even fourth generation operations. They provide some of the best paying jobs in their respective markets. They pay a higher amount of taxes then most other businesses. They pay sales tax on high-ticket items, inventory taxes on high value inventories, real estate taxes on large pieces of valuable property and so on ad infinitum.

They are among the pillars of their communities. They fund charities, community sports and other things that will now go begging. The loss of these classic small town enterprises will have devastating ripple effects across their communities. They were generally the largest advertiser in town. They bought oil, gasoline, tires and auto parts in large quantities. Many were large contributors to local churches, schools and hospitals. Their loss will be felt in many ways and by many people across their communities.

The big three have been trying to pare their dealer counts for years. The competition has been selling more vehicles out of fewer stores for some time. That has more to do with the quality of the product though then the quality of the dealer. That and the fact that the import manufactures have not diluted their sales per store by over dealering in the first place. State franchise laws have prevented, and rightly so, much of what Ford, Chrysler and GM have wanted to do. The bankruptcies’ made those laws mute though.

The Supreme Court refused to hear argument on behalf of the dismissed dealers. That is to be expected because federal bankruptcy law trumps state franchise law. There is a movement in congress to pass legislation to either slow or reverse the terminations. It is too early to tell what effect if any that will have, but it looks like too little too late for most of the Chrysler dealers. GM’s dealers do have an appeal process available to them and time will tell how that plays out.

Better management of Chrysler and GM., could have avoided this whole scenario. The management teams at all of the big three tend to have a short-term point of view driven primarily by the stock price. That has a lot to do, maybe everything to do, with the way top executives are compensated. Little good it has done them in recent years as the stock price slipped ever lower.

In their management, quality takes a back seat to artificial cost control. Union negotiations were handled like there was no tomorrow. Tough decisions were put off until it was too late to matter. Too much time and effort were put into incredibly complex customer satisfaction efforts; designed to make all customer issues, the dealers fault. Finally, way too much effort has gone into trying to change the distribution system. High quality products sell themselves regardless of the perceived problems in the distribution system. The horrifically poor management of these two American behemoths made the slaughter of their dealers a self-fulfilling prophecy.

Many of the dealers have questioned why, if they are profitable and have good customer satisfaction scores are they being terminated. They point out that their existence does not cost the manufacture anything. This is true. They pay for their vehicles, parts, co-op advertising and point of sale material. The dealers get nothing free. The manufacture has a holdback account on each dealer in case of default that they can apply to any delinquent amounts owed to them. To be terminated by letter or hearing it on the news like some did is unconscionable on the part of Chrysler and GM. These dealers deserve an answer to their questions if not full reinstatement.

When someone has to drive over a hundred miles to get a Chrysler or GM car serviced, or worse yet to buy one, you wonder. How long will it be before somebody’s nephew or friend gets an add point store in that market. Neither GM nor Chrysler will abandon all of these markets permanently. Some dealers in peripheral markets, closely adjacent to bigger stores in large markets, will be gone for good. Other markets though will be redealered at some point. It will be interesting to watch how long that will take and who will get the stores.

The real problem though is that all this pain and suffering is likely just delaying the inevitable. Regardless of any restructuring, debt elimination or infusions of taxpayer dollars the same management is in charge. Without an honest look at how they got where they are they are doomed to repeat the same mistakes. If they charge into the future, thinking the past was somebody else’s fault it will lead back to the past. If quality is not a priority and innovation a mandate then nothing changes. For the sake of the country and all the remaining stakeholders, I hope they get it right.
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