The car companies are up against the wall. They have to figure out how to make money in the third millennium, and at least a couple of them have to figure this out right smartly. On Thursday of this week UPS delivered notices to 789 Chrysler dealers letting them know they weren’t going to be part of the solution, the next day FedEx carried similar news to about 1100 GM dealers. Chrysler’s bankruptcy means they can make their terminations stick; GM will have a little more trouble if they stay out of bankruptcy, but that probably won’t change much. Even with strong state franchise laws, when the manufacturer wants to close a dealership they eventually will.
But why? I have my doubts about the economy of eliminating brands, but at least there was some cost saving when Chrysler no longer had to pay to produce ad campaigns for both Dodge and Plymouth, and they may have saved a couple of dozen salaries by eliminating the design effort to make a Plymouth look a little different than a Dodge. But how much can an auto manufacturer save by eliminating a dealer?
Every dealer has to have the special tools designed for specific repairs, but the dealers pay for those.
When I think of recent business successes, two names that come immediately to mind are Amazon and Netflix. Both are thriving from the “long tail” approach, a concept first identified by Wired’s Chris Anderson which means a strategy of focusing on a thousand products that sell a few units a month instead of a few products that sell a thousand each. The company that can provide you with any of ten thousand movies profitably will probably be your source for more common flicks, even if you have a Blockbuster ten minutes away.
Dell has built a huge business building one computer at a time. Yes, they’re under pressure during the current downturn, but Packard Bell doesn’t exist at all.
Yes, it’s possible that a large dealer will be more profitable than five smaller ones, but that’s the dealers’ problem, not the manufacturers. GM isn’t paying the rent on those four extra showrooms, although they probably had a lot of say in what they look like and pushed the dealers to build them. Chrysler does shell out for advertising for every dealer, but that’s all “co-op” in which the dealer pays for the ads and is reimbursed, based on their purchases, so other than processing the extra paperwork, there’s no difference.
And that, I suspect, is the crux of the matter. During a period when IT advances have made it vastly less expensive to sell small-volume products through small-volume dealers, Detroit was oblivious.
Murray Motors, the Chrysler and Dodge dealer in my home town got one of the notices on Thursday after 66 years. When the economy recovers, will long-time Dodge owners drive an hour and a half to look at new cars, and commit to that same drive for ongoing service, or will they take a look at what the Ford and Toyota dealers have on offer?
Fashioning a marketing organization that fits the current marketplace may be challenging, but it will work a lot better than just lopping off the less-profitable parts of their tail. Chrysler and GM are making a stupid mistake. If I Were King, or even if I weren’t, they need to remember that stupidity is a capital crime on this planet.