The new face of Cadillac; GM is expecting 1,000 retailers to upgrade this year.
General Motors has wrapped up its often-contentious effort to trim its dealership network, eliminating more than 1,500 outlets, but saving roughly 500 more than it originally had hoped to terminate — for a total of 4,500.
The maker says the downsized distribution system, which will still be the nation’s largest, should help it become more competitive in the wake of its 2009 bankruptcy and the elimination of four of its eight North American brands.
“A strong, profitable dealer network selling and servicing the world’s best cars and trucks is a genuine market advantage,” said Mark Reuss, president of GM’s U.S. operations.
In June 2009, in the midst of its Chapter 11 reorganization, GM had 6,049 retail outlets in the U.S. As part of its restructuring, the maker abandoned the Saturn, Hummer and Pontiac brands and eventually sold off Saab, simultaneously moving to “wind down” its franchise agreements with 2,064 retailers.
While some dealers simply chose to accept the action, a significant number began to fight back, many taking their case to Washington, where automotive retailers have traditionally been a powerful lobbying force. The move proved effective and Congress soon passed a measure requiring arbitration between those dealers being cut by GM – as well as by Chrysler, which also planned to trim its retail count after its own bankruptcy.
GM soon began to hint that it would raise a white flag. In January, CEO Ed Whitacre suggested the company might have erred in the calculations it used to decide whom to cut. Then, in March, GM announced it would reinstate 661 retailers on the wind-down list. Company officials clearly suggested that more might be reinstated, whether through arbitration or direct discussion.
In total, 1,176 dealers filed for arbitration under the terms of the December 2009 law, and of those just 62 were eventually completed, with decisions rendered. GM has separately offered Letters of Intent to 702 of the dealers who filed, which will permit them to continue doing business as long as they comply with the company’s revised franchise agreement.
But the automaker has also come to terms with another 408 dealers who, in most cases, will continue winding down their operations. The company will not discuss terms but cash settlements are believed to have been involved, sources suggest.
The closure of the Oldsmobile franchise, a decade ago, cost GM more than $1 billion in payouts to impacted dealers.
“We spent a considerable amount of time and effort to work toward a mutually agreeable resolution with our dealers,” Reuss said, referring to the current consolidation effort. “We’re pleased that we could complete this process in what we believe is an effective and efficient manner.”
To some, the idea of trimming a distribution network might seem a backwards way to grow, and indeed, in its early years, manufacturers raced to build up the biggest dealer bodies possible, viewing that as a sign of strength. But the rules changed, over the last several decades.
Import makers have considered smaller better when it comes to retailing, at least in terms of dealer count. By having fewer outlets, they reasoned, it would be less likely that two showrooms selling the brand would compete against one another, driving down prices. And by having fewer outlets, dealers for brands like Toyota or BMW generally log more sales per store. That not only translates into better profits, but greater loyalty. And loyal dealers are more likely to invest in their showrooms – and stock them with the best sales people.
GM says its own upgrade program is picking up steam, now that the dealer arbitration process is winding down. About 100 dealers a month are committing to the program, according to Reuss, which involves everything from in-showroom cafes with Wi-Fi to improved dealer lot signage.
Putting a new face on GM stores, along with the overall downsizing, the executive said, “is one of the most important elements in the rebirth of GM.”