DODGING THE DEALERSHIP CLOSURES

The terminated GM and Chrysler dealer story will not go quietly into the night. Back when both companies made their painful decisions to appeal to the Government for help rather than close-up shop, there was at least an understanding that they would come out of the process leaner and meaner, and ready to compete in a market that had fundamentally changed. Between cleaning balance sheets of debt, resetting Union agreements and rightsizing their dealer networks, they would come out swinging at a new fighting weight. But, here we are in mid-2010 and the dealer network "process" continues to be a drain and concern. At issue are hundreds of dealers that appealed their termination for a myriad of reasons. We know these closure decisions were intricate and difficult for the OEMs, but the whole point of the process was to reformat their dealer networks for the 21st century. Any observer can see that the distribution channels set for GM or Chrysler's market share in the 60s and 70s will not apply in 2010 and beyond. They were overweight. The game had changed. While we are happy for those dealers that have thus far been able to recapture their livelihoods and provide new employment in small towns across America, it cannot be forgotten that GM and Chrysler are not going to sell as many vehicles as when these dealers were first appointed. An overweight dealer network creates false economies of scale for manufacturers, overproduction vs. true market demand, and financial issues when the dealers are unable to profitably sell-through. James Bell, Executive Market Analyst Kelley Blue Book