

How car dealers tie Detroit's hands - sethg
http://www.newyorker.com/archive/2006/09/04/060904ta_talk_surowiecki

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jbarciauskas
Isn't this exactly what bankruptcy is for? Put GM in a pre-packaged bankruptcy
([http://www.investopedia.com/terms/p/prepackagedbankruptcy.as...](http://www.investopedia.com/terms/p/prepackagedbankruptcy.asp)),
and one of the planned actions should be shedding these unprofitable brands
and severing the relationship with these dealers. The dealers made a bad bet
on a brand, they are entitled to nothing.

~~~
razzmataz
> severing the relationship with these dealers.

That's actually hard to do - there's a myriad of state and federal laws that
make this all but impossible. It cost about a billion dollars for GM to deep
six the oldsmobile brand, buying out old dealers franchises, etc...

~~~
Anon84
IANAL, but can't they just stop renewing the franchise contracts? It would
take a few years, but eventually they would be off the hook at ~zero cost.

Another option might be to simply stop updating the models of a given brand.
Dealers survive for a few years servicing the currently existing models until
they eventually switch to other brands.

~~~
jerf
"IANAL, but can't they just stop renewing the franchise contracts?" - which
will cause the dealers to revolt. And as the article says, collectively they
have the states in their pockets.

There's no way for GM to strip the dealers of their franchises without the
dealers fighting back. Without the big stick of Chapter 11, GM doesn't stand a
chance.

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gamble
I've never really seen the appeal of franchising. You get a packaged business,
but then the franchiser has you by the balls forever. Plus what I've read
suggests that most franchise owners barely eke out a profit. Car dealers are
probably better off, since they have service revenue independent of the parent
company, but they're still dependent on a single supplier.

~~~
briansmith
"McDonald's exemplifies the role of small businesses in Americans' upward
mobility. The company is largely a confederation of small businesses: 85
percent of its U.S. restaurants -- average annual sales, $2.2 million -- are
owned by franchisees. McDonald's has made more millionaires, and especially
black and Hispanic millionaires, than any other economic entity ever,
anywhere."

\-- [http://www.washingtonpost.com/wp-
dyn/content/article/2007/12...](http://www.washingtonpost.com/wp-
dyn/content/article/2007/12/26/AR2007122601485.html)

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dws
This article parrots Detroit's "take what you're given at shut up" view.
Dealers see things differently. My family ran two automobile dealerships. The
one that dealt with Detroit (Ford) had little choice in what they were given
to sell, and complained in particular of Detroit shoving lots of big cars and
trucks at them when the demand was for a size or two smaller.

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blackguardx
Why don't they just stop making Buicks? Or are they obligated to provide a
certain number per month?

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vaksel
a billion to kill a brand that costs you money is not that bad. It costs them
something like 1-2 billion to bring a car from concept to production, so
they'll save that money the first time they avoid having to redesign a new
model.

But why kill? Sell it off...you are going to lose all that value anyways, so
even if you sell Buick below market price, you still make more than if you
just close the doors

~~~
hugh
To put that "billion dollars" in perspective, General Motors' current burn
rate is apparently $6.9 billion a month. Ouch!

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jcl
Don't Honda and Toyota have the same problem? They seem to be coping.

~~~
sethg
Honda and Toyota aren't wishing they could shed unprofitable brands.

~~~
jcl
True, but I also have to wonder how big a deal an "unprofitable" brand is. If
the brand was genuinely unprofitable, wouldn't the problem dealers eventually
go out of business?

And how much does it actually cost to keep a brand alive? Can't GM just slap a
Buick label on a Cadillac and ship however many of each are needed?

~~~
briansmith
You can't put a Buick logo on a premium car like a Cadillac. First, a Cadillac
costs more to make than people are willing to spend on a Buick. Second, doing
that would reduce the demand for Cadillacs (since nobody wants something that
is the "same as a Buick").

For non-premimum brands, GM and other manufacturers already do sell the same
car with different names--even across coompanies. Most obviously, the Eagle
Talon is/was the same as the Mitsubishi Eclipse except for the spoiler, and
the Chevy Camero and the Pontiac Firebird were the same car with different
body trim for a long time. Similarly, the Ford Taurus and the Mercury Sable
are the same car except for some body styling. Toyota Corolla is the same as
the Geo Prism, the Toyota Matrix is the same as the Pontiac Vibe, Ford Focus
is sold under three different brands.

Doing this keeps the prices of the good brands high while selling cars for a
discount when necessary. If you bargain the price of a Ford Taurus down far
enough, the dealer will tell you that you can't have the Taurus for that
price, but you _can_ have the equivalent Sable.

~~~
jerf
He wasn't arguing that you could turn a Buick (cheap car) into a Cadillac
(expensive car). He was arguing that if they can't entirely dispose of a
brand, they could turn a Buick (car labeled a Buick) into a Cadillac (car
labeled a Cadillac) with a simple label change.

A Cadillac is a car that has been labeled a Cadillac by the legal owner of the
Cadillac trademark. Maybe "a car" is extraneous, too, though I suspect
dealership contracts would have something to say about being turned into a
Cadillac Pencil dealership. But still, I would imagine GM has a lot of
discretion about what gets called a "Cadillac". (Maybe not, but that would be
awfully far-sighted of the dealers to get a clause defining what a Cadillac is
in their contracts and I would salute them for their legal prowess if they do
have such clauses.)

Also, I have now typed "Cadillac" so many times it is no longer a word to me.

