The Dealers: Two Sides to Every Story

Pontiac Dealership

GM and Chrysler dealers have, naturally, been protesting their shutdowns—some impending from before the bankruptcies. Their stories range from the heartbreaking to the absurd, all signifying how dramatically the landscape of the auto industry has changed.

Yesterday President Obama signed legislation giving ousted dealers access to a neutral, six-month arbitration process to get them (possibly) reinstated. The companies must inform the 2,150 dealers they closed why they were terminated and read them their rights under this new law. The dealers have 40 days to seek arbitration.

Some of these guys will obviously have a case. The companies, particularly Chrysler, dealt with them harshly, gave them credit and then withdrew it, let them buy lots of inventory, and then pulled the plug. There are stories galore about how dealers, especially in rural areas, were the economic lights of their towns, sponsored Little League teams, helped old ladies and handicapped people buy cars, and so on.

The other side of the picture is that to survive, the auto companies definitely had to downsize their bloated dealer networks. Chrysler cut 800 dealers, or 25 percent of its network—which contributed only 14 percent of its sales. GM gave at least 1,100 of its 6,000 dealers a year to cease operations; Chrysler gave its people less than a month.

In any case, Congress got into the act because of all the local protests about the closings. Politicians, in case you hadn’t noticed, respond to this kind of thing like Pavlov’s salivating dogs. They can’t fix health care, but they keep their constituents healthy. They accuse GM and Chrysler of unprofitable mismanagement, then saddle them with new restrictions like this. Said Fortune’s Alex Taylor:

House Majority Leader Steny Hoyer [D.-Md.] mysteriously declared that the dealers and the automakers need a process “that gives the dealers a chance to make their case for remaining open, while respecting the companies’ need to return to profitability.” That is the legislative equivalent of having your cake and eating it too.

So lawmakers created a messy, unworkable process that finally, we can bet, won’t resolve much of anything. On the other hand, GM and Chrysler got uppity and broke off settlement talks with the dealers and wouldn’t budge on the criteria they originally had used for termination. The result has been the highest closure rate of car dealers in nearly sixty years. And even with all those closings, sales per dealership rates are way down.

Anybody think we’re coming out of the Big Car Slump? Or do you think sales rates will continue to drop?


Leave a Reply

Your email address will not be published. Required fields are marked *


This site uses Akismet to reduce spam. Learn how your comment data is processed.