Carmakers Drive Off Business, Competition and Jobs

Carmakers Drive Off Business

Doing away with local car dealers is a short-sighted, anti-consumer move that won’t help Chrysler or General Motors sell more cars but it threatens more than 100,000 jobs at dealerships.

Chrysler has notified 789 dealers with 40,000 employees that it would end their franchise agreements in June and the company would not buy back unsold vehicles and parts inventories.

GM has told 1,100 dealerships with more than 63,000 workers that it will not renew franchise agreements next year.

Dealers don’t cost the car companies much, if anything. They pay the overhead for their car lots and they fly the flag for their brands. But the consolidation of dealerships has long been sought by the car companies who would like to simplify their distribution network while larger dealers would like to do away with marginal competitors. It could mean short-term bargains for car buyers as cancelled dealers liquidate their inventory. But in the long term, fewer dealers mean less competition, higher prices for new cars and longer drives for service.

In our hometown, Chrysler has cut loose Schuelke Auto of Storm Lake, Iowa, after 75 years with the Chrysler nameplate. Schuelke had always been a distant third in car sales in Storm Lake, but they did sell and service Chrysler, Dodge and Jeep models. Next month there apparently will be no factory-authorized Chrysler service in Buena Vista County, population 20,000. It is highly unlikely that a Storm Laker will go to another county to buy a Chrysler knowing they can’t get it serviced locally. Other “county seat” towns are losing their Chrysler and GM dealerships.

Most of those dealers will simply sell used cars, which generally have higher profit margins than new cars. Don Wunschel, owner of Don’s Chevrolet in Ida Grove, Iowa, who was notified he will lose his franchise, told the Des Moines Register, “There’s nothing glamorous about being a new car dealer.” Mandatory GM expenses he ticked off include bills for computer training programs, “any new tools they come up with” and $150 monthly to rent—he’s not allowed to buy—the GM sign outside his building. “I think now, at least when I shut the door at night and go home, at least the drain on my business is gone,” Wunschel said.

Getting rid of the Schuelkes and the Wunschels from dealer lists might make sense to an MBA in Detroit or on Wall Street who has never sold a car but has been trained to maximize per-unit profit margins. Dealer consolidation makes no sense in rural Iowa—and not much more sense in the cities, either. — JMC

From The Progressive Populist, June 15, 2009