By Bob Dilmore
Chairman/CEO of Management Performance Groups, Inc. www.mpg20.com
We have been watching with interest the day-to-day developments in both the Chrysler and GM Chapter 11 Bankruptcies. We serve many prominent dealers throughout the USA and Canada and our phones have been busy with comments and questions from dealers who frankly are in a state of shock. Because of our position in the industry, i.e. provider of 20 groups, educational webinars, HR consulting & testing, and litigation support, we have the benefit of knowing exactly what dealers are feeling and how they are reacting.
Mark LaNeve’s letter to all GM dealers today (June 18th) is a classic example of GM’s arrogance and their lack of empathy or understanding of how their dealers really feel. They view the return of “participation agreements” as support for their restructuring efforts, when the facts of the matter are that dealers signed and sent these letters giving up their rights out of pure fear and in an effort to survive! Even those dealers who GM is terminating were coerced into signing, because if they didn’t they lost everything very suddenly, much like the experience of 789 Chrysler dealers.
I worked for General Motors for 17 years when GM was a truly great company – one of the largest corporations in the world – held in high regard by everyone. Having served in an executive position in the central office of Buick Motor Division, I came to know the real leaders – the movers and shakers – at General Motors; as well as at Buick. These were intelligent people, moral people; whose leadership was very apparent. They recognized their dealer body as GM’s greatest asset. Harlowe Curtice, Chairman and CEO of GM, initiated the Quality Dealer Program. We all lived by the standards established. We respected dealers as business partners.
To see the depths to which this once great company has fallen is frankly heart-breaking. The actions of the current management at both GM and Chrysler are not only unjust and immoral; they will prove to be self-destructive!
Under the guise of the necessities of their “restructuring plans”, GM and Chrysler have attempted to convince all the President’s men that getting rid of 25-40% of their dealer body will save them into prosperity. The REAL reason for these terminations, under the umbrella of a chapter 11 bankruptcy, is to eliminate dealers who have stood up to them, refusing to be “team players” on a team that was very obviously losing the game. Less than a year ago, GM was literally forcing their Hummer dealers to build an idiotic Quonset hut building that never moved the sales needle and then they announced to the world that they were selling Hummer. Actions such as these have destroyed GM’s credibility.
Chrysler has erred in many of the same ways. The big difference being that Chrysler has never had a solid rapport with their dealers – post Iacocca. They have constantly brow beaten their dealers to accept unwanted, unsalable, and poor quality product.
A huge example of corporate immorality is GM’s testimony before Congress trying to convince Senators and Representatives that by eliminating 1323 dealers, they will save over 1.25 billion dollars (928,000 per roof top). On the face of their information, those not totally familiar with our industry may naively accept their figures, but the truth is dealers cost them very little.
Let’s review the list they compiled to support their argument:
Dealer Margin (1% market support)
This is product advertising where GM has contributed 50% and the dealer contributes half to advertise GM products with the minimal dealer identification at the close of the commercial. It is only in fairly recent years that dealers paid anything toward GM’s product advertising – that advertising likely will continue – and there is no “savings” to GM.
Incentives Paid Directly to Dealer
GM has overpriced their product to provide the gross margin to pay these incentives. The customer has received “the benefit” of the incentive – not the dealer – and it’s doubtful incentives will go away. Regardless of who sells the vehicle, the incentives become a cost of sale. Eliminating dealers will not change this cost per vehicle.
Standards for Excellence
This one is really a stretch! Each dealer who “participated” paid a healthy sum to GM for each franchise line. Unrealistic sales goals were established by GM unilaterally and if a dealer didn’t hit objective, the dealer lost the investment in SFE. SFE was what internally GM refers to as a self-funding program. Eliminating dealers will not reduce this expenditure. The customer was the beneficiary of these funds as dealers scrambled to make their quotas.
New Vehicle Inspection
The amount GM pays a dealer for new vehicle inspection is on a per vehicle basis. It is computed into the cost of each vehicle. Selling more vehicles will cost GM more money. Selling less vehicles will cost GM less money. The number of dealers has absolutely no bearing on this cost. Fewer dealers will not save GM one penny on this item.
Factory Wholesale Floor Plan Support
What a great business the manufacturer has. The materials they use to produce a vehicle come from suppliers who are paid 30-60 days after receipt. When the vehicle is produced, it is immediately billed to the dealer. The manufacturer gets paid immediately! The dealer, more often than not, floor plans the vehicle with the captive finance company – in this case GMAC. GMAC charges roughly 1% over prime while the vehicle is in the dealer’s stock. When the vehicle is sold, quite often GMAC gets the finance contract and the interest – this time from the consumer. Now that’s throughput!
In order to “encourage” a dealer to buy (stock) more vehicles, GM offers an incentive – wholesale floor plan support. The number of dealers does not change this cost one iota! If GM builds more vehicles, floor plan support in total increases. If they build fewer vehicles, the floor plan support decreases.
Fuel Fill
This is another “cost of sale” item attributable to each individual sale. The number of dealers does not affect this cost! The number of vehicles sold does.
If one totals the “wind down dealers by state”, it equals 1,323 (page 4). On page 9, however, GM estimates the number of rooftops to be eliminated in GM’s dealer network at 2,300. Where’s the difference? Are there 1,000 more rooftops than dealers? We call this “GM math”.
GM management states, “a right-sized dealer network will allow GM to systematically reduce virtually all direct dealer support programs which cost GM approximately 2.1 billion a year.” an asterisk points out that this is based on a projected 3.1 million GM sales volume. None of the “so called” dealer support systems listed above are affected by the number of dealers! If GM thinks they can eliminate these costs of sales, they can do so without throwing 2,300 dealers or 1,323 dealers, whichever number is the correct one, in the street. Competition in the market place drives these costs as a business necessity! Toyota has them, Lexus has them, Nissan, VW, why does GM feel they can eliminate “virtually all direct dealer support programs”?
The maps of the states showing the number of domestic (Big 3) dealers vs. the import dealers is eye opening indeed! The percentage of domestic vehicles in operation is between 73.7 and 86.1% of all vehicles in operation where the domestic dealers dramatically outnumber import dealers.
GM and Chrysler; as well as the Treasury Department and the American Public (now stockholders), are on a path of self-destruction by eliminating dealers. In those markets where import dealers dramatically outnumber domestic dealers, the domestic vehicles in operation drops to 40.2 to 55.1%.
GM’s estimate of 3.1 million sales volume is grossly overstated. MPG projects a 23% reduction in GM and Chrysler sales in 2010, and if they both follow a trend-line that dates back to the turn of the century, we predict an annual reduction ad infinitum. GM’s market share for 2010 will be in the range of 14-15% on a volume of 1,345,000 vehicles (a 9.5-10 million car and light truck year nationally). Chrysler will be lucky to hit 7.5-8% market share with a sales volume of 748,000 vehicles. If Fiat experiences the typical timetable of entry into the USA, we will not see “Fiatslers” until 2011.
We are asked all the time what various franchises are worth. (I’m looking at a Nissan store – what’s the multiple?) I have asked numerous dealers recently “What do you think a publicly held company would pay for a GM or Chrysler store?” I’ve yet to hear an answer above “zero”.
General Motors Corporation and Chrysler along with the whiz kids from the Treasury Department have effectively destroyed the value of their franchises. They have also put a giant crack in the overall automotive franchise system. On average, a dealer today has at least 10 million dollars in assets plus land and buildings. Who, in the future, will take the risk of one day losing it all because a greedy manufacturer couldn’t manage their business?
About 1970 my father traded for a 1938 Nash that had been stored in a barn since the fifties, only had about 20,000 miles on it. We went out there to pick it up and brought a wrecker. We opened the barn and there she was, quite a sight. It looked like an old gangster car to me. The tires were flat and the New Mexico sun had long since taken the upper layers of paint, but there was no rust. Cars in those days had a hole in the roof that was covered with sort of a vinyl top, (not a sun roof) that had long since rotted away.
The interior looked like it had been in a barn for 20 years, sort of rotted itself, but the cushioning was in good shaped. You could hold parties in the back seat, limousines today don’t have as much room. Looking to start it, we turned the key but not with a switch for the starter. It turned out you had to push the clutch to the floor hard and that engaged the starter, a great 1930’s safety feature so you wouldn’t start it in gear. We pulled up the hoods; it had one on the right and the left, and marveled at the distributor cap. Twelve sparkplug wires was this an inline twelve cylinder?
“No”, our service manager, Dick Poole said. He explained that it was a twin ignition 6 cylinder and had two sparkplugs for each cylinder. One fired right before top dead center and on slightly after attempting to get as much fuel to burn as possible. We decided to pump up the tires, the gas was still in the tank from the fifties but we decided to try and start it up any way. The six volt battery was dead as a door nail. So we hooked a tow strap to it and sort of pull started it. Being a manual transmission, we got it going then stuck it in second and Dick Poole let his foot off the clutch, ka chug, ka chug, ka chug, varoooom …It cranked right up.
Off we went for a memorable joy ride. Dick showed us the overdrive feature that was in every gear, different. He also let down those famous Nash seats that lay down like a bed in the back. We didn’t get far and one of the tires blew, it was a good thing we brought the wrecker.
My father took about six months reconditioning and rebuilding. When he got her done she was a beauty. He took it from the original brown color it was to an original color that looked like British racing green, all new interior, new vinyl top, re-chromed hub caps and bumpers sweeeeet. We had a lot of fun driving that baby around….. Tell us about your Dad’s Car! click comments
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About 1970 my father traded for a 1938 Nash that had been stored in a barn since the fifties, only had about 20,000 miles on it. We went out there to pick it up and brought a wrecker. We opened the barn and there she was, quite a sight. It looked like an old gangster car to me. The tires were flat and the New Mexico sun had long since taken the upper layers of paint, but there was no rust. Cars in those days had a hole in the roof that was covered with sort of a vinyl top, (not a sun roof) that had long since rotted away. 
The interior looked like it had been in a barn for 20 years, sort of rotted itself, but the cushioning was in good shaped. You could hold parties in the back seat, limousines today don’t have as much room. Looking to start it, we turned the key but not with a switch for the starter. It turned out you had to push the clutch to the floor hard and that engaged the starter, a great 1930’s safety feature so you wouldn’t start it in gear. We pulled up the hoods; it had one on the right and the left, and marveled at the distributor cap. Twelve sparkplug wires was this an inline twelve cylinder?
“No”, our service manager, Dick Poole said. He explained that it was a twin ignition 6 cylinder and had two sparkplugs for each cylinder. One fired right before top dead center and on slightly after attempting to get as much fuel to burn as possible. We decided to pump up the tires, the gas was still in the tank from the fifties but we decided to try and start it up any way. The six volt battery was dead as a door nail. So we hooked a tow strap to it and sort of pull started it. Being a manual transmission, we got it going then stuck it in second and Dick Poole let his foot off the clutch, ka chug, ka chug, ka chug, varoooom …It cranked right up. 
My father took about six months reconditioning and rebuilding. When he got her done she was a beauty. He took it from the original brown color it was to an original color that looked like British racing green, all new interior, new vinyl top, re-chromed hub caps and bumpers sweeeeet. We had a lot of fun driving that baby around….. Tell us about your Dad’s Car! click comments
