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Interesting item in the New York Times -

OPINION | December 13, 2008
Op-Ed Contributor: When the Cars Go Away
By BILL McGRAW
Americans have wondered what it looks like when a giant automobile company goes under. The answer can be found in Detroit -- at the decaying remains of the Packard Motor Car Company headquarters.

McGraw has been a stooge for the city, banging the drum to hurry the demolition of the plant. There is just no money for this right now, so it could sit as the wide-open scrapping free-for-all that it is for some time to come.


On a realted note: Being something of a student of automotive history, especially Packard, I am seeing many of the events of East Grand Boulevard/1956 transpire at my employer.


Hmmmmmmm.................................

While we are on the subject of a bailout for the Big 3, here are some thought I have on their dealers.

Manufactures are now refusing to provide credit to their dealers for new vehicle orders. I can understand about lack of capital to give dealers credit, but the manufactures saying they need to reduce the number of dealers as part of their reorganizations is, to me, a Red Herring.

The dealers are independent business people. They own or lease the land, build or lease the facilities, hire the personnel, and stock the parts and equipment inventories. When a vehicle is shipped to a dealer, that dealer has bought or financed (floor planed) it. The manufactures are off the hook, except for warranties.

There are laws in each state to protect these dealer businesses from being unilaterally closed by the manufactures. The dealers hold franchises or contracts with the manufactures for a specified period of time, with extension clauses. They need these contracts to assure that there is an obligation for the manufacture to provide them with the goods that they have agreed to sell through their locations.

I understand it cost GM about $1M for each Oldsmobile dealership that was closed when they stopped making the car. By not making financing available to the dealers, the manufactures have neatly side stepped another Oldsmobile experience, and saved themselves the dealer cancellation costs.

GM's current finance situation is due to their selling 51% of GMAC to Cerberus Capitol management, a move that sealed GM's doom. Alfred Sloan must be doing about 3,600 rpms in his grave over this. GMAC was the envy of the entire industry, a great enabler of sales for GM, and as I alluded to in my post about "luxury car domination" it allowed GM to up-sell consumers into more profitable lines of vehicles than they were formerly told they could afford.
Cerberus has limited GM dealers to customers who have a 700 credit score or better, which unfortunately locks out a lot of GM buyers.
There is a theory in town that Cerberus now understands how deep a hole they have with Chrysler and is using this credit wedge to get GM to take Chrysler off of their hands in exchange for Cerberus taking the rest of GMAC (a sure money maker for the effort invested) and easing up credit to GMs customers and dealers.
As to the question of dealers--there are too many. What is happening is not the case where someone says "well, I can't decide whether to buy a Toyota or a Buick, I guess I'll go to each dealer and see what they can do for me on price" The buyers want one or the other, and conquest sales from one brand to the other are overwhelmingly in favor of the Asian brands right now.
What is happening is that in metropolitan areas there are too many dealers and the same-brand dealers are undercutting each other. Competition is good, restrictions are bad, but the domestic dealers aren't working as a team as more of the Asian dealers are, who by the way have 1/2 the number of dealers.
Many of the dealers crowded into large metropolitan areas ("your tri-county ____________ dealer") are not and historically have not followed best business practices (insert crooked dealer joke here) and are outright thieves. You don't see this in small town dealers because--they are in a small town, you can't screw customers and expect return business, and negative word-of-mouth in a small town is lethal.
The tri-county dealer has new suckers coming through the door every day, playing price games against the guy four miles away.
The dealers ARE the perception of the brand and the maker, and herein lays the rub. Yes, they are an independent business, but many are dysfunctional family businesses and are doing the brand more harm than they have been doing to themselves.
If this action causes some dealers to go out it will be a less than honest way of getting rid of them, better to open contracts and terminate the deal. That will keep the lawyers busy.

This "burden" on GM of having too many dealers has puzzled me as well, if I remember the #s correctly, GM has about 7000 and Toyota for more or less the same sales volume has 1600 or so. Even if I'm off by 1000 here or there, that's a huge difference.

But leaving the issue of unscrupulous dealers aside, I've never understood why the # of dealers was a burden on GM corporate as I guess I don't understand what type of financial support GM gives to independent dealers. Or are pehaps the majority of these GM dealers GM-owned?

Looking forward to some clarification.

GMAC financed dealer expansion, and floor plans. Not having that capitol flowing re: floor plans has hurt somewhat, although most dealers at this writing have too much floor stock as it is. One day they may want more and that's where the challenge will be.

Pushbutton: Your theory about Cerberus Capital is fact. A lot of people have missed that fact about the past talk of a Chrysler GM merger. Cerberus wanted 100 percent control of GMAC and in exchange Cerberus would hand over control of Chrysler to GM, thus getting Cerberus out of the car business.


John F. Shireman

Considering all the news of the lack of Governmental support for the Big Three bailout, all I have to say is this: Having worked in the automotive business for over 10 years, if they don't bail them out, then this country will go down fast and hard. You're talking over 2.5 MILLION people who will be out of a job, once you factor in all the employees that build the cars, the ones that supply the parts, the one's who deliver the cars, and parts, and the one's who sell the cars and the parts. You will suddenly have over 2.5 million people on unemployment, and the government can't support that load, being already bankrupt. This will throw this country into chaos, and people who don't have a job and don't have any money will become desperate and do what it takes to survive. This WILL happen if that many people are out of a job. Riots in the streets, people doing anything they can do to eat, even if it's breaking into businesses and homes to get what they need. The good ol' USA will become a battleground for food. Suddenly, those big Hummers and 5 bedroom houses will be available for pennies on the dollar, because those who own them won't be able to make the payments on them anymore. No one will buy them, because they won't have the money either. If this country survives the next four years, I'll truly be surprised. In the meantime, I'm stocking up on food and ammunition.

I have heard that if all of the Big 3 fail, that the number of affected people could go as high as 10 million. That would be a personal and economic disaster on a scale never before experienced. I have hopes that those who have the power to prevent this will do something soon for some temporary relief.

Some insight can be obtained by going back and reviewing what happened in Britian when their government tried to bail out their several automakers. After perhaps a 100 billion or so, they still all went belly-up or were sold to foreign owners, even finally Rolls-Royce/Bentley though some years later.

Certainly the repercussions of Ford and GM failing would be huge though softened perhaps if the failure could be spread out over a decade or so. But I don't think GM can survive (I've already written of Chrysler except for Jeep) unless two problems can be addressed, (1) the labor and legacy costs, and (2) American's desire, growing and continuing to grow, to buy foreign cars; it's damn near a genetically inbreed trait it seems, even in the (not enough) cases where US and foreign cars and comparable in cost and quality.