“I’LL PUT YOU IN A CAR…”

3/6/10

GM announced yesterday that it would reverse itself and reinstate at least 660 of the 2,000 dealers it announced it would drop in the wake of GM’s brush with bankruptcy that you, kind taxpayer, averted.

Is reinstatement of these dealers a good idea? I don’t know, but I suspect it is. I thought long and hard about the dealer closing issue when it was announced and wavered on it, and continue to waver to some extent. However, I have come to the conclusion that, while closing down dealers was clearly very good for the surviving dealers, and, hence, by intellectual contortion, indirectly for GM, on balance it probably is only marginally more expensive for GM to keep more dealers open and thus it doesn’t make a lot of sense for the General to deny franchises to anyone who has proven an ability to sell its product and is operating sufficiently profitably, in the franchisee’s estimation, to stay in business. I do remain open to arguments in favor of cutting back on dealerships; however, that is beside the point. This post is not about the merits of shutting down dealerships, but, rather, about two troubling justifications for keeping dealers open.

First, Mark Reuss, the very capable head of North American operations for GM, according to the Wall Street Journal

“…acknowledged Friday in a conference call that GM’s sales have suffered in recent months as the auto maker stopped shipping vehicles to dealers slated to close.

‘We would have beaten Ford, if not for the move,’ Mr. Reuss said.”

The same article goes on to say that

“…Chief Executive Edward E. Whitacre, Jr. has made boosting sales in the U.S. a top priority.”

Wait a minute. Wasn’t the quest for market share, regardless of that quest’s effect on profitability, one of the “strategies” that led to GM’s downfall? Market share for the sake of market share can lead to big problems, and not just in profitability. Ask the people at Toyota about that one.

Second, and more troubling, is a statement in the same Journal article:

“Lawmakers had pressured GM on behalf of local businesses, forcing it first to offer arbitration to dismissed dealers. The auto maker agreed to reinstate dealers after acknowledging the process it used to weed out showrooms didn’t properly consider such factors as location and customer loyalty.” (or the clout of a particular dealer’s representative in Congress—MQ)

Hmm…

What about the pious protestations by our politicians that the General’s new owners (in the politicians’ minds, the politicians) wouldn’t interfere in GM’s operations? It looks like those promises went by the wayside in this instance. This, of course, fuels suspicion that perhaps the handling of the whole Toyota mess may have been influenced by politics. Let’s see what happens when and if Honda, Nissan, or maybe even Ford, finds itself in the middle of a major recall. Perhaps such suspicions regarding the motivations behind and the handling of recalls have some justification.

GM may very well have made the right decision in this instance, but for some very troubling reasons. Now that GM has come so far on the product front (though probably not as far as Bob Lutz seemed to indicate while announcing his latest Favre like retirement), it would be very troubling to see the company that holds such promise be sacrificed on the altar of market share or, far worse, the political whims of its new owners.