Closing Dealerships: Does it really help?
Wednesday, June 3rd, 2009Common sense tells you that if you want to sell something, you want as many venues to sell that thing as possible, so the question that logically follows is “why are Chrysler and GM closing dealerships if they need to turn a profit?”
The answer? Well… As could be predicted, it’s complicated…
[M]any analysts don’t believe closing dealerships will make an immediate impact on the bottom lines of the automakers.
“I personally don’t believe it does help the car manufacturer,” said Steve Hewitt, the partner who heads the Dealer Services Group of WIPFLi, a Minneapolis accounting and consulting firm.
“Once the car leaves the dock of the manufacturer, it’s the dealer’s problem,” explained Hewitt. “The dealer carries the cost of financing that inventory. The dealer carries the cost of advertising. And the dealer carries the real estate associated with selling that product.”
He called the distribution system of the automakers “virtually no-cost” to them. However, carmakers do have some costs in dealing with dealerships. There are trainers who travel the country teaching technicians how to repair the cars. There are auditors who analyze all the requests for warranty reimbursement from the dealers. And there is a sales force that sells cars to the dealers.
If training and sales are the primary costs, why not cut those teams down? In the business model as it is now, the dealer bears the brunt of the costs with inventory, so the benefits to closing dealerships are, at best, small.
The “leaner and meaner” thing is all well and good, but no one has explained to anyone’s satisfaction why these dealership closings will help, only a passing dismissive “it will.” Sorry, but when thousands of people are losing their jobs and their businesses, I expect better.
(video of the above quoted story can be found here)





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