As opaque as the systems are for determining what vehicles are allocated to dealerships (and right now we all know how important fresh inventory is), it’s hard to think that there aren’t some games being played. As a 20 Group facilitator, I get to talk to dealers across the nation. There are dealers with solid sales history who are barely receiving any allocations, and other dealers who in the past were barely players, and yet they are continuing to receive substantial shipments of new vehicles.
In 2009 when GM filed for bankruptcy, they used that process to clean house. Prior to the filing, they had ~6000 U.S. dealers. When they came out of bankruptcy, there were ~3600 dealers who survived the purge. Chrysler took advantage of the situation as well, using bankruptcy to close 789 locations, or about 25% of their franchised U.S. dealers. GM and Chrysler didn’t make public the process they used to determine who wouldn’t make the cut, but many smaller dealers were forcibly ejected from the game.
Now the situation that we are in as the country emerges from the pandemic is somewhat different than what we experienced during the great recession. OEM’s aren’t filing for bankruptcy, instead they are making record profits. However, with little inventory in the field, and almost no visibility on what or when fresh inventory will ship, smaller dealers without adequate cash reserves are going to be in a world of hurt as the year plays out. In the past, dealers always had product on the floor to sell (even if it was old stock) or they could trade with other dealers for inventory. Now, with most dealers having a minimal amount of stock, dealer trades have been heavily curtailed. In most cases, you can only get something by giving up something.
The dealers who have spent time focusing on Aftersales (Parts and Service) over the last few years will have something to fall back on when there are no units to sell. However, it’s only a small percentage of dealers in this country who generate solid revenues from fixed operations. For many dealers, the sales department drives 80% or more of company revenues. Take that away, and there’s not much money coming in to pay the bills.
Recently I had a discussion with an executive at one of the OEMs. My question to him was “would you rather have 1000 small dealers, or 100 large dealers?” His answer was the latter. As long as market share is maintained, it’s much easier for the OEMs to deal with a smaller number of dealers. Fewer dealers to visit, a reduced number of sales reps and the expenses they incur, not as much paperwork, there are few downsides to having less store fronts.
In many States, the franchise laws offer some protections for dealers. I think it’s fair, dealers spend a lot of money building up brands in their respective marketplaces. It wouldn’t be right for an OEM to walk in one day and just say “sorry, my friend down the road wants to open a dealership so we are giving the franchise to her.” I actually saw this happen to a Marine dealer (boat dealers have a lot fewer protections than powersports and RV dealers) down the road from our powersports dealership. The boat dealer had been selling a brand for 22 years and had done a great job with the brand. They were given 3 months to wind up operations, because the OEM had decided they wanted the big city dealer who only carried that one brand to have a larger market area.
Not every OEM is going to want their dealers to participate in the “OEM Hunger Games”, but some will. There will be some nasty phone calls between dealers and reps, sternly worded emails addressed to OEM executives, and a little yelling here or there, but in most cases the dealers who end up on the “loser list” are going to have a tough time of things. Depending on how much money they want to feed back into the dealership (and how much they have) some of them might be able hold out until things return to the level of business that we’ve become used to. However, none of us have a crystal ball, and nobody knows how long that is going to be.
Hopefully, when it comes to choosing winners and losers, the OEM’s will take into account some of the following criteria into account:
- Dealers who have a track record of maintaining strong market share
- Locations with solid CSI scores
- Dealers who can service the customer after the sale
- Stores that fully represent the brands under their roof
- Locations where there aren’t already too many dealers
However, there is no guarantee that the OEMs will use criteria like this. They might just choose the dealers who they think they can control, the sheep. The second half of 2021 is going to be fun.
#Powersports #Marine #RV #Winners #Losers #Franchise