Publisher & Editor Mike Roscoe conducted this interview with a prominent and highly-successful GM dealer on the condition of complete and total anonymity. Send any response to: mroscoe@dealeronline.com or fax at (931) 388-4881.
What do you think of General Motor's plan to buy dealerships in 130 marketsto, in effect, compete with their own dealers?
My perspective on this is that this has to be looked at in a much broader sense; that this is only part of a much larger puzzle65% of all new car buyers consult the Internet before they make a purchase. The vast majority of them are consulting the factory websites for information. The reason GM has chosen 130 of the largest markets is so that they would have a well-dispersed outlet for all their Internet leads, because General Motors, having all the Internet leads, could configure the cars on the Internet, price the cars on the Internet and then direct the customer to take delivery through their own dealerships.
How could this effect dealers in those markets?
It completely wipes them out of the transaction altogether. It drives them out of business.
So what do you think is GM's real purpose in doing this?
The factories have been talking for years that the dealerships add 25% to the cost of distributing a car. The factories believe that they'd like to just eliminate that 25%. The NADA recently published a report citing that the dealers in the United States had made 3.6 billion dollars in the first half of 1999. GM wants that money.
GM says its plan is to have its dealership be on an even par with the other dealerships in the market, that they are going to treat them the same.
There's no way. There is no way that General Motors can be trusted with that. They distribute the cars and control the rebates. They have our financial statements, they have their representatives in my dealerships day in and day out, they have site control on our real estate, they control our facilities, they control our financing, they control our floorplans-how can we compete fairly with a competitor like that?
Why do you think they chose to do this now?
Every 20 years a new generation of factory executives forgets the fact that they can't retail cars and that the distribution system they have is the product of years and years of evolution and it's extremely efficient. It takes someone from outside the retail arena to believe otherwise.
Do you think they can succeed? Is this a real threat?
Whether or not they succeed is debatable, but something that's very certain is this could wreck havoc on the retail distribution system and possibly their own corporations for many years to come.
What can dealers do about it?
Dealers have to stop this now because the moment the factories are allowed to distribute cars they will have such an extraordinary advantage over dealers, they could virtually wipe the dealers out of business in short order. They have rights of first refusal on all transactions, they could appoint new points in a city for themselves; the independent dealer would be extinct. Dealers need to realize this and they need to run to their state legislatures because we have invested millions and millions of dollars, and most of our lives, on behalf of the factories based on contractual relationships to exclusively represent their products in the marketplace. This is patently unfair and no state legislature could ever believe that the factory is entitled to drive dealers out of business after all these years and these huge investments.
What's being done in your state?
The dealers in my state are actively organizing, contributing money, writing legislation and we're going to make a full assault on our legislature when it convenes.
Do you see a possibility that another manufacturer would take this route if and when GM is successful?
Absolutely. All the other factories. In North Carolina and Georgia recently when the factory lobbyists were there to oppose the enactment of franchise law to prevent factory ownership, there were 35 factory lobbyists present. These lobbyists represented all manufacturers-Porsche had lobbyists, Toyoto had lobbyists, Chrysler had lobbyists-they ALL had lobbyists there, vigorously opposing these franchise laws. All the manufacturers want what General Motors and Ford are going after.
So you see this almost as a battle of Armageddon. If this battle is lost, all is most likely lost.
Absolutely. No dealer should underestimate the importance of this.
Has there ever been a threat to the franchise system as strong as this one today?
I've never seen one. The Internet, public companies, nothing has been close to this. I don't think we should underestimate Ford's threat too.
Please explain.
Ford's threat is equally as dangerous as General Motors'. Ford can accomplish the same thing in a different route. Ford's recent decision to back away from its FRN venture does not mean that the heat is off on the Ford front. Ford's plan will eventually evolve into dealing with customers on the Internet, configuring cars on the Internet for the customer, pricing the car, delivering the car through a dealer for a small delivery fee or through some concierge service.
In other words, the value of our franchises will plummet the moment that happens and that can happen virtually overnight. The factories have such enormous marketing clout that they can start driving the consumers to their Internet sites and then configure cars for them, pricing them and then tell the dealers that they'll pay them $100 to deliver that car. And the factory takes all the financing income. Then there's nothing we can do. The consumer's perception will be that to deal directly with the factory is the only way to do business and the dealers will be unable to support the investments they have made on behalf of the factories.
So dealers could end up becoming used car lots with factory service centers?
Yes.
What's the possibility that through good public relations and media manipulation the factories get the public to see that these dealers are just trying to hold onto their little fiefdoms and the consumer is better off dealing directly with the factory? Is that not a possibility?
Yeah, that's true and that's what the factory has done. For instance, in Georgia and North Carolina, they hired large public relations firms to spin exactly that kind of a story. But it doesn't take much for a legislature to look a little further than that. One of the best things we dealers have going for us is that it's really in the best interest of the consumer to have an independent dealer body, because once the dealers go out of business and the factory is allowed to distribute cars outside of the dealer system, the factories will then be able to charge whatever they want in any particular market for their vehicles. In other words, if you want a Ford F-150 pickup truck in Salt Lake City, you'll pay what Ford wants. Then there is no competition.
But to take their side just for the point of looking at this a little deeper-if somebody wants a Ford and it's too expensive, they can go buy a Chevy or they can go buy a Dodge.
Right, but the level of competition has been diminished significantly. In other words, if you want a Ford, then you'll pay that Ford price. Right now we have intrabrand competition; once the factories take over we'll only have interbrand competition. That's significantly less competition overall, which means the consumers will pay more for their cars.
If the factories all want this, considering all the money and PR and press manipulation that they can put into it, it's going to be hard to stop. Even if laws are passed, laws can be changed, laws can be rescinded, laws can be taken off the books. Don't you think that if the factories really want this, it's just a matter of time until they get it?
No. I think that the dealers in their home states are the home teams. I think that we have right on our side. I think we have invested millions and millions of dollars on behalf of the factories to exclusively distribute their products. They can't just wipe us out of the picture like this. They can't just drive us out of business. Once understood, no legislature will stand for that. It doesn't help the consumer. It hurts the consumer. The state legislatures will understand this very clearly when the facts are presented to them. We can beat them now and if they invent new ways to go around this type of legislation, we can invent new legislation. Let me put it this way: there are some fights in your life that you just have to wage and this is one of them. I've invested my whole life in this business and everything I own is in it. I'm not going to lay down for this. No dealer should lay down for this. This effects all dealers, rural or urban, domestic or import, GM, Ford, Chrysler, Toyota, whateverthis affects all dealers. This is one issue where all dealers need to get involved, need to understand the issues, need to read the media reports on what's going on. You need to be able to explain these issues to your employees and to your state legislators. It's important that you pick up the phone, that you go to the legislators, that you go to your state dealer meetings, that you make sure that your state dealer association is pressing hard to enact state franchise laws to protect the dealers against this kind of factory abuse.