Strong dealer organization, based on Buick model, kept metal moving

Durant learned much from his carriage days, and GM system became benchmark for the industry

You don't hit the century mark as a car company without a strong dealer network. And General Motors recognized early on the importance of the people who bring car and driver together.

Billy Durant was a dealer guy. So was Alfred Sloan. Compare them with their contemporaries at Ford Motor Co., who sometimes seemed determined to punish their franchise holders.

Durant understood distribution when he took over moribund Buick in 1904. His experience with Durant-Dort Carriage Co. made him a millionaire before he decided to take a fling with horseless carriages.

At Buick, he continued his distributor-dealer activities. His ideas carried over when he formed GM in 1908, with Buick as the centerpiece.

Sloan was the management genius whose principles guided GM for nearly 70 years. No other automotive CEO has been as staunch a dealer advocate as Sloan was.

In his book Billy, Alfred, and General Motors, William Pelfrey wrote: "Billy Durant's Buick distributor network, going back to 1905, laid the foundation for the entire GM franchise system. ... His establishment of General Motors Acceptance Corp. in 1919 remains the industry's most important and lasting change in the way cars and trucks are sold."

Of Sloan, Pelfrey said: "Sloan's use of the dealer network as a sounding board and source of new ideas ... remains the ideal model for factory-dealer relations."

Distributors out

In the early days, automakers appointed distributors who set up their own dealer networks. Distributors bought cars from the factory and made their profit by selling them to dealers for a slightly higher factory-established price.

It added up. Distributors became wealthy.

Sloan wanted independent dealers. GM bought out distributors, and the chain became factory-to-dealer-to-consumer. It didn't happen overnight: Cadillac clung to its distributors until the 1960s.

In My Years with General Motors, Sloan noted that the industry adopted the franchise system in the 1920s because "automakers could not, without great difficulty, have undertaken to merchandise their own product." Sloan was first with many factory-dealer advantages. In 1927, he set up Motors Accounting Co., a standardized accounting system for all dealers. Ford did it 20 years later.

GM did it first

Under Sloan, GM set up Motors Holding in 1929. It financed the purchase of dealerships by entrepreneurs who lacked the financial means to buy stores on their own. Ford and Chrysler followed suit in the 1950s.

Sloan established the GM Dealer Council in 1934 and the GM Dealer Relations Board four years later. The dealer relations board enabled dealers with complaints to appeal directly to the top officers of GM. Ford's Dealer Policy Board did the same thing in 1956.

The amiable factory-dealer relations under Durant and Sloan did not extend to the years after World War II. Dealers and their representatives complained that factory officials forced them to buy cars and trucks they didn't want. If they didn't, the dealers said, they faced the loss of their franchise after its one-year term.

The complaints emerged at hearings conducted by a Senate antitrust and monopoly subcommittee in December 1955. The dealers got results: GM extended its franchise agreement to five years and added many dealer benefits to the contract. The rest of the industry followed.

Warding off crisis

In 1956, Congress passed the so-called good-faith law, which banned coercion by factory representatives in dealing with dealers. There was no major factory-dealer dust-up until 1999, when the stage was set for a major confrontation. On Sept. 27, GM told its dealers that it planned to buy as many as 10 percent of its 7,700 dealerships through an entity called GM Retail Holdings. Dealers panicked.

A month later, an Automotive News interviewer asked GM CEO Jack Smith about the status of the dealership purchases. Smith replied: "We're not going to buy them. We're not going to run them. The plan is dead."

You can reach John K. Teahen Jr. at autonews@crain.com.