It's time for GM to admit, finally, its $2 billion lie
Eliminating 1,350 U.S. dealerships -- or even 2,500 if you include stores that have sold the discarded Saturn, Saab, Hummer and Pontiac brands -- will not cut anywhere near $2 billion in costs. GM executives must know that. And so should the Treasury officials on the auto task force if they have done their homework.
But CEO Fritz Henderson testified in Washington in June that getting down to 3,600 dealers in 2010 would save about $2 billion on incentives paid to dealers, factory floorplan support and a 1 percent market support paid for each vehicle. He also said GM would save $415 million a year for items such as advertising assistance, service, training and support of information technology.
But as many outraged dealers have noted, most of those are variable costs that depend on the number of vehicles sold -- not the number of dealerships selling vehicles. Or, in many cases, they are expenses for which the dealer ultimately is billed. To claim otherwise is disingenuous and the worst kind of new math.
It is clear that GM and Chrysler needed to thin their distribution networks in many metropolitan markets. Both automakers have been trying to do so for years. But the approaches used during restructuring make no sense, especially eliminating profitable dealerships in rural markets.
GM's own studies have shown that small, profitable dealerships contacted only through a call center are an asset because they buy parts, do warranty work, take care of GM owners who are traveling and buy used GM vehicles at auction.
Letting market forces do the dirty work of consolidation would have taken longer but would have been a better approach.
Having chosen the quick alternative, GM executives should at least be honest about it.