How car dealers tie Detroit's hands

http://www.newyorker.com/archive/2006/09/04/060904ta_talk_surowiecki

by sethg • 18 years ago

45 18 18 years ago

vaksel• 18 years ago

a billion to kill a brand that costs you money is not that bad. It costs them something like 1-2 billion to bring a car from concept to production, so they'll save that money the first time they avoid having to redesign a new model.

But why kill? Sell it off...you are going to lose all that value anyways, so even if you sell Buick below market price, you still make more than if you just close the doors

hugh• 18 years ago

To put that "billion dollars" in perspective, General Motors' current burn rate is apparently $6.9 billion a month. Ouch!

jcl3• 18 years ago

Don't Honda and Toyota have the same problem? They seem to be coping.

sethg• 18 years ago

Honda and Toyota aren't wishing they could shed unprofitable brands.

jcl3• 18 years ago

True, but I also have to wonder how big a deal an "unprofitable" brand is. If the brand was genuinely unprofitable, wouldn't the problem dealers eventually go out of business?

And how much does it actually cost to keep a brand alive? Can't GM just slap a Buick label on a Cadillac and ship however many of each are needed?

jbarciauskas• 18 years ago

Isn't this exactly what bankruptcy is for? Put GM in a pre-packaged bankruptcy (http://www.investopedia.com/terms/p/prepackagedbankruptcy.as...), and one of the planned actions should be shedding these unprofitable brands and severing the relationship with these dealers. The dealers made a bad bet on a brand, they are entitled to nothing.

razzmataz• 18 years ago

> severing the relationship with these dealers.

That's actually hard to do - there's a myriad of state and federal laws that make this all but impossible. It cost about a billion dollars for GM to deep six the oldsmobile brand, buying out old dealers franchises, etc...

jcl3• 18 years ago

Presumably it would be easier (and cheaper) to kill a brand while bankrupt than while trying to stay solvent. Dealers might be more amenable to changing brands or state laws if the alternative is to go out of business entirely.

Anon84• 18 years ago

IANAL, but can't they just stop renewing the franchise contracts? It would take a few years, but eventually they would be off the hook at ~zero cost.

Another option might be to simply stop updating the models of a given brand. Dealers survive for a few years servicing the currently existing models until they eventually switch to other brands.

gamble• 18 years ago

I've never really seen the appeal of franchising. You get a packaged business, but then the franchiser has you by the balls forever. Plus what I've read suggests that most franchise owners barely eke out a profit. Car dealers are probably better off, since they have service revenue independent of the parent company, but they're still dependent on a single supplier.

briansmith2• 18 years ago

"McDonald's exemplifies the role of small businesses in Americans' upward mobility. The company is largely a confederation of small businesses: 85 percent of its U.S. restaurants -- average annual sales, $2.2 million -- are owned by franchisees. McDonald's has made more millionaires, and especially black and Hispanic millionaires, than any other economic entity ever, anywhere."

-- http://www.washingtonpost.com/wp-dyn/content/article/2007/12...

dws• 18 years ago

This article parrots Detroit's "take what you're given at shut up" view. Dealers see things differently. My family ran two automobile dealerships. The one that dealt with Detroit (Ford) had little choice in what they were given to sell, and complained in particular of Detroit shoving lots of big cars and trucks at them when the demand was for a size or two smaller.

blackguardx• 18 years ago

Why don't they just stop making Buicks? Or are they obligated to provide a certain number per month?

How car dealers tie Detroit's hands

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