News: Analysis and Commentary: Detroit
Meet Your Local GM Dealer: GM
The Big Three are trying new schemes to combat Net invaders
The local car dealer--right there on main street, not out in the auto mall--may seem as quaint as tail fins these days. And, in the age of auto-superstore chains and online car shopping, the local Chevy dealer is feeling mighty pinched. Detroit now sees prices rise more than 25% between the factory and when a car leaves the showroom, thanks to dealer markups and marketing costs. And carmakers would love to find a more efficient way to move the metal. But the Big Three have few alternatives to their dependence on thousands of dealers in big towns and small to get the product to the public.
So, Detroit continues to wrestle with how to streamline its distribution, while keeping dealers healthy at the same time. The latest model was trotted out by General Motors Corp. on Sept. 28. The No. 1 auto maker announced plans for a new subsidiary, General Motors Retail Holdings, that will buy--from willing sellers--up to 10% of its 7,700 franchised dealerships in 130 markets nationwide. GM hopes to reduce distribution costs and enhance customer service. "We feel very strongly that we need to get closer to the retail environment to better understand these changes and their effects on our business," says Darwin E. Clark, GM's vice-president heading the consolidation.BUYING CLOUT. While GM is looking to get closer, Ford Motor Co. has been scaling back its plan to buy up dealers after finding that integrating once-independent dealerships was harder than expected. And DaimlerChrysler has a different idea altogether: Rather than buying Chrysler or Dodge franchises in the U.S., the carmaker will use its corporate buying clout to help dealers cut overhead on everything from electricity to office supplies--and shave up to $500 off the average price of a car or truck.
Which one has the correct answer? Who knows? But one thing is clear: Manufacturers are determined not to cede control of distribution to superstores such as AutoNation Inc. or Internet referral and buying sites. Because of state franchise rules, it's impossible for the carmakers to sell directly. So Detroit needs a formula to streamline dealer networks, cut overhead, and offer competitive prices.
Ford Auto Collection, the consolidation strategy the carmaker developed, ran afoul of tightened franchise laws in major states, such as Texas, which complicated the process of buying out and combining dealerships. There was also a small rebellion among dealerships that felt Ford had forced them to sell. Ford backed off, and Ross H. Roberts, president of Ford Investment Enterprises, who oversaw the consolidation, chose to retire at 57. But the company insists it's not giving up. "AutoCollection is not running as smoothly as we expected," admits Ford CEO Jacques Nasser. "We've slowed our original ambitious strategy. But we still think it's the right approach." He's quick to add, though: "Independent dealers are going to remain the backbone of auto delivery."
Meanwhile, Ford is moving further into nontraditional sales. On Sept. 20, Ford invested an undisclosed amount in Microsoft Corp.'s CarPoint, a Web-based car-buying and information site. Early next year, CarPoint will launch a so-called build-to-order service that allows customers to order a car and then trace its progress from factory to dealer lot.
At DaimlerChrysler, the goal is to make its best dealers even better. Those qualifying for its five-star rating can save on everything from electricity to office supplies by taking advantage of the group rates the company will negotiate. The concept, which is being tested this fall in 10 Indianapolis dealerships before spreading nationwide, could save dealers $1 billion, says the company's new U.S. President James P. Holden.
Not surprisingly, dealers favor DaimlerChrysler's approach. "They're sticking with the ones that brought them to the dance," says Gene Beltz, owner of Shadeland Dodge in Indianapolis.
Rather than supporting their franchisees, many dealers feel Ford and GM are putting them out of business. "They've gone from being my mother factory, my protector, to my competitor," grumbles Frank Ursomarso, an influential member of GM's dealer advisory committee who owns GM and Ford dealerships in Wilmington, Del. Just what a dealer needs--more competition.By Joann Muller in Detroit