It's Time to Play Monopoly

Do not pass “Go,” do not keep your franchise agreement

by PETER BRANDOW

In today's game of franchisee survival, only a few things are certain.

State-enacted rules and protections are no longer the controlling law of the land regarding dealers' rights, and very few people will ever again completely trust a manufacturer's word, warranty, or franchise agreement.

Perhaps even more bizarre than a belief that too many dealerships, rather than cheap products, cause failed manufacturers, is certainty that fewer dealers in the marketplace will somehow make failed products fashionable. I was raised to believe that monopoly reduces service levels and inhibits competitive pricing.

Somehow, a country that grew rich on the conviction that anti-trust was pro-American, now has decided that a smaller, less competitive, more monopolistic dealer franchise system will better serve consumers, while at the same time putting easier profits into corporate hands. Less competition does not usually result in increased customer value.

Am I to believe that those same hard- hearted and hard-headed martinets who are cutting dealers off at the knees will become caring, loving merchants as soon as the blood washes from the streets?

What will unhappy customers do when the dealer that has been fighting for them so long is no longer franchised? Will they petition the same Congress, that sanctioned that dealer's beheading, for legislation to insure that the manufacturer not sell more cars than its diminished dealer network can service? Will independent service centers finally have their day?

By what logic will a surviving dealer invest in facilities, inventory or service staff when the name of their once-proud predecessor arrives in their shop on the bumper of every other car to serve a daily reminder that the future is only as bright as this season's sales?

I can't figure out how this latest round of dealer terminations and “participation agreements” (based purely on unilaterally imposed standards thrown down by frenetic manufacturers) won't heighten the antagonism between retailers and manufactures to a level that pummels any chance of dealer investment in customers for life.

If the dealers terminated were too short sighted, what has changed to support their successors in adopting a different strategy?

I am confused by the complete lack of public and governmental demand for regulation over the attention to be paid to individual consumers by surviving dealers.

Recent stories of warranty customers turned away by dealership fearing a lack of payment is just the tip of the iceberg. I didn't see in the calculations put before Congress the historic measure of service costs borne by dealers.

Years ago, the rule of thumb was that as much as 15% of the expenses associated with consumer incentives and warranty service came out of dealers' pockets. Have the surviving dealers budgeted that burden?

The theory that fewer, but bigger, dealers will service customer equally well and cost the manufacturer less, is rooted in the notion that the critical difference between Toyota and Chevy is fewer Toyota dealers.

So if we limit the access to Chevys, they'll become more well-liked. While you're pondering that, recall that every Chevy on the lot has been paid for before it left the assembly line. So tell me again, how piling them up farther from my home will make buying one more attractive or more lucrative to its manufacturer?

We have moved from a society that so loved a discount, that its people are now craving the ultimate bargain, the steal. Customers are hovering in wait to buy over stock at huge reductions. I get calls almost daily suggesting that a good price today will trump the promise of future service.

What's more, dealers themselves are literally tripping over one another to pick over the inventories of recently terminated brethren without sufficient concern that they might be next.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.


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Whoopee, We're Bankrupt!

Auto Industry Finds Out Chapter 11 Has Its Benefits

by: PETER BRANDOW


Note from AFI: I have been reading Peter Brandows articles in Ward's Dealer Business magazine for the last several years - and am a big fan. It is impossible to find another dealer principal who writes with such clarity and emotion about current events as they affect his dealership and the auto industry as a whole. This article should live forever as the point of view of the dealers who are adversely affected by the madness in today's automotive industry.


Every dealer advocate I know is reeling from the news alerts about Chrysler and GM cutting dealers' throats to right their failing businesses. May 14, 2009 will go down in history as the day our government and Chrysler tore the heart out of our franchise system by endorsing the termination of 789 duly franchised dealers without paying them a dime for cars, parts, tools or goodwill.

GM followed that by announcing it will ax 1,100 dealers. GM big wigs are clearly taking careful notes on how the political and marketing winds are shifting. Their dealer nasty-grams come without the cover of bankruptcy; they've set the precedent for terminating dealers simply because they just don't want to deal with them anymore.

Time will tell whether and where that works. They are seeking absolution based on giving the death-row dealers notice that they may appeal. Could they not even deem to offer stock in the future GM should it prosper from their sacrifice? Clearly the bailout is fueled by the very taxes that suffering dealers paid.

Could it be right that they will be cut out of any way to recoup their investments? I may be cynical, but I suspect that the time they are giving dealers is the hammer with which they are pushing others to buy inventory or risk a similar fate (and this from companies propped up by taxpayer bailout money).

When I closed my Chevy store, I was forced to sell new vehicles for two thirds of what dealers were paying GM for the same vehicles.

Clearly the survivors will have very valuable franchises and improved territories at the expense of those forced out. They should recognize this, as should the manufacturers.

If federal bankruptcy or simple arrogance can be used to sidestep state-legislated dealer protections, even Ford (who prides its self on avoiding such tactics) will not likely resist the temptation of availing itself of some bankruptcy salve.

Once everyone is doing it, and the buying public accepts the “B” word, the spin doctors will turn Chapter 11 into a tonic for fixing the American economy.

But, look out before you slap on a bumper sticker “Bankruptcy — Leveling the Playing Field for Americans.” You're being played.

Chrysler's bankruptcy comes with 789 dealer closings leaving a wake of 38,000 lost jobs — American jobs. That's just the first round. One can only assume that the number of American tragedies occasioned by GM's cuts will take the number of victims to well over 100,000.

Bankruptcy is code for stiffing people who trusted you on the way to a reorganized payday.

Reorganization is a tool not a goal.

We have not yet been informed as to whom the emerging companies will most benefit.

Worse yet, no one has yet completed a plan for success.

We have only identified the first victims of past failure. We still need to find how future products will become popular.

No one seems to be asking that question. Everyone is so fixed on bailing out, that they have not decided who will still be in the boat when the holes are plugged and the ship is able to float unaided.

While forming an opinion on who should live and who should die, we should not forget that it is because the domestics provided so many benefits to our economy that imports were able to limit their investments to immediate profits, much of which was quickly shipped off shore.

This current dealer inquisition is brutal and neither the bankruptcy court nor our economy seems prepared for the potential fallout, or cognizant of the disproportionate sacrifices being made to build a brighter future.

The current gatekeepers have pitted us against each other on the appearance of having a handle on this. Let's hope we're not just helping them to dig a deeper grave and that those lucky enough to make fortunes off these changes not forget the debt they will owe to those suffering to get them through.

Peter Brandow is a veteran dealer in Pennsylvania and New Jersey.

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