Closing dealerships

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Where do the savings come in for the manufacturers by closing dealerships? I just don't get it. If a dealer can't sell cars, they are stuck with the inventory. If they eliminate dealers, isn't that removing some storage for the the cars, i.e., won't that alone cut future number of cars manufactured? Can somebody 'splain this concept to me. Even eliminating brands seems to cost a lot of money. I guess the whole concept is too big for me to comprehend.
 

Bill in Utah

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They ARE selling less vehicles. If there are less dealers, each dealer will make more $$ due to less competition. But with one guy owning the Ford, Chevy, Dodge and Toyota dealerships (along with Jeep and Buick) all in one town here , you do pay more than if you drive up to SLC where there *were* more dealers. They HAVE to cut production since they are not selling and storing the cars on the lots is a bad business practice. You want to make the vehicle and sell it right away. Less cost of flooring it and possible damage to the unit. When you make the same vehicle for two different brands, more parts, more network to deliver the vehicles. For the MFG and some dealers, its better than there are less dealers. Chrysler and GM are in big big major trouble. I doubt they will survive no matter how much $$ they get from the devil.
 
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less dealerships =less cars = less UAW employees = close UAW plants
 
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A lot of markets are over saturated with dealers and dealers under the same corporate umbrella end up competing with one another. For example, when we purchased our last Dodge, within a 15 minute drive there were 3 dealers that had partial lines of Chrysler products (a Chrysler only and 2 Dodge/Jeep dealers) as well as a full line Chrysler dealer (Chrysler/Dodge/Jeep). It wasn't hard to get them competing against each other and drive the price down significantly. GM and to a lesser extent Ford are the same in this area. GM dealerships are as common as gas stations and it's normal to shop the local GM dealers and have them compete against each other rather than the real competition. On the other hand, when we purchased our Subaru we were limited to just a single dealer in about a 60 mile radius. There was some negotiation, but overall they didn't drop the price much from where they had it marked (still a good value in my opinion). Which company do you think made the most profit on our vehicle purchase? Hint-it wasn't Chrysler.
 
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It is easier to cut dealerships than tackle the real problem which is the unions. Closing down dealerships does not upset the almighty union support for demoncrats. Seriously this whole auto bail out is nothing more than "payback" for near 100% support for demoncrats.
 
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The reason they are cutting dealers is that they want fewer dealers so that the ones that are left are strong enough finacially to support the brand. That means dealers spending money for advertising ect. GM doesn't care if the dealers sell the cars at cost or not, in fact they prefer it to move more units. They want fewer dealers, but stronger ones who can afford new showrooms and modern facilites. The whole model of over-producing cars and them dumping them with big rebates is going to change. That just cheapens the brand...
 
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If everybody was in a union, we'd be able to buy more cars. ;\) I'm not in a union anymore, that's why I drive a made in USA Toyota. I can't afford to repair/replace a car very often on my wages. Nor take a hit on trade in value. Not sure about auto industry, but labor cost is only about 9 to 11 percent of overhead of American business as a whole. That includes management salaries. Not sure it's that big of deal. My 2 cents.
 
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I wonder if they are closing any of the troublesome dealerships that have lousy customer satisfaction ratings? Gotta believe there are a few dealerships out there that aren't doing the brands any favors with their treatment of customers.
 
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 Originally Posted By: milwaukee
It is easier to cut dealerships than tackle the real problem which is the unions. Closing down dealerships does not upset the almighty union support for demoncrats. Seriously this whole auto bail out is nothing more than "payback" for near 100% support for demoncrats.
If unions are the cause of US manufacturing problems, then explain why the textile industry in the South vanished. They were mostly non-union. The fact is that labor amounts to about 20% of total cost of a manufactured product in the USA. I see you have been watching Fox news and listening to the right wing garbage on the AM radio. They have a lot of contempt for labor in general and are the problem with this country. When you destroy the middle class (which the unions created), you get what we have right now. No one can afford to go out and buy a new car.
 
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You need to think in terms of production vs. sales. Since the end of WWII, all the domestic automakers have been focused on is production. Build more, produce more, sell more, gain more market share, make more money. It's been a never-ending desire for more. Really, it's been an addiction. They been out of control in their desire for more, and they've built their business models around production. You can't make more money until you can produce more product. It's that simple. More production (supply)is great as long as you have customers to buy your product (demand). That has worked for the entire industry until recent years. Even as little as 2 years ago, the US market was able to buy 17 million new cars and truck annually, by far the largest market in the world. I read a market report from Lexus stating they predicted the US market to grow to 20 million in sales by 2010. Obviously that won't happen but the US market has always had a voracious appetite for new cars and trucks. A big part of this appetite has been driven by manufactured demand. The automakers have changed the way products are promoted and sold by creating consumer demand. One way to do that is with marketing, advertising and promotion. Another way is to flood the market with supply, like car dealerships. There is a business theory that if you build it, promote it, and sell it, people will buy it. Look at shopping malls in this country. Do we really need all that retail shopping? Is it really necessary? No, of course not. But, it's been proven over and over that if you build it, people will go to it and spend their money. It's American Consumerism at its finest. The car business works the same way. OK, everything is great when demand is met with supply, and supply can keep up with demand. What happens when demand drops? Like, maybe there is more competition, meaning everyone gets a smaller slice of the pie. Or the economy tanks and there simply isn't enough customers demanding new cars and trucks? Now, you have all these locations for people to come and buy what you are selling. But, they aren't buying anymore. Those locations cost you money to build. You have to promote them, advertise, maintain them, keep them viable..... until the business says they are viable no more. Now your dealerships become a huge cost liability. They begin stealing sales from one another, driving down prices and eating up profits. In the end, you can let your dealers slowly kill off each other or you can close stores, cut expenses, and refocus your business on a smaller but more profitable sales model. All the automakers need to change their focus from production volume (making a little money on a lot of sales) to profit per unit (sell fewer units but at a higher profit). Look at how well Apple Computer does vs. Dell Computer. Apple is all about profit margin while Dell is about high volume and low margin. Who has been more successful over the past 10 years?
 
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 Originally Posted By: Pop_Rivit
Which company do you think made the most profit on our vehicle purchase? Hint-it wasn't Chrysler.
Hint-it wasn't Subaru either. The manufacturer makes their unit profit right up front, when they sell floor plan to the dealer. Doesn't matter what the dealer sells the vehicle for, the manufacturer doesn't see any of that either way. But bigger dealers who sell beyond a certain volume get increased manufacturer discounts and incentives, cutting into the manufacturer's unit profit. . . . sort of like the "I Love Lucy" episode with the salad dressing. It's all about unit profit and market share. This whole dealer slashing thing isn't solving anything for the manufacturers, except for unemploying some of their remaining customers. It certainly isn't solving their root problem: building product that consumers want to buy. Seems that Mulally is the only one left on the home team who knows what he's doing.
 
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 Originally Posted By: cousincletus
If unions are the cause of US manufacturing problems, then explain why the textile industry in the South vanished. They were mostly non-union. The fact is that labor amounts to about 20% of total cost of a manufactured product in the USA. I see you have been watching Fox news and listening to the right wing garbage on the AM radio. They have a lot of contempt for labor in general and are the problem with this country. When you destroy the middle class (which the unions created), you get what we have right now. No one can afford to go out and buy a new car.
 
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Again, how does cutting dealers reduce a manufacturer's costs in a meaningful way? Cutting dealers isn't shutting down parts depots or distribution centers. The trucks will still deliver only 10 vehicles per run. They're all independently owned and self-financed operations. They don't cost the manufacturer anything to build. Local businessfolk take the risk and borrow the capital. Were these manufacturer-owned "stores", it would make far more sense. Shouldn't it be left to to the dealership owners to decide if they can continue as a going concern? It's their investment. That's real market economics. Let the market do its thing. There are some very well-run smaller dealers out there that can survive on smaller volume. The only thing this slashing does is make the remaining dealers fatter and harder to deal with. I don't know about you, but I'm tired of big box stores.
 
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The answer is in my post above. Trust me, they know what they are doing by closing these dealerships
 Originally Posted By: Volvohead
Again, how does cutting dealers reduce a manufacturer's costs in a meaningful way? Cutting dealers isn't shutting down parts depots or distribution centers. The trucks will still deliver only 10 vehicles per run. They're all independently owned and self-financed operations. They don't cost the manufacturer anything to build. Local businessfolk take the risk and borrow the capital. Were these manufacturer-owned "stores", it would make far more sense. Shouldn't it be left to to the dealership owners to decide if they can continue as a going concern? It's their investment. That's real market economics. Let the market do its thing. There are some very well-run smaller dealers out there that can survive on smaller volume. The only thing this slashing does is make the remaining dealers fatter and harder to deal with. I don't know about you, but I'm tired of big box stores.
 
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 Originally Posted By: Volvohead
Again, how does cutting dealers reduce a manufacturer's costs in a meaningful way? Cutting dealers isn't shutting down parts depots or distribution centers. The trucks will still deliver only 10 vehicles per run. They're all independently owned and self-financed operations. They don't cost the manufacturer anything to build. Local businessfolk take the risk and borrow the capital. Were these manufacturer-owned "stores", it would make far more sense. Shouldn't it be left to to the dealership owners to decide if they can continue as a going concern? It's their investment. That's real market economics. Let the market do its thing. There are some very well-run smaller dealers out there that can survive on smaller volume. The only thing this slashing does is make the remaining dealers fatter and harder to deal with. I don't know about you, but I'm tired of big box stores.
I don't know all the financial ramifications of a car dealership. I've never worked in one, nor have I read a dealer franchise agreement. So everything we talk about here is pure speculation. However, I do have experience in managing authorized dealers on a regional and national level. As someone who worked for a mfr and was responsible for maintaining, growing, and nurturing a large dealer base, I can tell you there are plenty of reasons to terminate a dealer contract. Poor performance, sales not meeting contractual quota, excessive customer complaints, refusal to offer service or parts, etc. I don't have a copy of my dealer agreement but it was about 15 pages long. I'm sure car dealer agreements are larger and more complex. Bottom line is dealers are not fully independent from automakers. Maybe contractually independent, but dealers still depend on mfr for financing, marketing support, advertising, technical training, sales training, and I'm sure many other things. In the end the franchise agreement is just that, an agreement. I'm sure there are plenty of clauses in the contract allowing one party to dissolve it based on specific parameters.
 
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