General Motors is spending tens of millions of dollars to buff up its dealership network in metro New York, where its sales badly lag rivals.
In recent months, GM agreed to make one-time payments for store improvements to as many as 60 dealers in New York City and surrounding areas, including northern New Jersey, Long Island and parts of Connecticut, according to three people familiar with the plans.
The payouts range from $250,000 to more than $1 million, the sources said, and are being made to holders of all four GM franchises: Chevrolet, Cadillac, Buick and GMC. The cash comes atop payments to those dealers through GM's Essential Brand Elements store-enhancement program.
In return, the dealers must agree to maintain their locations as exclusive GM stores for at least 15 years. If they don't, they must repay the money plus steep penalties, depending on when the exclusivity agreement is broken, the sources said.
The effort highlights GM's determination to revive sales in large coastal markets where it has bled share for decades to Japanese, German and other rivals. In 2011, GM ran a similar program in some metro California areas, including San Francisco and Los Angeles.
Alan Batey, GM's U.S. sales chief, believes GM finally has vehicles good enough to wrest back some of the lost market share in those coastal areas. Transforming its dealerships in specific locales is a key to that effort, he says.
Last month, Batey told Automotive News that GM has an ongoing effort to revitalize its retail network in areas of California and New York, but he declined to give financial details. A spokeswoman declined to comment on payments to dealers.
"Our network was tired across the nation, but it was most tired in the toughest markets where we had single-digit market share," Batey said. "So putting the focus in there and getting the right dealer owners in place and moving fast were vitally important."
Batey said the effort has gained traction in California, where, he said, GM's sales are growing faster than in most other U.S. markets. But the effort in metro New York is in its infancy, he said.
In 2012, for instance, Chevrolet's market share in metro New York was just 4.1 percent, tied with BMW for eighth and trailing Ford, Hyundai, Jeep, Mercedes and others, according to the New York State Automobile Dealers Association. Those numbers don't include sales in New Jersey or Connecticut. None of the metro region's 25 top-selling nameplates was a GM vehicle.
In contrast, Chevrolet was the No. 1 brand in Buffalo, N.Y., home of GM's Tonawanda engine plant, boasting a 21.7 percent market share.
That sort of disparity is why GM is extending extra help to retailers in metro New York, where costs are higher for such items as real estate and property taxes, construction and personnel, the people familiar with GM's plans say.
Over the years, GM and other automakers have struck similar dealership exclusivity arrangements, but typically they have been case by case, says Joe Aboyoun, a dealership lawyer at Aboyoun & Heller in Pine Brook, N.J. It is unusual for an automaker to target specific metro markets by signing such agreements with many dealerships, he says.
The program boosts GM's ongoing overhaul of its dealership network, which GM executives believe is critical to transforming the image of its brands.
But perhaps more important, it enables GM to lock up points that it could lose to rivals if dealers weary of low single-digit market shares agree to sell, Aboyoun says. He cites, for instance, the difficulty and expense of acquiring real estate along New Jersey Route 4 in Bergen County, northwest of Manhattan.
"If they've got a dealer with a location like that, they want to lock him up and make sure he doesn't become a Toyota dealer tomorrow," Aboyoun says.
For dealers, accepting the deal requires a leap of faith in their franchises and in GM's future.
"A lot of dealers would have a tough time deciding between 750 grand and giving up site exclusivity for 15 years," Aboyoun says. "There was a time when everyone thought, 'Of course Pontiac will be here 15 years from now.'"