Last year as part of the restructuring of GM and Chrysler in bankruptcy, approximately 2000 dealers were abruptly terminated, or in the case of GM dealers told that they would lose their franchises no later than October of 2010.
GM and Chrysler claimed that dealers cost them a lot of money. Here’s a good way to look at this. Consider dealers as the only customer of the manufacturers. Also be aware that virtually everything we get from the manufacturer, we pay for. Canceling out dealers would be very similar to a dealer filing for bankruptcy and in the bankruptcy stating that the dealer would no longer sell to people whose last names started with A through the letter D. Less dealers mean less competition and fewer choices for getting service for consumers.
I’ll admit that some dealers might have been too close to one another, but wouldn’t it have been a better plan to allow the market (that means the customers) choose which dealers would survive? Many dealers lost franchises because the manufacturer wanted to combine their brands under one roof. Here’s an example of that: In the Waterloo Cedar Falls area, Holdiman Motor lost their Jeep and Chrysler franchises. Those franchises have already been given to a different dealer who had the Dodge franchise. Even in bankruptcy the Jeep and Chrysler franchises had considerable value yet the manufacturer took them from one dealer and gave them to another dealer. This, I’m pretty sure of, was done with no payment to Holdiman, or charge to the other dealer.
There are rules and laws that protect dealers from manufacturers using such tactics. But in the shroud of bankruptcy they were able to bypass those laws. There are also rules and laws that protect dealers from unfair competition and also require that all dealers pay the same amount for their new vehicles from the factory. Those laws and rules were created years ago to ensure that there were convenient service and price competition available to consumers and that little dealers wouldn’t be unfairly forced out of business. The alternative will be no place but large towns having auto dealers. The big dealers would like that, you won’t….
I’d love to hear your thoughts on this subject.
A lot of times, I think we hear about the political games and maneuvering in DC and, to a lesser extent, Des Moines and it doesn’t seem like a reality that directly affects us or we don’t understand exactly how it will affect us. I think this post helps bring home that reality and explain how these changes will affect those of us in rural Iowa…
Dear Anonymous,
Another way to look at this is to compare Toyota to Chevrolet. In NE Iowa there are many Chevy stores, I have four of them. There are only Toyota stores in metro areas. That makes service less convenient, but more importantly, in my view, it makes price competition a low priority for Toyota dealers.
On the “political” issue, I can attest that in the case of GM particularly, all the contacts that I normally are able to talk to at GM professed to know nothing about the process of choosing dealers to terminate. No one knows the criteria used. There has just been a bill passed in the US congress that allows for a review with terminated dealers, and arbitration if the dealer doesn’t agree with being closed. This could possibly uncover some situation where a dealer was terminated because the dealer had angered someone at the manufacturer. However, when these meetings are done one on one, at the manufacturers office, and dealers have no mechanism to compare notes with other dealers who are in the same position, it would be difficult to prove that the manufacturer was being unfair. A group formed of dealers who’ve been terminated called the whole process a sham. Finally, for many dealers the damage is already done, some have closed, some have laid off many good employees in an effor to downsize, some have even had to file for bankruptcy, in addition to the negative public perception of a dealer that came back from near death.