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GM survivors see modest gains from store closings

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GM survivors see modest gains from store closings

David Barkholz

Automotive News -- November 1, 2010 - 12:01 am ET

When General Motors slashed dealerships in bankruptcy, the goal was to create healthy surviving dealerships.

So as the final rejected 500 dealerships ended operations this past weekend, did the survivors feel they had benefited?

The answer is: modestly so far, said a sampling of dealership managers last week.

At Flemington (N.J.) Chevrolet-Buick-GMC-Cadillac, General Manager Jeff Parker says service revenue is up 5 percent this year, in part because of referrals from a wind-down Chevrolet dealership 25 minutes away that closed in June.

But he says new-car sales are unchanged. Several GM dealers last week reported only a trickle of new business as a result of the wind-downs.

On the other hand, some dealerships report a healthy increase in sales.

Since GM announced dealership cuts as part of its 2009 bankruptcy, about 1,550 dealerships have lost GM franchises. Most closed. Some became used-vehicle operations.

GM has settled on about 4,500 dealerships nationally for its four core brands vs. 6,049 pre-bankruptcy dealerships offering eight brands.

GM dealers are enjoying higher profits and improved vehicle sales this year, says GM spokeswoman Ryndee Carney. She says three main factors are at work: attractive products, a better economy than 2009 and spillover business from closed dealerships.

GM has been sending cards and letters to GM customers orphaned by the closing or wind-down of their dealerships with information about service specials or how to find a new GM dealer.

6.7 million customers in play

At stake are a huge number of customers. Carney says GM has 6.7 million "free agent" customers whose brands were dropped by GM or whose dealerships were closed.

GM's U.S. sales were up 6 percent through nine months this year compared with 10 percent for the industry. But drawing hard conclusions from the numbers about the effect of killing dealerships is difficult. GM boosted fleet sales this year, and -- with Saturn, Hummer, Pontiac and Saab gone -- it now has four fewer brands than last year.

Parker says that though his Flemington dealership has seen additional service work, he hasn't seen an increase in new- and used-vehicle sales from the closing of Malek Chevrolet in Hopewell, N.J. He says he is concerned that those customers are looking at non-GM brands. Flemington sells between 55 and 70 new vehicles and 30 used vehicles a month, Parker says.

"Dan had loyal customers," Parker says of the other store's owner, Dan Malek. "Are they going to stay with GM or go try a Toyota?"

Other dealers or their managers, often in rural areas, say they are seeing some sales gains from the demise of their GM competitors.

Bennett Motor Co., a Chevrolet-Buick store in Cheraw, S.C., has seen a 20 percent uptick in new- and used-car sales since its two largest GM competitors in rural Chesterfield County were wound down by GM, says General Manager Vic Gardner.

He expects his store will sell just over 100 new vehicles this year.

"We're the only franchise Chevrolet dealer now in the entire county," says Gardner, whose store is about 70 miles southeast of Charlotte, N.C.

Gardner says he could sell more if the 2009 recession hadn't crimped floorplan lending from Ally Financial Inc., formerly GMAC. He says he has a 40-vehicle inventory cap today vs. 100 new cars in 2004.

Beck Chevrolet in Starke, Fla., near Gainesville, has benefited by hiring a key salesperson from a nearby competitor that closed, says General Sales Manager Dave Krout.

The 3,000 customer contacts that he brought have yielded seven new-car sales over the past several weeks, Krout says.

Beck, which kept its franchise only because it beat GM in arbitration this summer, also is constrained by low inventory, Krout says.

Until the arbitration win, the dealership could not order new vehicles from Chevrolet. But with an aggressive Internet marketing campaign under way, Beck should boost sales from the current 30 new and used vehicles a month, Krout says.

Employees come first

New Jersey wind-down dealer Malek says the hardest part of closing in June was disappointing customers. Many wondered where to get service.

Most customers brought repeat business and had been sending family members and friends to the small-town operation for decades, Malek, 61, says.

His father, Michael Malek, bought the dealership in 1955. Dan Malek had owned and operated it since 1996.

"They would come in and ask me, 'Where do I go now?'" Malek says.

He says he referred them to Flemington based on that store's strong reputation and his trading relationship with Parker.

As the wind-down date approached last week on Tim Mullahey's Chevrolet store -- one that had served Fullerton, Calif., for the past 81 years -- he spent more time figuring out how to take care of his 50 employees than his customers. The California unemployment office was scheduled today to visit his employees at the dealership.

"It's horrible what has happened in the past year-and-a-half," says Mullahey, owner of Mullahey Chevrolet. "We've been profitable, still are profitable, in spite of what's happened to General Motors."

Read more: http://www.autonews.com/apps/pbcs.dll/article?AID=/20101101/RETAIL07/311019950/1400#ixzz1423GDnU1

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