Marketing: AUTO RETAILING
GM BRINGS ITS DEALERS UP TO SPEED
New locales and updated stores are key to the overhaul
Ramsay H. Gillman's Houston Pontiac/GMC dealership used to be part of General Motors Corp.'s problem. It was just down the road from another Pontiac showroom, making it hard for both to make money. Worse, Gillman also sold Suzukis, which compete with GM models. GM urged Gillman to move to a new site out by the Astrodome, but Gillman wasn't interested. So, as part of an extensive effort to overhaul its dealer network, GM bought Gillman out. "I hate to see it go," the burly Texan says of the Pontiac store his father bought in 1938. "But they came to me with an offer I couldn't refuse, and I took it. I'm a happy camper."
If only they all went that smoothly. For more than eight years, the auto maker has been slowly trying to remake its distribution system. The going has been every bit as tough as it expected. GM is just 40% done with plans to relocate some dealers, merge others, and shrink its dealer count from 9,500 in 1990 to 7,000 by the end of 2000. Although the estimated $1 billion project was officially launched in 1990, it didn't catch fire until almost five years later, when newly arrived GM sales and marketing chief Ronald L. Zarrella made the dealer overhaul a central part of his push to create distinct brand images for GM's models and divisions.
EYE-OPENER. Now, company executives say they're so delighted with recent results that they've accelerated the pace. In Bergen County, N.J., for example, sales rose 42% in 1997 after half of the eight dealerships there were upgraded or moved. Says Zarrella: "The benefits are such that it looked like we ought to go a lot faster."
Even so, the task ahead is monumental, and the hour is late. The auto maker is trying to catch up with population shifts by moving stores out of small towns and declining cities and into bustling retail zones along suburban highways. At the same time, it is pushing dealers to reconfigure their holdings to match the way GM has realigned its divisions, and either to spiff up stores or build new ones. The company's ultimate goal: fewer but better dealers. "Consolidating will create larger, more profitable dealers, and they'll do a better job of moving product and satisfying customers," says Christopher W. Cedergren, managing director of Nextrend Inc., a California auto consultant.
That quest has become more urgent in the past two years because of the auto-retailing revolution sparked by public-dealer groups such as H. Wayne Huizenga's AutoNation USA and by an explosion of Internet services for car shopping. Auto retailing has "changed more in the last three years than in the prior 50," says Edward K. Roggenkamp III, head of GM's dealer investment and development group. Faced with new players offering nicer stores and less hassle, carmakers are scrambling to keep their traditional dealer base from becoming obsolete.
For GM, that means incorporating into the revamped stores the attributes of newcomers such as AutoNation and Circuit City's CarMax Auto Superstores Inc.: brighter, more open showrooms, play areas for customers' children, computer kiosks to display product information, and service-department waiting rooms equipped to allow customers to plug in laptop computers and modems. Moreover, GM is hoping to take a page from its successful Saturn division, where each dealer gets a large, exclusive territory. Executives hope that by thinning the ranks, the remaining dealers will focus more on pampering customers than on undercutting the dealer down the street.
BIG DEAL. In its most experimental move, the carmaker is launching its own superstores. Late last year, it bought all 12 GM dealers in California's San Fernando Valley for an estimated $100 million. The situation was dire there--GM's market share was a miserable 13%--so with the help of an as-yet-unnamed dealer partner, GM hopes to turn the region into a laboratory to test the latest in car-retailing tactics. "GM sees the same thing that we see," says W. Austin Ligon, president of CarMax. "New cars could be distributed with dramatically lower investment and dramatically higher customer satisfaction."
To do that, GM has big plans for the San Fernando Valley. It intends to bulldoze most of the existing stores and replace them with a handful of mega-stores. Major repair work will be done at the superstores, with a new ring of satellite service shops handling light maintenance. GM hopes success there will persuade dealers elsewhere to try large-scale consolidation. Says G. Richard Wagoner Jr., president of GM's North American operations: "If it works brilliantly, other dealers will take a look."
Competitors are also watching. Ford Motor Co. is launching similar tests in Tulsa and San Diego, after dealers thwarted its clumsy initial attempts to buy out all of its Indianapolis and Salt Lake City dealers. The idea: pare costly overhead and inventories and eliminate many expensive body shops, while offering customers wider selection and better service.
GM isn't alone in its struggle to consolidate its U.S. distributors, either. Chrysler Corp. wants to slice its dealer count, already cut from 5,700 in 1987 to 4,500 today, to 4,200 by 2000. To get there, it has been encouraging mergers of its Chrysler, Plymouth, and Jeep/Eagle franchises to operate under one roof. Foreign auto makers ranging from Mazda to BMW have also launched initiatives to spruce up their dealer networks.
Despite its slow start, GM is confident it can finish the task by 2000. The company says the project is gathering speed as dealers note the success of those who have taken the plunge. GM says it made significant changes at 500 dealers last year and expects to match that pace this year.
But the slow rate of change and the accelerating shift in auto retailing may diminish GM's final payoff. Says analyst Maryann N. Keller of Furman Selz LLC: "I wonder if they'll get the bang they would have gotten 10 or 15 years ago." As for the niceties of the spruced-up showrooms, "everyone wants ficus trees, leather upholstery, loaner cars, and longer service hours." She says that adding those perks simply brings GM up to the new minimum standard.
RESISTANCE. Still, there's only so much GM can do to pick up the pace since the dealers themselves are a major speed bump. GM's 8,090 dealers are mostly entrepreneurs, fiercely independent and shielded from manufacturers' mandates by strict state franchise laws. Relocating or refurbishing to satisfy GM's wishes can cost hundreds of thousands of dollars--most of it out of the dealer's pocket. And the move or merger that helps one dealer may threaten another. Analysts say the retail overhaul is one reason GM landed in the basement in J.D. Power & Associates' 1997 rankings of dealer satisfaction with carmakers. Delaware dealer Frank Ursomarso says most dealers applaud GM's actions, but only in theory. "[It] is viewed as a good thing--until they come to you," he says.
Or to your neighbor. Bruce Bendell, a Long Island Chevy dealer, is suing GM because it pushed a neighboring Pontiac dealer to acquire a GMC franchise. Trouble is, GMC's truck lineup is nearly identical to Bendell's Chevy offerings. He's only slightly mollified by GM's assurances that its plans to further differentiate GMC and Chevy trucks will solve his problem.
To win over reluctant dealers, the carrot GM dangles is cash: either a buyout or loans and stipends to rebuild in a new locale. That strategy isn't cheap. GM's eagerness to buy out dealers, coupled with a recent acquisition spree by public-dealer groups, is driving up the cost of dealerships, analysts say. GM won't reveal its costs but says it is not over budget. And Wall Street watchers agree it's money well spent. "They absolutely should do it," says Keller. Whether GM ultimately succeeds will depend on whether it can create more happy campers such as Gillman in the next three years.By Kathleen Kerwin in DetroitReturn to top