"Make Me An Offer" Dealers Tell GM

GM logo, General Motors logo
GM logo, General Motors logo

For as long as I've been covering GM, I've heard the same thing over and over, "We are cutting dealerships and will get down to a core group that will be more profitable." Rick Wagoner said it when he took as CEO in 2000. Fritz Henderson is saying it as CEO in 2009.

Here's the problem: unless GM goes bankrupt and kicks out the contracts of dealers it doesn't want, the company will have to pay big time dollars to make dealers walk away. State franchise laws protect the dealers from having the auto maker just shut them down. This is one legacy issue weighing on GM that is not easy to solve.

So many GM dealers are sitting in the cat bird seat, especially those in cities and suburbs where the auto maker has too many outlets packed into markets. They know GM wants fewer outlets, but is limited in forcing the dealers to consolidate. As a result, many dealers are waiting for GM to make them an offer that will make it worthwhile to sell out to another dealer in the market. All of this explains why the process of closing dealerships is lengthy and costly one.

I hear from many GM dealers who say they are being portrayed as a problem for GM. The truth is the majority of GM's six thousand plus dealers run solid operations. They are the largest sales tax generators in most cities and have a long and rich tradition of supporting local charities and organizations, like Little League teams. Heck, I still remember playing against teams sponsored by Jim Link Chevrolet as a kid in LaGrange, Illinois.

That said, there are many under performing GM dealers that need to go. They have hung on for years while better run, more profitable dealerships have sprung up. They are a drag on the brands and GM. The problem is how to convince those dealers that it's time for them to shut their doors. GM thought/hoped this latest plunge in sales would help push some dealers to throwing in the towel. And in fact, many have, but many more are hanging on.

So now it comes down to whether CEO Fritz Henderson can convince, cajole, pressure some 1700 dealers to close. He does have the very real threat of bankruptcy he can hold over those fighting him, and ultimately he may go that route.

Time to see what kind of offer these dealers get.

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