How car dealers tie Detroit's hands(newyorker.com)
newyorker.com
How car dealers tie Detroit's hands
http://www.newyorker.com/archive/2006/09/04/060904ta_talk_surowiecki
6 comments
Isn't this exactly what bankruptcy is for? Put GM in a pre-packaged bankruptcy (http://www.investopedia.com/terms/p/prepackagedbankruptcy.as...), and one of the planned actions should be shedding these unprofitable brands and severing the relationship with these dealers. The dealers made a bad bet on a brand, they are entitled to nothing.
> severing the relationship with these dealers.
That's actually hard to do - there's a myriad of state and federal laws that make this all but impossible. It cost about a billion dollars for GM to deep six the oldsmobile brand, buying out old dealers franchises, etc...
That's actually hard to do - there's a myriad of state and federal laws that make this all but impossible. It cost about a billion dollars for GM to deep six the oldsmobile brand, buying out old dealers franchises, etc...
Presumably it would be easier (and cheaper) to kill a brand while bankrupt than while trying to stay solvent. Dealers might be more amenable to changing brands or state laws if the alternative is to go out of business entirely.
IANAL, but can't they just stop renewing the franchise contracts? It would take a few years, but eventually they would be off the hook at ~zero cost.
Another option might be to simply stop updating the models of a given brand. Dealers survive for a few years servicing the currently existing models until they eventually switch to other brands.
Another option might be to simply stop updating the models of a given brand. Dealers survive for a few years servicing the currently existing models until they eventually switch to other brands.
"IANAL, but can't they just stop renewing the franchise contracts?" - which will cause the dealers to revolt. And as the article says, collectively they have the states in their pockets.
There's no way for GM to strip the dealers of their franchises without the dealers fighting back. Without the big stick of Chapter 11, GM doesn't stand a chance.
There's no way for GM to strip the dealers of their franchises without the dealers fighting back. Without the big stick of Chapter 11, GM doesn't stand a chance.
I've never really seen the appeal of franchising. You get a packaged business, but then the franchiser has you by the balls forever. Plus what I've read suggests that most franchise owners barely eke out a profit. Car dealers are probably better off, since they have service revenue independent of the parent company, but they're still dependent on a single supplier.
"McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85 percent of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere."
-- http://www.washingtonpost.com/wp-dyn/content/article/2007/12...
-- http://www.washingtonpost.com/wp-dyn/content/article/2007/12...
This article parrots Detroit's "take what you're given at shut up" view. Dealers see things differently. My family ran two automobile dealerships. The one that dealt with Detroit (Ford) had little choice in what they were given to sell, and complained in particular of Detroit shoving lots of big cars and trucks at them when the demand was for a size or two smaller.
Why don't they just stop making Buicks? Or are they obligated to provide a certain number per month?
a billion to kill a brand that costs you money is not that bad. It costs them something like 1-2 billion to bring a car from concept to production, so they'll save that money the first time they avoid having to redesign a new model.
But why kill? Sell it off...you are going to lose all that value anyways, so even if you sell Buick below market price, you still make more than if you just close the doors
But why kill? Sell it off...you are going to lose all that value anyways, so even if you sell Buick below market price, you still make more than if you just close the doors
To put that "billion dollars" in perspective, General Motors' current burn rate is apparently $6.9 billion a month. Ouch!
Don't Honda and Toyota have the same problem? They seem to be coping.
Honda and Toyota aren't wishing they could shed unprofitable brands.
True, but I also have to wonder how big a deal an "unprofitable" brand is. If the brand was genuinely unprofitable, wouldn't the problem dealers eventually go out of business?
And how much does it actually cost to keep a brand alive? Can't GM just slap a Buick label on a Cadillac and ship however many of each are needed?
And how much does it actually cost to keep a brand alive? Can't GM just slap a Buick label on a Cadillac and ship however many of each are needed?
True - that's more or less what the UK car industry did during it's death throws. You could buy the same car with different logos on it - people even argued about which one was better. In fact they were prettywell all dreadful - and now all gone.
You can't put a Buick logo on a premium car like a Cadillac. First, a Cadillac costs more to make than people are willing to spend on a Buick. Second, doing that would reduce the demand for Cadillacs (since nobody wants something that is the "same as a Buick").
For non-premimum brands, GM and other manufacturers already do sell the same car with different names--even across coompanies. Most obviously, the Eagle Talon is/was the same as the Mitsubishi Eclipse except for the spoiler, and the Chevy Camero and the Pontiac Firebird were the same car with different body trim for a long time. Similarly, the Ford Taurus and the Mercury Sable are the same car except for some body styling. Toyota Corolla is the same as the Geo Prism, the Toyota Matrix is the same as the Pontiac Vibe, Ford Focus is sold under three different brands.
Doing this keeps the prices of the good brands high while selling cars for a discount when necessary. If you bargain the price of a Ford Taurus down far enough, the dealer will tell you that you can't have the Taurus for that price, but you can have the equivalent Sable.
For non-premimum brands, GM and other manufacturers already do sell the same car with different names--even across coompanies. Most obviously, the Eagle Talon is/was the same as the Mitsubishi Eclipse except for the spoiler, and the Chevy Camero and the Pontiac Firebird were the same car with different body trim for a long time. Similarly, the Ford Taurus and the Mercury Sable are the same car except for some body styling. Toyota Corolla is the same as the Geo Prism, the Toyota Matrix is the same as the Pontiac Vibe, Ford Focus is sold under three different brands.
Doing this keeps the prices of the good brands high while selling cars for a discount when necessary. If you bargain the price of a Ford Taurus down far enough, the dealer will tell you that you can't have the Taurus for that price, but you can have the equivalent Sable.
He wasn't arguing that you could turn a Buick (cheap car) into a Cadillac (expensive car). He was arguing that if they can't entirely dispose of a brand, they could turn a Buick (car labeled a Buick) into a Cadillac (car labeled a Cadillac) with a simple label change.
A Cadillac is a car that has been labeled a Cadillac by the legal owner of the Cadillac trademark. Maybe "a car" is extraneous, too, though I suspect dealership contracts would have something to say about being turned into a Cadillac Pencil dealership. But still, I would imagine GM has a lot of discretion about what gets called a "Cadillac". (Maybe not, but that would be awfully far-sighted of the dealers to get a clause defining what a Cadillac is in their contracts and I would salute them for their legal prowess if they do have such clauses.)
Also, I have now typed "Cadillac" so many times it is no longer a word to me.
A Cadillac is a car that has been labeled a Cadillac by the legal owner of the Cadillac trademark. Maybe "a car" is extraneous, too, though I suspect dealership contracts would have something to say about being turned into a Cadillac Pencil dealership. But still, I would imagine GM has a lot of discretion about what gets called a "Cadillac". (Maybe not, but that would be awfully far-sighted of the dealers to get a clause defining what a Cadillac is in their contracts and I would salute them for their legal prowess if they do have such clauses.)
Also, I have now typed "Cadillac" so many times it is no longer a word to me.
As mentioned in the article, the dealers survive off of maintaining cars that have already sold, not off of sales, so as long as there's enough cars to fill up their service bays, they won't just go out of business.