Jump to content

Recommended Posts

Posted

As this is my first post here I would like to start out by extending my thanks to Parsad for setting up and moderating this incredible board. Also as a FFH and BRK-B holder I would like to thank the many posters who unselfishly share their knowledge and thoughts on the two companies. Most of it is so far beyond were I am at that all I can do is lurk and learn. The one thing I have learned the most is the character of Prem and Buffet which I am starting to think may be more important than understanding every line in the business. And am frustrated at the drop in price after stellar results of FFH, especially not being in the position to add. :)

 

Now the question that has been going around in my mind from reading on GM restructuring. How do dealerships fit into the cost structure of the auto makers that make cutting numbers  a cost saving. I'm sure all the dealerships are individually owned and run. I'm pretty sure the service end isn't being subsidised from having work performed recently. I would have thought that any incentive would have been on a per vehicle basis so not really affected by number of dealerships. So all that I am able to come up with is a little promotional literature and signage. With all the service sides of the dealerships seemingly busy, I would think the loss of the margin on AC Delco parts, as more would probably slip into the aftermarket, would more than offset savings as I see it.  But then again there must be something that I obviously don't see.

 

Dan

Guest Broxburnboy
Posted

My guess is that the shrink in the number of dealerships will be more of a consolidation of operations under one roof. Most dealerships these days

have more than one location and it is not unusual for a dealership owner group to have both at least one of a GM/Pontiac dealership and a Chevy\Geo\Cadillac location.

With the disappearance of the Pontiac brand, and the drop in vehicle production and projected sales, it actually makes more sense to consolidate under one roof. The parts business for the discontinued lines can be easily moved, ditto service and used vehicle departments. It may be a necessary reorganization that makes existing dealerships

more efficient, without forcing them out of business.

Posted

That is a really interesting question.  Here is my stab at it:

1) The dealerships were originally sold by GM to the franchisee. 

2) There is the requirement to keep the dealerships in their brands - reducing brands saves money at the parent co: R&D, advertising etc.

3) I am guessing that the delearships have an arrangement on the service side for worker training etc.  that is likely very costly for the parent.

 

There is certainly a need for skilled mechanics.  Dealerships make most of their money on service.  The owner of my Mazda dealership went as far as too tell me that they make no money selling the cars.  I would think that alot of the delarships will be able to stay open as repair only shops and do just as well as long as they can get access to the corporate training programs. 

 

This is all very interesting because the automobile is the epitome of a high tech operation.  There is really nothing else save perhaps the airplane that has as much tech on it.  I was watching an interview with Don Walker (ceo Magna) the other day.  He talked about the tech side of the business, and how the engineering side of his business keeps Ontario at the forefront of the high tech industry.

Posted

Looks like LUK has the same idea, just maybe not GM dealerhsips spefically.

 

2008 10K PG. 23

 

Garcadia

 

      The Company has entered into a joint venture agreement with Garff

Enterprises, Inc. ("Garff") pursuant to which the joint venture has acquired

various automobile dealerships in various subsidiary companies ("Garcadia"). The

joint venture agreement specifies that the Company and Garff shall have equal

board representation and equal votes on all matters affecting Garcadia, and that

all cash flows from the joint venture will be allocated 65% to the Company and

35% to Garff, which reflects that the Company made a larger equity investment.

Garcadia's strategy is to acquire automobile dealerships in secondary market

locations meeting its specified return criteria. As of December 31, 2008,

Garcadia owned 15 dealerships comprised of domestic and foreign automobile

makers. The Company has received cash distributions of fees and earnings

aggregating $6,500,000, $4,900,000 and $1,000,000 for the years ended December

31, 2008, 2007 and 2006, respectively. In addition, the Company owns the land

for certain dealerships and leases it to the dealerships for rent aggregating

$3,800,000, $1,800,000 and $700,000 for the years ended December 31, 2008, 2007

and 2006, respectively. At December 31, 2008, the Company's investment in

Garcadia (excluding the land) was classified as an investment in associated

company with a carrying value of $72,100,000.

 

Posted

 

Welcome

 

Dealership systems require that a distributor (GM) support the dealer with volume discounts/cheap financing/sales force training (min salary), and the 'brand' through advertising/promo events. The dealers themselves may be either franchised or company owned.

 

To sell a new model the distributor has to pay the huge marketing cost up front, & then pray that they can sell enough cars through the distribution 'dealership' system to recover their costs. Very big $, & applicable to every new model in the distributors line-up.

 

If the business is healthy & running 'normally' - the collective cash recovery (effectively amortization) on the old marketing campaigns will be enough to fund the current years promotion, no new cash is required, & you have a moat that is very difficult for a competitor to successfully cross. However .... if the business has been allowed to run down - then either you come up with lots of new $, or cut brands. GM is cutting.

 

The same mechanism applies to many industries, but in slightly different forms; beverages, newspapers, rail, financials, etc. Then notice how many of these same industries WEB is in.

 

Cheers

SD

 

 

 

 

Posted

Yes, most dealers are individually owned and not subsidized by the manufacturer. Discontinuing Pontiac will hurt GM's and their dealers' car, parts and service sales. GM may be required to supply parts for a number of years. It depends on state laws and the severance packages GM works out with their dealers.

 

I don't know how many stand-alone Pontiac dealerships there are, probably not very many. A stand-alone dealership would obviously be in trouble and a candidate to take on another GM product, or other auto mfg products, if there's anything available in the territory. GM probably doesn't want a small stand-alone dealer anyway. It is likely they would prefer to deal with larger, well-capitalized, self-sufficient dealers that have large market share in their territory. (Aside--I don't like dealing with mega dealers)

 

Every state has laws that protect dealerships and closing dealerships will be very expensive to GM. But that won't matter much if they file bankruptcy. Without bankruptcy stand-alone dealers may be able to negotiate a up to a six-figure severance settlement. In multi-brand GM dealerships, GM will still incur substantial expenses withdrawing Pontiac from the dealership...again based on individual state laws and negotiated severance settlements.

 

GM's reduction in dealerships goes beyond the Pontiac line. GM had ~8,000 dealerships in 2000 and is now at about 6,000 and on their way to ~4,500. GM should realize some economies/lower costs dealing with fewer dealers. Without Pontiac they may be able to sell higher volumes of their other product lines at lower costs and higher profits. But GM's biggest challenge is to reduce their significant legacy fixed costs--pensions and health care. These costs are spread across production volumes. Reducing production volume (ala Olsmobile and Pontiac) without offsetting increased product volumes raises unit costs. I doubt the remaining product lines will see an increase in volume that offsets Ols and Pontiac production.

 

GM lost money the last four years ('05-'08) -- $87B (-12.0%) on $727B in sales. In the six previous years ('99-'04) they made $19B (+1.7%) on $1.1T in sales. They have huge liabilities and negative equity ~50%.

 

What a shame!

 

 

 

.

Posted

Thanks, I  had overlooked the obvious, franchising agreements. When something has been there all the time, I guess I tended not to think of how they came to be there. Was looking at it from a straight wholesaler, retailer relationship. But yeah " factory trained technicians".

 

Not much in them as far as investment right now though. Amazing how the brand loyalty among individuals, heck even whole families has disappeared from what it was 20-30 yrs ago.

 

Dan

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...