Culling Franchises.
According to Chip Beck, for any information to become actionable it must first pass through two filters. Failure on either count renders that information useless. Those two filters are, 1. Is the information true? and 2. Is the information relevant?
Gentlemen,
Kingman instinctively knows that culling dealer franchises will neither reduce Chrysler's costs significantly nor will it improve sales. The immediate effect of this move will be a significant reduction in Chrysler new vehicle sales. As a General Motors dealer myself for over 20 years (Pontiac and GMC Truck) I feel qualified to speak here. The excessive number of domestic dealerships that exist today is not a cause of manufacturer woes, it is a symptom. DBK is correct in stating that the average Toyota dealership sells more than 400% the number of cars sold by the average Chrysler dealership. Then again, the average Chrysler dealership sells 400% as many cars as the average Porsche dealership. Yet over the last decade the Porsche and Toyota dealers were far more profitable than Chrysler dealers. In this game, volume, in and of itself, is of limited value. Unless a manufacturers products generate demand in excess of available supply, profit margins will be thin or nonexistent.
The volume of new cars sold per month disparity between Chrysler and Toyota dealerships is unquestionably true. But as to the survival and profitability of Chrysler, it is in large part, irrelevant.
In the late 1970s my Pontiac dealership sold four times as many cars as the Honda automobile dealership across the street. Yet the Honda dealer made four times as much money every month as I was able to make. He had pre-sold every Honda he could get and delivered everyone of them at full list price the day they came off the transport truck. He could care less that his volume was only one fourth of my volume. The Honda Automobile was perceived to be a better car at a better price and demand exceeded the available supply. This made Honda dealers extremely wealthy.
There are very small marginal costs to automobile manufacturers that have to service a large number of dealerships, administering warrantee claims, etc. But the larger argument being made here, is that because a typical Toyota dealership sells 300 new Toyota's a month, he is able to maintain a palacial showroom with a kids play area, a Starbucks, a fantastic deli lunch counter, and a customer service waiting area filled with flatscreen plasma TVs. The dumpy little Chrysler dealership down the street moving 50 units a month looks dark and dingy by comparison.
So all Chrysler needs to do is eliminate 75% of their dealerships and they will sell the same number of cars through 1/4 the number of dealerships right? And then the Chrysler dealerships will have the Starbucks and the flat screens and all that other good stuff right? And then customers will see how bitchen' the new dealerships are and Chrysler will be just as profitable as Toyota right?
You already know the answer to those questions. This is as absurd as Chrysler looking at the differences between their advertising and the advertising that Toyota does and believing that if they just do the exact same advertising as Toyota that they will be as successful as Toyota.
Those palacial new Toyota showrooms are also not the cause of Toyota's success. They too, are a symptom....brought about by the profitability resulting from Toyota's combination of desirability and price point.
When it comes to automobile manufacturing, customers are looking for the best available product they can acquire for the amount of money they're willing to spend. You don't need to make the best car, but you do need to make a car that significant number of customers will consider to be the best available for $20,000 or $28,000 or ??? and that number of customers must exceed the available supply in order for the dealers to make a reasonable profit on them.
If a manufacturer is not building the most desirable product at a given price point he can still sell a large number of vehicles because of customer loyalty. And often that loyalty is not to the brand, but to a particular dealership. When Tomy Hamon and I sold our stores after decades in the business, we both had a large number of customers who would only buy automobiles and trucks from us. If we didn't sell it, they didn't buy it. Our friends in the Country Club, our business associates, and customers we built close personal relationships with after doing business with them for decades. Once we got out of the car business, our loyal customers scattered to many different brands and many different dealerships. And this is what is going to sting Chrysler.
Closing dealerships will benefit the dealerships that remain, but it will hurt Chrysler. Many customers will have to travel farther to get their cars serviced, and many areas will be left without any Chrysler dealership. Those dealerships that remain are in no financial position to build new facilities that would rival those of the typical Toyota dealership. The notion that fewer dealerships will lead to more success for Chrysler as a manufacturer is a red herring and distracts their attention from the only two items they should be focusing on right now. 1. Improved product. 2. Lower price point.
DBK touched on one very profound thing in the last line of his post. The unfair and illegal manner in which they are culling these franchisees. Both Chrysler and the government "Car Czar" controlling Chrysler refuses to make public the criteria they are using to select dealers to be eliminated. It has become crystal clear they are not using individual profitability or effectiveness in their assigned market areas. It does appear that both race and political affiliation are affecting which dealers are selected for elimination. Many of the weakest and least effective dealers are being allowed to continue in operation because they are owned by minorities while stronger, more profitable, higher volume dealerships who have been in business for decades but are owned by white males are being eliminated.
Capitalism is the ultimate form of power to the people because each of us get to vote with our dollars and collectively we determine which businesses survive. Socialism strips that power from consumers and places it in the hands of the small number of bureaucrats who use their personal and political bias to select winners and losers. I barely recognize my country today.
Chip
According to Chip Beck, for any information to become actionable it must first pass through two filters. Failure on either count renders that information useless. Those two filters are, 1. Is the information true? and 2. Is the information relevant?
Gentlemen,
Kingman instinctively knows that culling dealer franchises will neither reduce Chrysler's costs significantly nor will it improve sales. The immediate effect of this move will be a significant reduction in Chrysler new vehicle sales. As a General Motors dealer myself for over 20 years (Pontiac and GMC Truck) I feel qualified to speak here. The excessive number of domestic dealerships that exist today is not a cause of manufacturer woes, it is a symptom. DBK is correct in stating that the average Toyota dealership sells more than 400% the number of cars sold by the average Chrysler dealership. Then again, the average Chrysler dealership sells 400% as many cars as the average Porsche dealership. Yet over the last decade the Porsche and Toyota dealers were far more profitable than Chrysler dealers. In this game, volume, in and of itself, is of limited value. Unless a manufacturers products generate demand in excess of available supply, profit margins will be thin or nonexistent.
The volume of new cars sold per month disparity between Chrysler and Toyota dealerships is unquestionably true. But as to the survival and profitability of Chrysler, it is in large part, irrelevant.
In the late 1970s my Pontiac dealership sold four times as many cars as the Honda automobile dealership across the street. Yet the Honda dealer made four times as much money every month as I was able to make. He had pre-sold every Honda he could get and delivered everyone of them at full list price the day they came off the transport truck. He could care less that his volume was only one fourth of my volume. The Honda Automobile was perceived to be a better car at a better price and demand exceeded the available supply. This made Honda dealers extremely wealthy.
There are very small marginal costs to automobile manufacturers that have to service a large number of dealerships, administering warrantee claims, etc. But the larger argument being made here, is that because a typical Toyota dealership sells 300 new Toyota's a month, he is able to maintain a palacial showroom with a kids play area, a Starbucks, a fantastic deli lunch counter, and a customer service waiting area filled with flatscreen plasma TVs. The dumpy little Chrysler dealership down the street moving 50 units a month looks dark and dingy by comparison.
So all Chrysler needs to do is eliminate 75% of their dealerships and they will sell the same number of cars through 1/4 the number of dealerships right? And then the Chrysler dealerships will have the Starbucks and the flat screens and all that other good stuff right? And then customers will see how bitchen' the new dealerships are and Chrysler will be just as profitable as Toyota right?
You already know the answer to those questions. This is as absurd as Chrysler looking at the differences between their advertising and the advertising that Toyota does and believing that if they just do the exact same advertising as Toyota that they will be as successful as Toyota.
Those palacial new Toyota showrooms are also not the cause of Toyota's success. They too, are a symptom....brought about by the profitability resulting from Toyota's combination of desirability and price point.
When it comes to automobile manufacturing, customers are looking for the best available product they can acquire for the amount of money they're willing to spend. You don't need to make the best car, but you do need to make a car that significant number of customers will consider to be the best available for $20,000 or $28,000 or ??? and that number of customers must exceed the available supply in order for the dealers to make a reasonable profit on them.
If a manufacturer is not building the most desirable product at a given price point he can still sell a large number of vehicles because of customer loyalty. And often that loyalty is not to the brand, but to a particular dealership. When Tomy Hamon and I sold our stores after decades in the business, we both had a large number of customers who would only buy automobiles and trucks from us. If we didn't sell it, they didn't buy it. Our friends in the Country Club, our business associates, and customers we built close personal relationships with after doing business with them for decades. Once we got out of the car business, our loyal customers scattered to many different brands and many different dealerships. And this is what is going to sting Chrysler.
Closing dealerships will benefit the dealerships that remain, but it will hurt Chrysler. Many customers will have to travel farther to get their cars serviced, and many areas will be left without any Chrysler dealership. Those dealerships that remain are in no financial position to build new facilities that would rival those of the typical Toyota dealership. The notion that fewer dealerships will lead to more success for Chrysler as a manufacturer is a red herring and distracts their attention from the only two items they should be focusing on right now. 1. Improved product. 2. Lower price point.
DBK touched on one very profound thing in the last line of his post. The unfair and illegal manner in which they are culling these franchisees. Both Chrysler and the government "Car Czar" controlling Chrysler refuses to make public the criteria they are using to select dealers to be eliminated. It has become crystal clear they are not using individual profitability or effectiveness in their assigned market areas. It does appear that both race and political affiliation are affecting which dealers are selected for elimination. Many of the weakest and least effective dealers are being allowed to continue in operation because they are owned by minorities while stronger, more profitable, higher volume dealerships who have been in business for decades but are owned by white males are being eliminated.
Capitalism is the ultimate form of power to the people because each of us get to vote with our dollars and collectively we determine which businesses survive. Socialism strips that power from consumers and places it in the hands of the small number of bureaucrats who use their personal and political bias to select winners and losers. I barely recognize my country today.
Chip
