Will GM be able to drop dealers?

dealer-cars

Part of GM’s restructuring plan calls for reducing their massive network of 6,200 dealers by 25 percent.

Few will argue the logic behind that thinking. The ones who will argue are the dealers in that unfortunate 25 percent, a group who will very likely make life even more difficult for GM.

In fact, it’s happening already. According to the Detroit Free Press, Alabama dealership Abercrombie Chevrolet is suing GM and GMAC, claiming a conspiracy by the two to break its franchise agreement “in an effort to shut down dealers and avoid paying franchise buyout fees.”

Franchise agreements, or dealer franchise laws, do things like restrict GM’s freedom to open new dealerships near existing ones. More importantly, they make it nearly impossible for an auto manufacturer to simply shut down a dealership. GM will have to get dealers to agree to close up shop, which will mean buying them out. Dropping brands and reducing the number dealers may very well cost more than it saves.

In my opinion, two things that are holding automakers back from success are union agreements and these dealer franchise laws. On some levels I feel sorry for GM, because the union says they can’t let people go, and the franchise laws say stores can’t be closed. What’s a company to do?

Abercrombie Chevrolet is accusing GM of wrongly withholding rebates, warranty claims, and other money due to the dealership while GMAC is demanding a bigger cash deposit “in an effort to drive them out of business.”

GM denies any wrongdoing. And according to the restructuring plan submitted to the government, GM expects to close 2,326 dealers by 2014.

If this lawsuit is any indication, it’s going to take billions of dollars and many more lawsuits before that will happen.

Do you think GM can succeed in closing so many dealerships?

-tgriffith

1 Comment

  1. You are wrong about the dealer franchise laws. The GM franchise agreement is just that, an agreement, which swings both ways as it should. The dealer IS GM’s customer. The dealer (who is an independently owned business separate and apart from GM) agrees to INVEST MILLIONS OF DOLLARS in facilities, inventories, people, training, advertising, etc IN EXCHANGE for a semi-exclusive right to represent the brand to consumers in a specifically defined geograghic area. Should GM wish to end this relationship they must reach an agreement with the dealer that appropriately compensates the dealer for the investment he has made in representing and promoting the manufacturer’s products. If the dealer’s business should fail, then the dealer has violated the agreement and GM owes him nothing. If GM / GMAC’s actions cause the dealer to fail through no fault of his own, that is the basis for legal action. The reduction in number of of dealers will actually have a medium term negative on GM’s turn around. The franchise agreement calls for GM to repurchase any new / unused vehicle remaining in dealer inventory at the time of closure – this inventory must then be redistributed to remaining dealers who would then have less need to purchase new inventory from GM plants. and around and around it goes – where it ends nobody knows – unless we get these credit markets freed up and people start buying new cars again.

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