Motormouth Online

Chrysler has already unceremoniously fired almost 800 of it's dealers. In many cases, these are dealerships that have been cornerstones of their communities for decades. They were given just weeks to sell their parts, and cars because Chrysler already considers them sold to individual dealers. General Motors expects to cut thousands of their dealers as part of their restricting process. Now that they are in bankruptcy, some were given eighteen months to clear out and others just a few days.

Mark Alford recently asked me in an interview on the Fox 4 Morning Show if smaller leaner family owned dealers or larger corporate mega dealers were best able to survive the turmoil. GM and Chrysler already have already answered that they favor corporations rather than the small business owner. Is this the best approach or is it the same thinking that got them into trouble originally?

GM and Chrysler understand that modern cars require expensive and sophisticated diagnostic equipment to service their increasingly complex vehicles. Large inventories offer consumers selection options that small businesses can't afford and prime suburban real estate for migrating upper income families requires deep pockets. Therefore, manufacturing companies want to support dealers who have the ability to invest in capital expenses like new facilities and equipment. They want upscale showrooms, services for consumers and buying experiences that increases the perceived value of the products.

On the other hand, cars have to be sold rather than bought. If autos were like toasters, you could buy them at Wal-Mart. The professional services of a sales person who understands your wants and needs cannot be overestimated. Local dealerships are often run as small businesses who know their customers and the community they serve. Efficiencies of a small business are well documented because they are able to adapt at the drop of the hat. Many people believe that the large bureaucracy of General Motors and their inability to change was their real demise.

Kansas City has long been viewed as the most competitive automotive market in the world. Because there were so many dealers in such a small market, dealers complained it was difficult to make large profits. No large corporate mega-dealer has ever been able to dominate this market. Because of that consumers often got great deals, but this is about to change.

Will fewer dealers mean more cars sold? Will fewer dealers mean that the manufacturers will be more profitable? I believe this is a risk. You do not buy a car from Ford, GM, Chrysler or any other manufacturer. You purchase the auto from the local dealer. It's the law. The dealer is the customer of the manufacturer, not the consumer. General Motors claimed that the 1,100 dealers fired initially made up less than 10% of their sales. So if sales are down 40%, why would I further reduce my sales by 10% to get rid of dealers that effectively cost no money to maintain? The local car dealer purchases the car from the manufacturer. They purchase parts, training, equipment, signage, and even brochures from the manufacturer. So where is the savings coming from?

It's true that the remaining dealers will make more money when their competition is taken away. However, I believe it is a risk to assume that a few stronger dealers will sell more vehicles overall than several smaller dealers. To me Ford, Chrysler and GM have an inherent competitive advantage over imports because of the number of dealers spread out over the country. If I get in my Chevrolet and drive from Kansas City to Denver and I have a problem in Salina Kansas, I can be assured that there is a Chevrolet dealer nearby. If I am in my Mazda, help is further away. That's an undeniable advantage for GM.

I know the world is changing. The rich keep getting richer, suburbs keep expanding, big box stores and shopping malls keep squeezing the independent businessperson. But, our world is not richer for their loss and there is a real danger on depending on the rise of the corporation. It is said that government bailouts were needed because banks, insurance companies and General Motors were too big to fail. Maybe that was the original problem.