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Okay, almost everyone agrees that there were too many domestic dealerships and that something needed to happen to reduce the number, and it probably should have happened many years ago.  The problem was created when the domestic OEMs were passing out dealerships in the 60s and 70s with the thought that, like McDonald's, the more locations you have, the more you will sell.  This model stopped working a long time ago and some may argue that it was never effective.  Again, some dealerships have needed to go for a long time, not just due to recent economic conditions. 

With all that said, WTF happened to the criteria that ended up being used to decide which dealerships to eliminate?!  As we all know now, the decision wasn't based solely (or possibly even largely) on the financial health of the dealerships.  Every day we're hearing more stories from profitable dealerships that received termination letters.  As a business person, car guy and capitalist, this is beyond all reason to me.  And it leads me to believe that the elimination criteria may have been set up in a reverse fashion.  This could mean, for example, that whoever made the decision first looked at the dealerships that they wanted to eliminate, then determined what they all had in common, and THEN set up the elimination criteria based on those shared traits.  They could have let the market decide which dealers remain, but they fixed the deck and now some highly viable dealerships are being punished. 

They could have established agreed upon financial criteria and then let dealerships compete over a set period of time, say a year.  Whoever came out on top would stay, and those on the bottom would go.  But they didn't, they used some magic formula that no one will probably ever be privy to.  They could have let dealers fight it out and the strongest would survive, but instead the OEMs made the decisions, not the market place, using subjective criteria. 

And what will be left for the dealers who remain?  In the short-term it's quite possible that they will suffer from brand diminishment as the dealers who were eliminated scramble to get rid of their inventory in any way they can.  Most people won't be buying from the dealerships that survive and try to operate their businesses in standard fashion.  No, they will probably be buying from the dealers who will do or offer anything they can get rid of their vehicles.  This is exactly what happened to GM after 9/11 when they offered employee pricing.  They will inflate sales in the stores only to pull people forward creating a false sales market.  After the big rush of employee sales what happened in most dealerships? Crickets… 

It's just a bad deal all around.  Yes, some stores needed to go, but not in this subjective, closed-door way.  Dealers are a resilient breed, however, and will figure out how to move forward.  The economy will get better and the market will get better.  And the best thing for our industry is that people still need cars, lots of them.  They may be delaying longer now, but they will ultimately return to the dealership to make a vehicle purchase.

Todd Smith
P: (800) 775-7358 x9200
F: (877) 900-7222
C: 321-662-7800
E: todd@activEngage.com
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