GM-related economics question...

From what I'm reading into regarding what the gummint wants GM to do, they (the gummint) want them (GM) to close some of their dealers. Unless I'm mistaken, these are all privately owned businesses, so assuming that if they (the dealers) can keep the service customers coming in, any outlet to sell GM cars can be a plus.

(Having said that, three Chevrolet dealers in my area have closed in the past four months)

Is there something about dealer operations that I'm missing? Why would having LESS dealers help GM?

I would think that having less dealers means less inventory which is always good since it's just tied up cash. Also there gets to be so many that they are in competition with themselves. If they can move the same inventory from 4 dealers out of one, ordering and stocking is far easier to control and predict and they don't have as many stale cars on the lot.

Also I'm guessing that even though it's a private business they still need a license of some sort to sell gm product and GM probably reserves the right to take that back if it's not preforming well enough or making them look bad. Like if a dealership had a really bad reputation of ripping people off and their service center were cheating all of the customers GM would have to stop them from selling their product so they aren't associated with their shady practices.

GMAC holds the floorplans (loans for cars on the lot), which I think are very low interest (if any). Although it's a cost of doing business, with too many dealerships, the expense becomes a burden to GM.

Also, cars aren't very liquid, in terms of accounting for assets, and turnover is king. Fewer dealers equals fewer cars in the pipeline, so inventory turns into sales quicker.

Fewer dealers also equals less in-brand competition, so you won't have dealers competing against each other as much, so retail prices would rise, allowing dealers to become more profitable, and rely less on warranties as a source of income. Also, fewer, more profitable dealers can offer better service, both at sale time and for the dealer-service-life of the car.

GM didn't just increase their warranty period to 100,000 miles to increase their reputation, they did it because dealers complain that they're not profitable. Dealers make a lot of money doing warranty work.

Also, many dealers mean GM has the ability to push inventory to the dealers (sometimes kinda forcefully) to keep factories going. Fewer dealers can take fewer cars, so factories will be forced to idle. Up to recently, GM had a very difficult time idling factories. That's also why they sold so many cars to rental agencies (which they used to own, which didn't really make good sense).

Frederick County, MD is the largest land area county in the state but not heavily populated.

Chevrolet is the only car brand that had more than one dealership in the county. They had four. I know that 2 of them have closed in the last couple years and am not sure about a third one.

Not sure how this would affect the sales. I know several people who bought from the large dealer in Frederick because of price but would take their cars to one of the smaller places for service. The large dealers service has a lousy reputation and maybe now that they can't take the car some place they trust they will buy some other brand.

The nasty little secret is that it does not help GM. It does however help add to the "crisis" and we all know that the left loves a good crisis.

Since the gov't does not have the power to creat a single thing: jobs, prosperity, etc . . . nothing the gov't does will ever help help GM.

I love GM, I always have been a Chevy man, and it bothers me to no end to see them have to close with such dishonor.

I say let what is left of the "free" market sort it out, and keep the gov'ts role to AS LITTLE AS POSSIBLE.

sbc4me

mel_horn wrote: From what I'm reading into regarding what the gummint wants GM to do, they (the gummint) want them (GM) to close some of their dealers. Unless I'm mistaken, these are all privately owned businesses, so assuming that if they (the dealers) can keep the service customers coming in, any outlet to sell GM cars can be a plus. (Having said that, three Chevrolet dealers in my area have closed in the past four months) Is there something about dealer operations that I'm missing? Why would having LESS dealers help GM?

The Government can and does put people out of business. My dad owned a 7up route. They were dependant on the local bottling company to provide them with product to sell. The bottling co. was poorly managed and going under. The distributors who owned the routes found someone willing and able to buy out the bottling company. The federal govt decided that since he owned other small bottling companies in the area that he could be forming a company too big for Coke or Pepsi to compete with fairly so they did not approve the sale. 200 or so distributors went out of business including my dad and uncle, and a bank got stuck with a bunch of unpaid for soda trucks. Two weeks later 7up was on Pepsi trucks because they had to have someone sell their product in NY but some how that was not a monopoly like 7up and some root beer would have been.