Saturday, May 16, 2009

Price Increases And Product Shortages Are Among The Dealership Cut Philosophy

Underlying the cut of around 2,000 total GM and Chrysler dealerships is some wacky philosophy that by creating a shortage of dealers, both brands can charge more for their products and thereby raise prices. Unfortunately, this logic falls flat on the fact that some brands like Hyundai or Kia can sell a car that is highly profitable, many assembled in the U.S., for as much as 50% less than a comparable GM or Chrysler offering, Further if cars aren't selling at the current prices with deep discounts or rebates, etc, how in the world are they supposed to sell at even higher prices, especially during a recession?.

The notion to cut dealers doesn't make much economic sense. Only in the way of reducing advertising costs will both companies realize any real savings. However, the flip side of this is that less ads will also result in lower sales, so how this is supposed to work out to improve the corporate bottom line is also in question as well?

The reality seems to really be here that at GM and Chrysler, neither really have a good answer to reviving poor sales and dealing with this recession. Both companies remain essentially clueless and are still marketing too many larger cars and trucks just at a time when gas prices are starting to creep back up and traffic in many cities is now down by about 36% due to less people with jobs, more work at home employment, and less traffic to supply business.

GM and Chrysler might be attempting to cut some costs. But at the cost of less dealers, the market for the products that both companies sell is shrinking, not expanding. The reality is that both companies are downsizing, and becoming smaller companies. And historically that has usually meant the beginning of the end for many auto companies. Studebaker and AMC have been down that road before. And neither survived as a company.


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