Dealers resisted GM's strategy to shrink network, shuffle brands

Fewer stores, more sales? Sounds great — if it's the other guy who agrees to quit

A certified letter in 1996 told Al Chapman how General Motors saw him fitting into its Project 2000 dealership consolidation plan.

Chapman co-owned Allen Motor Co., which ran a Saturn dealership and an Oldsmobile-Cadillac-Buick-GMC dealership in Cedar Rapids, Iowa. Despite the letter's nuanced language, Chapman says, "it was pretty clear" what GM executives wanted."

"They said I should sell my Buick and GMC franchises or acquire the Pontiac brand," Chapman recalls.

He did neither. Resistance from Chapman and a lot of other GM dealers defeated, or at least delayed, many of Project 2000's aims.

Project 2000 evolved into GM's current "channel" retail strategy, which seeks to group Cadillac, Hummer and Saab franchises in luxury dealerships. (That plan could be disrupted if GM decides to sell the marketing rights to Hummer — a possibility in GM's review of the brand this summer.) Then and now, the goals have been the same: curb duplication in GM's model lineup and boost dealership profits by improving unit sales per franchise.

It became clear in the 1990s that low per-store sales at GM dealerships was a problem that needed to be addressed. In 1992, Buick, Oldsmobile, Pontiac, Cadillac and GMC sold an average of 161 new cars and trucks per franchise. The same year, the average Toyota-brand franchise accounted for 781 new-vehicle sales.

When GM launched Project 2000 in 1992, it sought to cut its U.S. retail network from 8,732 dealerships to about 7,200 by the turn of the century. The plan urged dealers to pair Oldsmobile and Chevrolet franchises and to place Buick, Pontiac and GMC franchises under the same roof.

"The channel strategy made a lot of sense," says Lynn Myers, a former general manager of Pontiac and GMC.

In December 2000, GM announced it would phase out Oldsmobile because company executives concluded the brand had become too similar to Buick. Otherwise, though, GM discovered it couldn't persuade dealers to merge or close dealerships as quickly and smoothly as Project 2000 anticipated. By 2000, GM still had 7,831 dealerships.

More profitable

But Joe Chrzanowski, GM's executive director of network planning, insists that "Project 2000 laid a great foundation for what we're seeing in the market today."

At the start of 2008, GM's U.S. dealership count was 6,653, according to an Automotive News census. GM says 67 percent of those dealerships are "on channel," selling the brand combinations GM desires.

On-channel dealerships account for 75 percent of GM's new-vehicle sales, Chrzanowski told Automotive News. By year end, GM wants to boost that rate to 80 percent.

Dealer Brad Willingham says he "got channeled before channeling became in vogue." In 1992, Willingham and his father, Jim, merged their Buick-GMC dealership in Long Beach, Calif., with a nearby Pontiac dealership.

"Does it make sense? Absolutely," says Willingham, who still operates the dealership. "It gave us a better chance of survival."

Other dealers disagree. They say the channel strategy has not arrested GM's sliding U.S. market share.

"I had Olds and GMC, and got Buick and Pontiac in 1997," says Harold Wells, a former GM dealer in Whiteville, N.C., who was chairman of the National Automobile Dealers Association in 2000.

"We did not increase our sales," Wells says. "We maintained decent sales numbers, but GM was losing market share." Wells has sold his GM dealerships.

Slow going

Many dealers considered Project 2000 a threat to their livelihoods. Dealer associations in some states sought legislative protection from GM's plan.

Laws in 28 states now govern factory-dealer issues such as dropping or adding brands and upgrading dealerships, says NADA franchise lawyer Jim Moors.

And NADA says laws in 27 states restrict factories' "right of first refusal" to reject a prospective dealership buyer and take over the store.

Says GM's Chrzanowski: "We would like to go faster and do things better. But state franchise laws preclude us from moving any faster."

Project 2000 classified some dealerships as "unviable." That label was "like the kiss of death," says Leonard Bellavia, a Long Island, N.Y., lawyer who represents dealerships.

In 1998, one of Bellavia's clients, Albert Lewin, sued GM, alleging that the "unviable" tag had scared off a potential buyer for his Chevrolet-Geo dealership in Cobleskill, N.Y. GM and Lewin settled the case, Bellavia says, and the store closed.

Chapman, the Iowa GM dealer, sold his two stores in 2006 to Lithia Motors Inc. Although he rejected GM's solution a decade earlier about which brands he should sell, Chapman notes that he upgraded his Cadillac-Buick-GMC dealership and continued to meet GM sales targets.

"I don't remember GM beating us up," Chapman says. "But Iowa had a strong franchise law, we were meeting market penetration, and we had a new building. There wasn't a lot they could do."

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