Possible Salvation for Domestic Automakers?

Mr_Shiftright · October 2006

Here's an interesting statistic:

GM has 7,100 dealers
Ford has 4,400
Chrylser Group has 3,900

Toyota has 1,215 and nearly outsells GM.

Given the likelihood that the more dealers you have, the more price-cutting competition, could the Big Three save themselves by buying out dealerships, especially the low profit ones?

Is this the "magic bullet" or would it cost more than its worth?

anythngbutgm · October 2006

isn't the midwest landscape dominated by Domestic brands? My gut instinct says that would be the most effective place to start. Do with one dealer what could be done with 2?

andre1969 · October 2006

was that back in the 50's, there were something like 10,000 dealerships that carried Plymouth. This was because every other Mopar division...Dodge, DeSoto, and Chrysler-Imperial, all carried Plymouth. AFAIK there were no stand-alone Plymouth dealers.

So that's amazing to think that Mopar went from over 10,000 dealers down to only 3900 over the years. I wonder how many GM dealerships there were back in the 50's? Must've been tons of them, considering that back then it was fairly rare to have multiple GM brands sold under one roof, except perhaps Pontiac-GMC.

Mr_Shiftright · October 2006

I just think it's rather amazing that Toyota can pump out roughly the same numbers as GM with 1/3 the dealer network.

I mean, if this were a supermarket chain competition, such a statistic would be creating havoc in the boardroom right now, wouldn't it?

euphonium · October 2006

Interesting idea. Perhaps a beginning of consolidation would have GM eliminate their GMC line while Ford does the same with their Mercury division.

Chev truck line could be marketed by the Pontiac Buick dealers as the Plymouth was available at the Dodge, DeSoto, and Chrysler locations.

Ford dealers would be graced with an upscale CVLX "Maestro".

michaellno · October 2006

I know that Toyota is about to overtake GM as the "world's" largest automaker based on sales volume, but is that true here in the US only as well?

1/3 the network? Unless your number is post #1 are wrong, I figure it to be closer to 1/6 the size. Does that 1215 number include Lexus as well?

However, your point is well made. If Sears could manage the same revenue numbers as Wal-Mart with only 1/6 the number of stores, you better believe that Wal-Mart would look closely at the amount of revenue per square foot, or some other similar metric, and figure out what was wrong.

The only issue with GM is that they don't control the distribution channel -- the dealers are independant of the manufacturer, and so consolidation will be a bit more difficult.

From what I've read, both Ford and GM are looking for 'voluntary' consolidation, meaning that the dealers would sell out to each other.

Don't know about the Midwest, but here in Denver (metro population of 2.2 million or so), we have something like 6 Toyota dealers, 11 Ford dealers and 12 Chevrolet dealers. I'm sure that if you add in all the Saturn, Pontiac, Buick, GMC, Cadillac and Hummer dealers that you would probably double or triple that last number.

gasman1 · October 2006

It's not uncommon to find both Ford and Chevy dealerships in very small towns (<3K people). Most of them have more pick-ups than cars on their lots...could be due that they are farm communities. At least this is true in IA, IL, and MO. Several recent articles have stated that Ford is trying to reduce dealerships, but that will be difficlut without a buyout.

andre1969 · October 2006

is that the Toyota dealers seem to be larger than the Chevy dealers around here. For instance, the Toyota place my uncle bought his '03 Corolla from seems to dwarf the Chevy dealer behind it, and the Saturn dealer beside it. I'd say it's about the same size as the dealer where I bought my Intrepid, which sells both Chevies and Dodges.

I wonder if Toyota simply eschews the smaller markets, making potential customers have to drive a few more miles?

Mr_Shiftright · October 2006

Well sure it seems likely that Toyota is not going to place itself in a little farm community and just gives that market up...if you want a Toyota, you have to drive a bit.

I heard that Starbucks wants to DOUBLE its outlets....now that sounds like overkill to me....and yet a money-wise friend says "Yeah, but a company that wants to expand rather than just hold tight is likely to attract more investment".

So I'm wondering if this is just another case of an American company sucking up to the equity market (charming the stockholders) without paying real attention to the brick and mortar end of the business.

I guess I'm saying is that I'm wondering if the Big Three is so afraid of shrinking the dealer network because it might send the signal of timerity rather than boldness of action to the stockholders. (not that the stockholders aren't used to bad news...)

grbeck · October 2006

...that Toyota almost outsells all of GM.

It passed Chrysler, and, if I recall correctly, is within spitting distance of Ford (including Lincoln Mercury).

But it is not close yet to GM.

In passenger cars Toyota may be close to Chevrolet (especially if only retail sales are considered), but when trucks are factored into the mix, it's still soundly beaten by Chevrolet.

lemko · October 2006

...near me in Langhorne, PA is so big it covers the whole side of a hill. When I was a kid, there was a guy who owned a gas station that had a tiny Buick dealership around the back. I think he only had something like five to ten cars in stock.

anythngbutgm · October 2006

Well if people are willing to drive the extra distance or pony up the extra cash for a Toyota, they will. Really shows the kind of power that they have and the influence they have on the buying public. Whether or not it is deserved, they are a force to be reckoned with.

Just think what it'll be like when they DO take the top spot in sales. With the amount of revenue they have under their belt, they could pretty much buy the market share they want, which is pretty scary when you think about it.

What shocks me is that with the amount of money they have to play with, they don't throw gobs of it at a real Full size truck lineup? They could probably afford to throw everything but the kitchen sink at a class leading lineup, even sell them at a loss and still come away with victory...

My apologies for the tangent, just venting about the Toyota situation.

michaellno · October 2006

Funny you should mention the gas station/Buick dealership.

Not far from where I grew up, Honda opened up a new dealership in the late 80's or early 90's in just such a spot in Santa Paula, CA. I think there was only enough space for a few cars and maybe one service bay.

Why, you may ask?

Because the folks who worked for Honda of America were getting kickbacks on the franchising fees; they promised the new owner that he could move into a much larger facility after a year or two and was promised a large allocation of cars.

This happened despite one of the largest car dealer corporations (DCH) was set to move its facility to a new location which would have put the Santa Paula dealership within the '10 mile' window that was forbidden by Honda. The Honda guys knew the other dealer was moving and put up the new franchise anyway.

This was done to fatten the pockets of the corrupt Honda corporate officials and to ostensibly sell more cars.

All of this is documented in the book "Arrogance and Accords", written by one of those former Honda executives.

I guess that's why the SoCal market is flooded with dealerships.

Mr_Shiftright · October 2006

Well let's say then that Toyota's sales compared to GMs, in proportion to the dealerships involved, is heavily to Toyota's advantage and gaining all the time. GMs defeat is inevitable, so.....

Full-size pickups? I think this is a political issue above all else.

wlbrown9 · October 2006

I grew up in the '50s & 60s halfway between Little Rock and Memphis. Back then it was an all day trip to make the 70 - 100 mile trip to either and back. Roads were the issue. Since then the Interstate system has built up and even the state highways have improved. Plus folks are used to traveling more.

Many small towns had dealerships. Mine with about 2500 population had 3, Dodge, Ford and Chevy. Honda, Toyota, Datsun, etc were probably just starting to come in and build up dealerships and sales in the US. With the decline in many rural areas, foreign makes and investors just never went into the smaller towns. Probably a good thing since many of the smaller towns have stagnated. Some of the small town domestic dealer had dropped out, but there are many of them out there still.

gasman1 · October 2006

may not look anyhting like they do today. I'm talking as early as 2015 or so. We may see more "satellite" locations in malls or through the internet. Look at the brochures, order your car, pick it up (or have it delivered), from a regional holding "warehouse".

Service may by at the traditional dealership or through service vendors or possible factory service "satellites". Things are changing in our automobile world.

Ford and GM desires to reduce the current number of dealerships may assist in such future changes. They tried in the late-90s to have internet ordering, but the dealerships placed a fast HOLD on that "nonsense".

nortsr1 · October 2006

Let's not forget what happend to KRISPY KREME!!

Mr_Shiftright · October 2006

what happened to Krispy Kreme? I missed the entire heart-wrenching, gripping drama! Tell me!

nippononly · October 2006

Believe it......but those numbers are global sales - last year, 9.1 million for GM worldwide, 8.5, 8.7 million, something like that? for Toyota. This year, of course, GM's sales have fallen fairly badly again, while Toyota's have increased. They say if not this year then next for sure, that Toyota will become the largest automaker in the world, by annual sales volume.

Now of course here in the U.S., Toyota's numbers are like half GM's, although I recently read an article about California-only sales, where Toyota exceeds TWICE GM sales if you exclude fleet. Is that a portent of things to come? Who knows. GM and Ford both have a small fraction of the sales in California, while the Japanese imports have large ones.

As for this issue of dealerships, yes, there are way too many for GM and Ford for each one to be able to maintain a healthy sales volume. Crowding is a problem. But Shifty is correct that Toyota only has 1215 dealers in the U.S., so Ford's pathetic little plan to downsize from 4500 to 3900 clearly still isn't going to cut it, and even if it could really slash and burn it's dealer network, and make the dealers it retained work for their keep by demonstrating superior customer service, it would still do little to address all their woes.

NPR had a good piece on Ford's woes today, which was spurred by the $5.8 billion reported Q3 loss:

http://www.npr.org/templates/story/story.php?storyId=6381097

Kind of a fun listen, and also made me think that they should have invited some of the posters here onto the show, as all the points made by the "experts" (a guy from Business Week and the head of car research at CR) have already been made here previously! ;-)

lemko · October 2006

The small town in NE Pennsylvania where my parents now live once had a Pontiac, Buick, Chevrolet, and Ford dealership. Today, only the Ford dealer survives. He has been in business for over 60 years.

john500 · October 2006

What is the economic relationship between the dealer and the manufacturer?

My understanding was that dealerships were kind of like franchises. The dealership buys the rights to sell one manufacturers vehicle. From a manufacturers perspective, the more dealerships they have the more likely they will capture consumers that buy based upon geography. Price-cutting on vehicles would likely hurt the dealership and have no effect on the manufacturer. The only effect I see would be a loss of consumers that buy at a dealership because it is closest to their residence.

Mr_Shiftright · October 2006

I think the effect on the manufacturer is indirect rather than direct. But you bring up an excellent point.

If there are too many dealers competing on the same brand, they cut prices, and hence have tighter profit margins. This in turn requires them to cut costs elsewhere and guess what? Higher parts and service prices and fewer customer amenities. And very grumpy dealers.

Owning a dealership and subsequent running costs is getting to be more and more expensive an enterprise each year. What with labor costs, regulatory paperwork and the rest, having to do all that AND cut profits in cutthroat competition can't be much fun.

My Toyota dealer (San Francisco) is sitting pretty. No other dealer breathing right down his neck. They treat you well, very snappy service, send you reminders, let you track your car on the Web, throw first-time buyer parties, all the staff in white shirts and ties, estimates are always accurate---you name it, they are making enough money to pass some of that prosperity onto the customer. (Can you believe it, they sell 85-90 Priuses a month?)

ricketts22 · October 2006

Pretty much every single one of the thousands of small town domestic dealers has a service department. In many cases these service departments generate the majority of the income for dealership.

Its not the convenience of buying cars that puts them in every town, but the service department.

If the domestic Automakers could franchise the service departments without including the dealerships they could probably make a killing. (until they start making cars as well built as the imports)

Mr_Shiftright · October 2006

Don't they have these types of operations already---these "service only" outlets?

pch101 · October 2006

Given the likelihood that the more dealers you have, the more price-cutting competition, could the Big Three save themselves by buying out dealerships, especially the low profit ones?

It's a very good idea, and to be fair to GM, they have made some attempts to do this.

The real problem of having all of these low-volume dealerships is not so much for the automakers as it is for the dealers themselves. Because the average Big 3 dealer has more rival dealers and sells fewer new cars than, let us say, a Toyota dealership, the dealership is less profitable and, therefore, less appealing to own. It also forces the dealers to more deeply discount the cars, because they so many more direct competitors, which lowers the car's value (everyone is at the point that they expect rebates and deep discounts on most domestics), and that encourages the dealers to be more cutthroat.

The situation is not analogous to Starbucks because Starbucks locations are company-owned, so Starbucks can afford to support losing stores in order to keep its brand and product out there long enough to gain sales in the overall market. Car dealerships are franchises, which forces each one of them to make a profit, even if it has to behave in ways that go against the overall goals of the automaker. The automaker's concern with its brand can be contrary to what the dealer needs to do to push volume, which creates a mixed message being sent to the customer.

tlong · October 2006

You know, just a couple of days ago I was thinking... look at what Steve did for Apple Computer. He took a commodity business and added sexiness to the product line. He doesn't sell cheap. He does understand that consumers want functionality, appearance, refinement -- and they're willing to pay for it! He bucks the trend in the computer industry and arguably is the BMW of computer manufacturers with Apple. He is also very innovative, and challenges his company to exceed the other mundane products.

I wonder what he would do if put in charge of Ford or GM? I know it's a very different business. Perhaps the dealer franchises and the unions would so limit his ability to innovate that he couldn't make a big difference. But just think of the kinds of new age thinking he would come up with that would manifest themselves into new and bold products.

So after I had thought of this, a day or two later I hear on the radio that some pundit has suggested that the auto industry needs Steve Jobs....

Mr_Shiftright · October 2006

Yeah you could do that if you sent all of upper management to Siberia.

pch101 · October 2006

Apple is not necessarily the best role model for the auto industry. It doesn't have a consistent plan that works over the course of time -- instead, it manages to create the occasional hit, rides the wave for awhile, then flounders and hits bottom until it comes up with a new hit that saves it.

Let's remember that before the Ipod, Apple was not in great shape. It used to lead the PC market, but made serious missteps and lost that. It invented the user-friendly interface, only to let Microsoft take the ball and run with it with Windows. The Ipod is a hit now, but give it five years, and you might find that cheaper rivals end up offering better features and stealing that business, too.

If there is an automaker that resembles Apple, it is arguably Ford North America. They manage to come up with the occasional hit (mid-80's Taurus, recent Mustang, for example), but can never seem to go to the next step and create a winning line-up across the board.

But you're right, Apple's attention to aesthetics, style and detail are what is helping it now, and what could help the Big 3, if they only tried. The cars are improving, but they are going to need to pick up the pace if they are ever going to catch up.

guy1974 · October 2006

Ford is doing particularly badly when you consider that they are doing well in the following areas ;
F-150 sales
Mustang doing well - which outsells all other small coupe/cabriolet together (like Honda S2000, MX-5, Solstice etc) and Toyota don`t even bother in that category.
Volvo makes a decent profit (contrast that with SAAB under GM)
Mazda is doing well with a critically acclaimed line up and some consistency between models (like Volvo).

In spite of these good areas Ford is screwing up badly in cars, minivans and SUV's. They should have a proper Focus replacement rather than a small reskin. They also need a strategy for Mercury.
I suggest they follow GM's idea of using their European cars for Saturn and sell Ford of Europes cars as Mercury's. That would save development money and differentiate Mercury from Ford, otherwise what is the point of Mercury?

michaellno · October 2006

Can you say "Merkur"?

Ford tried this in the 80's - the Sierra XR4ti and the Scorpio were both brought over to the US and sold as the Merkur brand at L/M dealers.

Of course, 20-25 years ago, I don't think any of the white shoes and white belt crowd knew what to make of them 'furrin' cars.

However, I do see your point .. also, wouldn't it be cool to see the Australian Falcon brought over to the US? Supercharged V6, big V8, RWD, manual transmission ...

Ah, to dream!

rockylee · November 2006

I'm not going sit here and knock toyota's success, but they sure have alot to be thankful for and the help they've received along the way. If GM, would of had 1/2 the help they have gotten from our government, and Japans government GM, would think of toyota, like toyota thinks about competition from Mitsubishi. I'm not excusing the blunders made by GM's past management teams but it's pretty obvious that U.S. politicians don't help certain american business's like Japan does it's buisness's.

Rocky

Mr_Shiftright · November 2006

Well it was either surrender to the evitable or create import tariffs. I don't think our government's help was benign...more like a need for Asian loan money--which comes to us from their prosperity selling their goods to us. Sounds pretty weird but there you go.

So aside from trimming down, US automakers have to compete better in both a domestic and global market, so that you don't WANT to buy a Toyota anymore.

rockylee · November 2006

I know many will agree with you Shifty, but because our government doesn't know how to manage all that well, we've opened our selves up to next to impossible problems to solve. I guess the domestics auto-manufactors are the ones who are going to have to absorb the biggest blows. Toyota, is very wealthy, and influential, and I don't disagree they make some very nice cars. I however think it's more hype, than anything else. I've looked at the new Honda's and especially the new Nissans, and in alot of cases I think they've passed Toyota on interior and exterior styling.
(the 2007's) Time will tell if they can keep the hype machine going to maintain and/or gain market-share.

Rocky

rockylee · November 2006

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061103/AUTO02/611030385/- 1148/AUTO01

Rocky

rockylee · November 2006

Mazda reports 12 percent drop in 1H profit

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061102/UPDATE/611020440/- 1148/AUTO01

Rocky

rockylee · November 2006

Fewer of the Big 3's vehicles are reserved by retailers due to crammed lots from weak sales.

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061101/AUTO01/611010356/- 1148/AUTO01

Rocky

wvgasguy · November 2006

I don't disagree they make some very nice cars. I however think it's more hype, than anything else. I've looked at the new Honda's and especially the new Nissans, and in alot of cases I think they've passed Toyota on interior and exterior styling.

If Toyota has to depend on interior or exterior styling they are hurting. What they depend on is a decently priced dependable automobile that holds its value come trade in time, or for those who keep them till they die, a long life.
I'm on my 7th Toyota with a sprinkle of Ford, Nissan, Audi and Infiniti in between. I keep coming back to Toyota. Been burned too many times with Nissan and the quality and depreciation with my Ford's was more than I can bear. I don't know why resale is better on Toyot's but it is. Blame the American used car buyer for that.

john_324 · November 2006

"I'm not excusing the blunders made by GM's past management teams but it's pretty obvious that U.S. politicians don't help certain american business's like Japan does it's buisness's."

Nor should they. Industrial policy is a very dangerous thing, and very few governments can handle it properly...Japan's certainly didn't. Yes, there was visible success in the automotive sector, but also a lot of lesser-known failures in other sectors. When you add it all up in the end, it's a wash. Except that taxpayers had to pay for it all...

Most damaging though are the lasting systemic problems that industrial policy tends to create. Japan has spent the last decade in a recession due to the side-effects of a robust industrial policy that has encouraged cronyism, poor financial policy and what economists generally call "structural rigidity." You don't want that here...in the long run, it's not worth it.

Mr_Shiftright · November 2006

Speaking of the taxpayer/government, do NOT expect any "bail outs" of American car companies like the one Chrysler got 25 years ago. There are far fewer jobs existing in the auto industry these days, so there's no political clout behind a bail-out.

rockylee · November 2006

CEO wants to use Toyota model to streamline Ford

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061111/AUTO01/611110404/- 1148

Rocky

P.S. It will all be determined on government policy IMHO.

rockylee · November 2006

New Ford boss demands accountability, results -- every week

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061111/AUTO02/611110386/- 1148

Rocky

rockylee · November 2006

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061111/AUTO01/611110409/- 1148

Rocky

rockylee · November 2006

Strategy could haunt automaker by hurting vehicles' resale value

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061110/AUTO01/611100378/- 1148/AUTO01

Rocky

rockylee · November 2006

http://www.freep.com/apps/pbcs.dll/article?AID=/20061113/NEWS99/61113018/1014/BU- SINESS01

Rocky

rockylee · November 2006

http://www.detroitnews.com/apps/pbcs.dll/article?AID=/20061122/AUTO02/611220339/- - 1148/AUTO01

Rocky

P.S.

I respect Dan's opinion but he isn't the one faced with having his job exported to China, Mexico, etc, and still have a family and home to support. :sick: All the UAW, asks is our government to hold are trading partners accountable which it hasn't ever done. :mad:

rockylee · November 2006

http://www.freep.com/apps/pbcs.dll/article?AID=/20061122/BUSINESS01/611220460/10- 14

Rocky

rockylee · November 2006

Kuzak's mission: Developing vehicles customers will want

http://www.freep.com/apps/pbcs.dll/article?AID=/20061126/BUSINESS01/611260553/10- 14

Rocky

P.S. Well I wonder if this guy will turn-around Fords blemished image :surprise: