Is cutting car dealerships a wise move?

Rico Gagliano May 14, 2009
HTML EMBED:
COPY

Is cutting car dealerships a wise move?

Rico Gagliano May 14, 2009
HTML EMBED:
COPY

TEXT OF STORY

STEVE CHIOTAKIS: Chrysler has an announcement of its own today. It’s cutting loose around 800 of its dealerships. GM will likely do the same down the road — except a lot more dealers. A wise move? Or yet another example of foot-shooting? Rico Gagliano reports.


RICO GAGLIANO: Chrysler has twice as many dealerships as Toyota. GM has four times as many. Car writer Lawrence Ulrich says that made sense when U.S. carmakers held 90 percent of the market. But these days, it’s hurting their bottom line.

LAWRENCE ULRICH: For too many General Motors dealers, the biggest competitor isn’t the Toyota store, it’s the General Motors dealer down the street who gets in a price battle with you over a shrinking group of customers.

But GM and Chrysler have signed franchise agreements which make it hard to cut ties with dealers. Now, with bankruptcy looming, the companies have more leeway to break those agreements. Which could actually help, long term. But short term? Gary Dilts is with JD Power and Associates

GARY DILTS: Well, if you terminate a dealer, you are obligated to buy back the current model-year vehicles and parts. So that’s literally hundreds of thousands of vehicles across the industry that are gonna have to be repurchased.

And in this economy, it’s unclear when — or if — GM and Chrysler will be able to sell those cars from the dealerships which remain.

In Los Angeles, I’m Rico Gagliano for Marketplace.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.  

Need some Econ 101?

Our new Marketplace Crash Course is here to help. Sign-up for free, learn at your own pace.