Girsky's math serves pie theory that's hard to swallow
Edward Lapham is executive editor of Automotive News.
In what was probably his first significant speech since leaving General Motors and becoming president of the investment firm Centerbridge Industrial Partners, Stephen Girsky touched off a minor flap by suggesting that the Detroit 3 need to whack as many as 70 percent of their U.S. dealerships.
Girsky's comments, made at Friday's J.D. Power Automotive Roundtable and subsequently splashed across the front page of yesterday's Automotive News NADA Daily, were about improving throughput at domestic-make dealerships, which on average sell a lot fewer vehicles than import-brand stores.
The theory goes like this: To be healthy, an automaker needs healthy dealerships. And for a dealership to be healthy, it needs to sell as many vehicles as possible.
For example, in 2005 -- the most recent year for which data are available -- the average Honda-brand dealership in the United States sold 1,238 cars and trucks, nearly twice as many as the 696 sold by the average Ford division dealership.
Which is why Honda is healthy and Ford is sick.
I'm OK with the first two parts.
But if you extrapolate, the theory suggests that by closing half of Ford's dealerships, you'll double their throughput, make them as healthy as Honda dealers and put Ford Motor on the road to recovery.
That makes as much sense as the old joke about the guy who told the pizzeria to cut his pizza into quarters, not just in half, because he was hungry enough to eat four pieces.
On Saturday, Ken Gilman, CEO of Asbury Automotive, told me that Girsky's theory is B.S. because it's based on simple math, not analysis. About 20 percent of Asbury's revenue is from dealerships that sell Detroit-based brands -- and Gilman says they're among his most profitable stores.
Clearly, the Detroit 3 each have too many dealerships in some markets. Even when General Motors sold half the cars and trucks in America, some GM dealers grumbled about overdealering in urban markets. Back then, the theory was that you could increase sales by putting a dealership on every corner.
Now there are just too many mouths to feed.
What they really need is a way to make a bigger pizza.
You may e-mail Edward Lapham at firstname.lastname@example.org
You can reach Edward Lapham at email@example.com.