Manufacturer pressure for dealers to consolidate is growing, and runs the risk of violating anti-coercion clauses in most state franchise laws and the federal dealer day-in-court law.
That was the consensus of National Automobile Dealers Assn. leaders, past and present, surveyed by Ward's Dealer Business, as the “Detroit 3” step up campaigns for consolidations of franchises in “overdealered” markets.
Among targets of the consolidation initiatives have been:
- Buick dealers, urged to combine with Pontiac-GMC stores.
- Chrysler-Jeep and Dodge stores, asked to link up with each other.
- Ford and Lincoln-Mercury stores. Ford stores are being urged to join together or acquire nearby Lincoln-Mercury franchises.
's stand on the “overdealering solution” comes from current chairman, Dale Willey, a Buick-Pontiac-GMC dealer in Lawrence, KS.
He says the automakers should let dealers decide on their own whether to sell their stores or consolidate with other stores.
This policy, enunciated last year by Willey's predecessor, William Bradshaw, a multi-brand dealer based in Greer, SC, was echoed in blunt terms by past chairmen or presidents of NADA.
“Fewer dealers is no solution,” says H. Carter Myers III, a multi-brand dealer in Charlottesville and Richmond, VA, and the 2002 NADA chairman.
He adds: “The Detroit 3 are going to find out that volume will not increase as they drop dealers who have been their mainstays when times were tough.”
Other former NADA leaders supporting the Willey-Bradshaw position on dealer self-determination in disposing of their businesses include Ray Green, NADA president in 1990; Alan Starling, chairman in 2003; and Paul Holloway, chairman in 1998.
“The factory should not force anyone out of the market,” says Jack Kain, a Ford dealer in Versailles, KY, and 2005 NADA chairman. “There are eight to 10 (Ford and Lincoln Mercury) dealers in the Louisville market, which may be too many, but the factory has to understand that each one is surviving in a challenging economy because of loyal customers built up over years in business.”
While Detroit 3 executives have insisted the consolidation process is “purely voluntary,” an opposite view is voiced by a 38-year Buick dealer, Marvin Tamaroff, of Southfield, MI, a Detroit suburb.
Upon closing Tamaroff Buick at the end of March, Tamaroff's son, Jeffrey, says the decision to turn the franchise over to the nearby Art Moran Pontiac-GMC was involuntary. Although an incentive was paid by the factory, “GM made it clear we had no choice,” says Jeffrey Tamaroff. “If it sounds like we're bitter, it's because we are.”
For their part, GM, Ford and Chrysler Group auto executives say strategies calling for fewer dealers — especially in metro suburbs — are designed to improve sales per dealer and reduce administrative costs on a voluntary basis.
The auto makers are calling for more consolidations in “overdealered” markets, but do not want to actively participate in order to avoid paying buyouts to dealers as GM did to Oldsmobile dealers when that brand was axed in the late 1990s. It cost GM about $1 billion to eliminate Olds.
Troy Clarke, president of GM's North American operations, says, “We know how much it costs because we did it with Oldsmobile. If I had a couple of billion dollars (for cutting dealerships), I'd rather put the money into product.”
Ford CEO Alan Mulally says, “All the money in the world wouldn't cover the cost of buying out our excess dealers.”
The Ford Dealers Alliance has been watching the Ford consolidation situation closely.
“Any sign of coercion could mean violation of franchise laws, even where incentive payments are involved and dealers really don't want to sell out,” says Michell Van Viorst, executive vice president of the Hackensack, NJ-based association.
She adds: “Factory promotion of consolidations has led to calls to several attorneys specializing in dealership issues over possible violations of anti-coercion laws.
“Most state laws have pretty tough coercion clauses, with quick recourse to vehicle boards or courts. The FDA will support members going that route.”
GM lost 222 dealerships, Ford 126 and Chrysler Group 134 last year — the biggest drop in 10 years. The number of Buick-Pontiac-GMC stores in major metro areas rose from 1,619 to 1,643 as a result of what GM calls a “channeling strategy.”