By Kevin Meyer
Nearly a year ago Bill told you how GM's plan to reduce its dealer network was just a fraction of what needed to be done. At the time GM had 6,300 dealers selling an average of 468 vehicles each, compared to Toyota which had 1,800 dealers selling an average of 1,250 vehicles each. GM proposed closing 2,600 dealers which take the average to a still underperforming 797 vehicles each, obviously assuming constant sales.
Well that 2,600 reduction was soon whittled down to 2,000 and now it has been reduced even further.
General Motors Co. is reinstating at least 660 of the more than 2,000 showrooms it had planned to drop, a partial reversal of a consolidation plan that caused pain and fear in cities and towns across the country when first disclosed last year.
Toyota now has 1,452 dealerships in the U.S., each of which last year
sold an average of 1,219 vehicles. GM has about 5,500 dealerships and
sold 2.1 million vehicles last year, an average of about 376 a store.
Of course we can understand why this happened since GM is now effectively controlled by the government.
Lawmakers had pressured GM on behalf of local businesses, forcing it to
first offer arbitration to dismissed dealers. The company last year was
bailed out by the U.S. government, which now owns 60%.
Policy trumping good business. No surprise. So why is the number of vehicles sold a big deal? The Wall Street Journal describes part of the problem:
In many markets, GM, Chrysler and Ford dealers compete as much or more
against other dealers of those companies, and undercut each other on
price. After years of losing money, many have been left with old and
outmoded facilities, while dealers for companies like Toyota Motor
Corp. and Honda Motor Co. have been able to update and expand their
showrooms and amenities.
And Bill describes how those dealers then react in order to bring in more money to survive.
I was surprised to learn that the average dealer
loses money on a new car sale, but makes a great deal of money selling
parts and service. Maybe you already knew that. I am sure that this
is true for GM dealers much more than for Honda and Toyota dealers
simply because the smaller dealer base in the Japanese supply chains
sells so many more cars per dealer – so much less fixed cost per car
By deploying such an obese dealer network, GM has
put the dealers in the service business – with the unintended
consequence of making defects the dealer's best friend.
Reducing inventory and reducing cost is good business, which increases the value to the customer. GM, or GM's nanny, has decided to go in the opposite direction – at a time when customer demand is down no less.
What's really scary is that the old discontinuity between "sales" and "demand" continues to exist, and wasn't even confronted by the author of the WSJ article.
Reinstating dealers and taking orders to restock their lots could help
GM improve its market share as Mr. Whitacre desires, and help the
company regain the lead in U.S. vehicle sales.
Restocking lots is simply increasing inventory, not a sale – unless you have screwy accounting like GM which records a sale when a vehicle moves out of the factory, not when a final consumer decides they want to buy it. It has no impact on market share. Customer demand is customer demand, regardless of how many vehicles sit waiting for an owner.
Increasing inventory in the face of decreasing demand obviously makes no sense, but remember this is being driven by GM's puppeteers, the same group of jokers that came up with "cash for clunkers"… and we know how financially irresponsible that was:
More importantly, 5 million barrels of oil at $70 per barrel costs
about $350 million dollars. So, the government paid $3 billion of our
tax dollars to save $350 million.
We spent $8.57 for every dollar we saved.
I'm pretty sure they will do a great job with our health care, though.