Why are dealers a cost to GM (GM to reduce number of dealers)

There may well be too many car dealers (of all types) but I don't see
where any given dealership is a drain or a financial burden to a car
maker.

Having too many dealers chasing too few customers might be bad if you're
a dealer, but how can it be bad (as in a direct cost) to someone like an
automaker (ie - GM) ?

GM is seeking to cut the number of dealerships by something like 30 to
40%. They will pay millions in fees to break dealer contract to do
this.

But if they did nothing, then they wouldn't have this immediate legal
cost, and presumably some dealerships would be forced out of business
anyways. So why is GM in such a rush to reduce the number of
dealerships?

I don't understand how their dealership network is in any way a cost or
requires a money expenditure by GM to operate. I can understand that GM
factory workers are a direct cost and if you can let go thousands of
workers then yes there is a direct and immediate reduction in expenses
(in theory anyways) but I don't see how forcing a dealership out of
business equates to a cost reduction for GM.

 

I imagine there are service and training support costs that corporate
provides to dealers. Fewer dealers, reductions in those costs. And the
financing of unsold vehicles sitting on dealer lots-probably some
significant corporate costs there too.

GrtArtiste

 

What about the cost of inventory on dealers lots? Manufactures pay it
for the first 30-90 days. More dealers equals excessive inventory in a
down economy.

 

I was under the impression that for most of the past year, maybe two,
that one (or all?) the big-3 were pushing cars out to their dealers that
essentially the dealers were being forced to take. The alternative
being that the big-3 would be forced to park more new cars then they
ordinarily would have otherwise.

The point being that the dealer network was acting as a reservoir for
the over-capacity that the automakers were simply unable or unwilling to
reduce fast enough.

I don't know how the financing works - presumably the dealers are paying
GM interest until the cars get sold.

Notice that in all this talk about GM, that there's been no talk about
GMAC, or the fact that Cerebus owns a good chunk of GMAC.

With regard to training or other support costs, most of the cost
presumably comes in preparing manuals, training materials, etc, and
those are fixed costs regardless if you have 1 dealer or thousands of
dealers. The cost to replicate those materials is practically nothing.
You reduce the number of car models and vehicle divisions, you reduce
those costs by quite a bit.