Will GM be able to drop dealers?

Part of GM’s restructuring plan calls for reducing their massive network of 6,200 dealers by 25 percent.

Few will argue the logic behind that thinking. The ones who will argue are the dealers in that unfortunate 25 percent, a group who will very likely make life even more difficult for GM.

In fact, it’s happening already. According to the Detroit Free Press, Alabama dealership Abercrombie Chevrolet is suing GM and GMAC, claiming a conspiracy by the two to break its franchise agreement “in an effort to shut down dealers and avoid paying franchise buyout fees.”

Franchise agreements, or dealer franchise laws, do things like restrict GM’s freedom to open new dealerships near existing ones. More importantly, they make it nearly impossible for an auto manufacturer to simply shut down a dealership. GM will have to get dealers to agree to close up shop, which will mean buying them out. Dropping brands and reducing the number dealers may very well cost more than it saves.

In my opinion, two things that are holding automakers back from success are union agreements and these dealer franchise laws. On some levels I feel sorry for GM, because the union says they can’t let people go, and the franchise laws say stores can’t be closed. What’s a company to do?

Abercrombie Chevrolet is accusing GM of wrongly withholding rebates, warranty claims, and other money due to the dealership while GMAC is demanding a bigger cash deposit “in an effort to drive them out of business.”

GM denies any wrongdoing. And according to the restructuring plan submitted to the government, GM expects to close 2,326 dealers by 2014.

If this lawsuit is any indication, it’s going to take billions of dollars and many more lawsuits before that will happen.

Do you think GM can succeed in closing so many dealerships?

-tgriffith

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