What this inventory situation does is put all the dealers on the same footing, which they won't allow...

 

no one's thinking gm is getting porsche margins, but then porsche is just one part of porsche/vw.

you've missed every point that has been made, but i'll try to answer this question.

the sales cycle is more complex than just mfr to dealer to consumer. the cars 'on the lot' are financed by the dealers, sometimes through the mfr or other companies, but the longer a car sits on the lot, the less money the dealer makes given a consistent selling price because they have to finance it for longer. even worse, if a car is just not moving, the dealer take a double hit of paying more financing and ending up discounting the car to move it. it's a lose, lose proposition for dealers who have tons of cars on the lot unless they're hot selling (f-150's for example). the mfr's don't want their dealers going out of business and will often come up with additional 'factory direct' incentives/money to dealers and/or consumers, to get the cars off the lot. that's TERRIBLE for mfr's to have to do.

the chip shortage has meant mfr's have less cars to send to dealers. dealers have been marking up what they get and the customer often just has to take what's available because they need (or want) a car. that's been good for dealers in some ways, with higher margins on lower volume (bad for some salespeople). it's been good mostly for mfr's too who aren't having to shovel money to dealers to get cars off the lot.

can't follow what you've written but toyota and honda HAVE been doing this 'revolutionary idea' forever. it's GM that's finally catching up, and going further (as will all others) realizing the fallacy of stuffing dealers and then paying the price later.

for gm, better late than never.

 

i don't entirely agree the dealers really run the show. yes, mfr's have to treat dealers equally, but there's all kinds of incentives and 'ways' in the relationship. it's a bit like federal govt vs. states govts - it's complicated.

 

What would have to happen is that as franchise agreements come up for renewal, GM would have to required an amendment to the agreement as a condition to renewal, which would allow GM to tie or limit delivery of inventory to the dealer's sales levels, and not just a requirement to send as many cars as the dealer asks for. And I'm sure GM could strong arm some dealers by threatening to just cut them.

 

The dealership franchise lobby is so huge...they really do run the show. Why do you think the industry hasn't changed much in all these decades? Thats why. Manufacturers would love to sell cars directly...but they can't and thats why.

The issue is the dealership industry itself, they have a franchise dealers association which is kind of like a union, and most dealerships anymore are owned by big conglomerates who hold a lot of power, GM isn't going to get away with this sort of strong arm tactic.

They will go back to doing business the way dealers want...wait and see.

 

Every car make stuffs the dealers is the point, but GM is going to back away from doing this? Has GM thought of something new that the other makes havent? Doubt it

The CEO pretty much said they are going to keep prices elevated and scalped. Is this a great message to send to customers especially? Do GM vehicles justify the elevated prices? Not going to work when the other manufactures keep prices lower by not doing this. The beauty of competition, its going to punish bad decisions.

 

Every car make doesnt stuff the dealer as much is his poin, and he's right. Toyota and Lexus are WAY better at managing inventory than GM or Ford or FCA. Thats reflected in discounts which are WAY bigger at American make dealers.

You have always had to pay way closer to MSRP for a Toyota or Lexus or other foreign car than a domestic car, and a big reason is the domestic lots have longer inventory time because they ship more cars than the dealer needs.

Inventory should not "pile up". Their absorption rate shouldn't be longer than 30-45 days. Thats very different than right now where the inventory is so low absent markups it would be more like 5 days.

 

states (e.g., tx) also have very strong laws protecting dealer franchises, bought and paid for by dealer associations.

mfr's can go direct as tesla has proven, but the mfr's have a love/hate relationship with dealers i'm sure... dealers obviously sell the product, but can also be abused by the mfr's as well. it's totally co-dependent and not healthy.

ftfy.

sure they can (not easy though, for sure). for example, gm can start new brands with new franchise agreements or go direct. hyundai blew that completely with genesis, but it could be done. obviously mmarshall's favorite brand saturn had unique agreements, and then scion tried it later. of course both failed, for a variety of reasons.

it will probably be somewhere in the middle... it goes both ways though as i said, dealers taking too much or the wrong product at times (and not taking product the mfr would like them to), and the mfr shoving product down the dealer's throats with incentives, etc.

lexus dealers even are a whole bunch of shady, clearly hoarding product that sells (ES, RX, NX), and keeping almost no specialty vehicles in stock even for test drive. i was at a dealer not too long ago that had ONE new RC on the lot, but about 20 used ones (all but one bottom RC200 trim). this is one factor that killed the GS, dealers preferring to sell ES and good luck finding a GS450h or GS-F on a lot when those were theoretically for sale.

 

Tesla had the benefit of not having any existing franchise entanglements. It would be basically impossible for any legacy carmaker to sell direct in the US.

Thanks! Quite accurate LOL

Not really, they would have to create an entirely different company and then defend in court that it wouldnt be held to the agreements GM has in place. New "brands" would just be marketing divisions of GM.

Saturn had somewhat unique agreements, but they ultimately were the largely same thing.

It will be whatever benefits dealers the most. They will find an equilibrium that will improve inventory significantly from how it is now, but not to where it was to improve their profitability. Brands we typically deal with, Lexus, Mercedes, BMW etc will return to basically normal since they never had high inventory to begin with.

Remember, dealers order the cars...right now GM can't fill their demands, but once they can they will be forced to by their agreements with the dealers. So ultimately dealers will decide.

And yeah, Lexus is no different than any of them.

 

As the last two years have demonstrated, we need the producers a lot more than the producers need us. Yeah, yeah, supply and demand, I know, I know, but right now the dealers need automakers a lot more than automakers need the dealers, and its true in most every other industry - the dealers are begging manufacturers for products. Manufacturers have figured it out that if they reduce the supply, they have the upper hand the can make more money while working less, and they will not be going back to the old ways.

 

....and Tesla can't legally sell in some states because of that. To this day, they are still tied up in franchise-suits in those states.

Though relatively small in number, perhaps the Pontiac enthusiasts have probably complained the loudest about their division being axed. Though I obviously disagree with them, they keep saying to this day that Buick should have been axed, not Pontiac.

Not necessarily my absolute "favorite" brand, but I had a very high opinion of, and a lot of respect for, their customer-centered way of doing business, Everyone-Pays-the-Same-Price philosophy, the uniqueness of the design of their S-series compacts, and their willingness to toss out the book and do something different. What killed them was not doing that, but when they STOPPED doing that after the early 2000s

 

manufacturers don't have to produce all the cars dealers want. manufacturers do know exactly how many cars each of their dealers has so can match supply (mfg + dealer inventory) to demand.

 

One thing I have learned in business is this is *always* true.

In my business for instance, I treat my vendors and all better than my clients, because without them...I cant serve my paying clients or make any income myself. I cant list houses for sale without painters and contractors and house cleaners and all. If my clients are slow to pay, I pay them myself to make sure they always put me at the top of their list.

The issue is in this case, the manufacturers are contractually obligated to supply the dealers with product. Right now they cant, but once they can they will have to. I think you likely will see big lawsuits from dealers against automakers for breach of contract if automakers try and restrict supply artificially, and those dealers are going to win.

 

That is an interesting point regarding contractual obligations, I am not sure how it works with automakers. I am in construction industry myself, and much like you I make sure to pay my vendors out of pocket, not waiting for my clients to pay me. Right now many of my suppliers are suffering with empty shelves because manufacturers are shipping a fraction of the past volumes, but charging prices that are sometimes 4-5 times higher than prepandemic.

 

The contractual obligations are the rub here