The Reckoning - Thousands of Dealers to Be Cut This Week

And now, with Chrysler in bankruptcy and General Motors probably in it in another week or so, the other shoe drops. The one that's really about Main Street.

This week, General Motors is expected to tell between 1,000 and 1,500 of their 6,200 dealers nationwide that the corporation will not renew their franchise agreements, and Chrysler will notify 25% of their US dealers -- 800 out of 3,200 total -- that their days as new car dealers are over, too.

As Ken Bensinger, who has been following the dealer crisis for the Los Angeles Times, wrote this weekend, "... it amounts to a blood bath for dealers, who employ hundreds of thousands of people nationwide and pump billions of dollars into their area economies. With dealers unsure whether their names will be called, a pervasive sense of dread has crept into showrooms."

GM is said to be considering moving their corporate headquarters out of the iconic Renaissance Center in downtown Detroit (GM bought "The Tubes" from Ford) and out to Warren, MI, where GM has their huge technical center.

The National Automobile Dealers Association (NADA) and groups of Chrysler and GM dealers are taking various steps to try and stem the tide of forced closings, many involving complicated and expensive legal challenges to the car-makers but some aimed at the general public, too. NADA is taking out advertisements in major publications urging President Obama "to choose Main Street over Wall Street."

The strong state franchise laws which govern the sales ballet and love/hate relationship between car-makers and their dealers (most all written with dealer-only input) are from the same eras when Detroit was concerned with only five things: 1) Making enough cars to fill demand, 2) Avoiding any trouble with unions or dealers which could slow sales, 3) Spending all the money they were making, 4) Protecting executives' annual bonuses, and, in GM's case, especially, 5) Avoiding being labeled a monopoly by Washington and being split into separate companies.

This is a V8-powered custom 2009 Opel GT, cousin to the Saturn Sky and Pontiac Solstice; GM announced this weekend that the Delaware factory where the Solstice and Sky are built might be put up for sale, like what Dodge is doing with their Viper brand sports car -- just selling off as much of it as possible including all the factory tooling.; the GM sports cars became the best-selling two seat convertibles in America, surpassing even the fabled Mazda Miata (MX5); Opel's GT remains a-building in Europe

So when things went south in the car business starting in the mid-'70s with the first oil and gas shortages, who were the first targets of the car-makers? Not OPEC or the markets where oil and gasoline were traded, but the United Auto Workers and Detroit's own dealers. And Detroit's non-stop multi-billion dollar lobbying campaigns have convinced millions of Americans that, yes, the union and those rotten dealers are ruining the car industry.

The UAW and the dealers have made the billion-dollar profits for Detroit over the past 60 years.

Yet Detroit, with the encouragement of the Obama Administration (by pushing GM and Chrysler into bankruptcy court), has created a strange reality where more than the imports (none of which are unionized in their US facilities), more than OPEC, more than any other enemy or adversary ... dealers and the UAW are the sick, weak, evil links in getting cars to the public.

Not that dealers have done themselves many favors over the years. Too many people know too many bad dealer stories, and even if many of them are apocryphal, car dealers remain among the lowest-ranked businesspeople in the country.

But the sales taxes the dealerships produce for their communities, their support of Little League and the like and perhaps most important, their employing scores of local residents who take their paychecks to local merchants and banks --- believe me, cities and towns which lose dealerships are going to try anything to get them back or get new ones.

SEMA, the Specialty Equipment Marketing Association, which lobbies for companies which make aftermarket performance and appearance car and truck parts, announced that Nissan will have only a small presence at their annual SEMA Show and convention in Las Vegas the first week of November. If car- and parts-makers start laying low or dropping out of the biggest annual convention in Las Vegas, whether the show itself does indeed go on remains to be seen.

And the UAW (and related unions in the industry; sometimes they're aerospace unions) has been in trouble, as most unions, since Ronald Reagan took the White House in 1981. Remember one of his first big actions as president was to fire all 12,000 members of the air traffic controllers' union which was on-strike and replace them with 12,000 scabs (and air safety continues to suffer to this day for Reagan's actions).

These thousands of dealers, and more, are going to be 'fired' by Detroit the next year or two, starting this week.

The people losing their jobs and paychecks are not fantasies, the owners who can't find a place nearby to get their cars serviced are being ignored, the thousands of dealerships which will soon turn into empty lots or "attractive nuisances" where kids can play and get hurt and the cities and towns losing, in many cases, a majority of the tax dollars they need for their budgets -- these are all those "other shoes" which are just beginning to drop.

UPDATE and COMMENT

From SEMA head Peter McGillvray:

"I just read your story titled "The Reckoning" published in The Huffington Post.

I've often claimed that the SEMA Show is a reflection of the industry. Based on the early registration for attendance and booth space I am extremely pleased with the outlook for the upcoming show in November. We've already signed up over a thousand exhibitors and several thousand attendees. I think this is particularly important as the SEMA Show is the largest gathering of small to mid sized American businesses. Included in our growing list of participants are a dozen automakers - testament to the strength of our members (incidentally our membership has never been higher)."

Comments

[RuthlessDictator]

I find it rather amusing as I was conversing with my 70 year old aunt at a family reunion recently and I was amazed how much she knows about cars now when she hated them when I was a kid. She proudly talked about her Toyota Highlander and Lexus E330 and can tell what a Kia Optima looks like from a Subaru Legacy easily. I think she knows more about cars now than I do.

American-branded cars leave her totally stumped and she has virtually no interest in them.

[noteworthy]

This entire axe-swinging may very well end up splattering more than dealer blood at Chrysler. Notice that the company has not specified HOW this move is going to save any significant operating expense but has admitted that they will be sacrificing 14% of their already declining sales.

Many of these smaller dealers have been successful in their own smalltown ways because they know how to relate to their customers on a personal basis - and continue to relate to the same families year after year, generation after generation. These disenfranchised (in the truest sense of the word) customers are more apt to go across the street in their small town to buy a Ford with the kind of service they're used to than drive for miles to get to a surviving, faceless, monolithic Chrysler store.

[ferrarimanf355]

The problem with the Sky/Solstice was that GM was allegedly losing money on every one. And that there's no trunk space with the top folded down.

[Steve Parker - Huffpost Blogger]

Thanks for the comment.
They also have convertible tops which seem destined for breakage the first time you use it; and it's manual, at that. Bad form, these days. I don't think they're losing money on them; most of the parts are off-the-shelf and they're selling a lot of Opel GT's in Europe.
Steve

[Skyking76]

The dealer purging has been a long time coming. Many of us in the car biz have seen this coming for some time now. At least here in the Midwest, there's almost a GM dealer on every corner...t­hey're just too over-saturated. Is it a terrible thing that many people will be losing their jobs? Of course it is, but if it means GM can live longer, then so be it. Many of the dealers that will be getting cut are under performing, have shaky finances or lackluster customer service scores, so it will weed out the weaker stores in any given area.
As for the Opel GT, it's a shame they didn't introduce that car in the US market, it would have sold a lot better than the 4 cylinder Solstice. We've had plenty of customers come in interested in a Solstice, only to have them go to a different brand once they found out it only has a 4 banger.

[Steve Parker - Huffpost Blogger]

Thanks for writing!
I agree with you about the GT ... when it first came out in the US (1970s?), I thought: Now that's what a new, smaller Corvette could look like. Saw a pristine example in a parking lot just yesterday (hey, I live in Southern California - best car show in the world on a daily basis) and had to stop and take a few moments to admire it. That car's proportions are just so perfect ...
Don't agree about getting rid of the dealers. As long as the economy was relatively okay, Detroit determined to carry their slow stores on the off-chance that sales might pick up. I don't think franchise agreements had much to do with it; look what those agreements are worth today - nuthin'.
And you know what - I am no longer necessarily convinced that it's more important for GM to survive than for tens of thousands of people to keep their jobs. To paraphrase Mao, "Let a thousand new car companies bloom."
Steve