GM puts dealers in a tight spot

They can require to dealers to carry more inventory. They can require dealers to make massive facility investments or relocate. Or lose their franchise…And before GM's bankruptcy this week, state franchise laws gave dealers too much control over how they ran their businesses and made it tough to close them down.

http://marketplace.publicradio.org
June 3, 2009

GM puts dealers in a tight spot

Thousands of GM dealers received a letter this week giving them a choice — give up control over a lot of their businesses or face closure. Steve Henn reports.

Kai Ryssdal: Just for the record, one of the most common measurements of inflation — the Consumer Price Index — unchanged in April, that is the most recent month we've got data for.

General Motors CEO Fritz Henderson was on Capitol Hill today, too. He said once again that the company just has too many dealers out there to support sharply lower sales. In that vein, thousands of GM dealers got letters this week with what you can fairly call an ultimatum inside. GM has apparently given them a choice. Either give up control over a lot of their businesses or shut 'em down. From Washington, Marketplace's Steve Henn reports.

STEVE HENN: John McEleney is a GM dealer from Clinton, Iowa.

JOHN MCELENEY: A lot of communities like where I'm from, a medium-sized town, you know closing a car dealership is almost like closing an assembly plant. We are one of largest private employers.

McEleney was fortunate. GM told him his dealership could stay open. But he'd have to sign a new contract. And as chair of the National Association of Auto Dealers, he's hearing GM is demanding a lot more control over dealerships everywhere.

MCELENEY: They can require to dealers to carry more inventory. They can require dealers to make massive facility investments or relocate.

Or lose their franchise. But analysts say GM has too many dealers. And before GM's bankruptcy this week, state franchise laws gave dealers too much control over how they ran their businesses and made it tough to close them down.

JOHN WOLKONOWICZ: The franchising laws had the auto companies in a box.

John Wolkonowicz follows the auto industry for IHS Global Insight.

WOLKONOWICZ: Literally you couldn't cancel a franchise unless the franchisee was convicted of committing a crime.

So, when GM killed Oldsmobile it had to spend $2 billion buying out its dealers. Wolkonowicz says now it will have a lot more flexibility. But…

WOLKONOWICZ: It's not like the GM brands are so desirable.

So GM will still have to play nice with its dealers or…

WOLKONOWICZ: They might say this is too much trouble — I can sell Toyotas, to hell with you.

And the only thing worse than too many dealers is having too few.

In Washington, I'm Steve Henn for Marketplace.

http://marketplace.publicradio.org/display/web/2009/06/03/pm_gm_dealership/


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