Mega-Dealer AutoNation Supports GM's Axe-Swinging
October 09, 2009
The boss of the nation's largest auto-dealer chain is saying it now - and General Motors Co.'s Saturn knew it almost 25 years ago: GM has too many dealers.
Automotive News reports that Mike Jackson, CEO of AutoNation Inc., the country's largest auto dealership group, said in a speech this week that GM was right when it made the decision that as many as 40 percent of its dealers need to be closed if the newly restructured GM -- and its dealers -- are to survive in a vastly changed automotive market.
GM plans to cut its dealer ranks by thousands of stores. At the end of last year, GM had nearly 6,400 dealerships. It currently has cut that number to about 5,800 and intends to reduce to as few as 3,800 by the end of 2010.
The decision to cut so many dealers "had to be taken if they were really going to restructure," Automotive News reported Jackson as saying. "As painful as it was, (GM) did an absolutely, totally professional job deciding who could stay and who would go."
Ironically, there was a faction of GM that already had identified dealer over-saturation as a potential problem. A quarter-century ago.
It was the new Saturn division.
Among all the lamentations and remembrances of Saturn following the news that the division will be discontinued, one important facet of the brand's genesis usually has been overlooked: the unique agreement dealers had with GM that assured dealers a large working radius. In 1985, Saturn executives already had recognized the company had too many dealers.
Saturn's strategy to avoid dealer over-representation is, of course, the very thing GM now is attempting to enact with its forced culling of its current dealer body.
Jackson's AutoNation has 207 dealerships that collectively sold more than a quarter-million new vehicles in the U.S. in 2008 -- yet GM also elected to close six AutoNation-owned dealerships.
Inventory Levels Should Come Into the New Century, Too
Jackson also used the speech at Nova Southeastern University's H. Wayne Huizenga School of Business to call for a revision of the auto industry's traditional view of stockpiling inventory.
Jackson said the industry's hoary practice of striving to maintain 60 days worth of inventory is just that: hoary.
Instead, Jackson advocates a new inventory standard: 30 days' supply. He believes a move toward that standard would force automakers and dealers to adopt a system that more closely mirrors the efficiencies considered vital in the vehicle assembly process.
"It (a 60-day inventory as ideal) has been the mantra for 50 years," Jackson reportedly said. "What other business accepts the same benchmark for 50, 60 years and says, 'That's fine?'" -- Bill Visnic, Senior Contributing Editor
Posted by Michelle Krebs at 9:12 AM under Commentary , GM , Personalities | Comments (3) | digg this | Seed Newsvine
30 day inventory? What are people gonna be paying MSRP for 22K priced family cars. I think a 50 day inventory is resonable.
Posted by: carguy58 | October 09, 2009 at 3:00 PM
A good article. Carguy58 - what people in the US could do is order more cars and not expect to pick one up at the dealer that has been sitting there. A car is not a TV - I expect to go into BestBuy and pick up a TV but I would like to order the car to my exact liking (color etc) and then have it come 30 days later. This happens in Europe and it happens with BMW, Mini and other European makes here in the US.
People here can be too impatient, it isn`t like buying a car is a spur of the moment small expense. You know you need/want a new car. So go tot he dealership, choose what you want and then order. The dealer does not carry excessive inventory which costs money and everyone wins.
Posted by: guy1974 | October 12, 2009 at 10:32 AM
This is just what we were saying a couple of weeks ago.
http://www.autoobserver.com/2009/09/soft-sales-test-automakers-resolve-to-restrain-incentive-spending.html#comment-171645.
While it may be more fun to drive home in the new car you've just bought, it is a very inefficient business model. The main reason for the instant delivery is to set your deal in stone; you drove it, you own it, let's get you out of the marketplace before you go to Down the Street Motors.
But I think the benefits of an order-out only model would be substantial and quickly realized. Just look back about a year. How many billions in 4WD SUV's, Pickups, Large Cars, were we sitting on when the market shifted around rapidly and was now demanding fuel efficiency, high value, and low buy-in?
Many of those billions wasted on what turned out to be the Wrong Inventory could've been spared if we had been operating from an order-out basis.
With the market down as low as it is now, this would be an opportune time to get the remaining inventory cleaned out, and start a paradigm shift in The Way It's Done that would bring about the changes we need.
Posted by: fulcrumb | October 12, 2009 at 7:10 PM