TW: Unions, incompetent managements and brilliant foreigners get blamed for Detroit's woes but there is another contributor, the dealers. American car dealers are a legacy structure going back decades which have created a huge cost infrastructure contributing immensely to Detroit's woes.
The dealers are frequently pillars of their communities, the epitome of "small-businessmen" that rightly or wrongly are considered the backbone of American life. Partially as a result of these attributes, the dealers have been a potent lobbying force for decades leading stringent franchise laws which forced the Big Three to retain thousands of un-needed dealerships even as their market shares declined.
Culling them has been neither popular nor legally feasible but they are a massive overhead nonetheless. The culling process will cost thousands of jobs directly and indirectly (e.g. not as many ads in the local papers and billboards) and create empty lots across America. The economics realities rule, however, and Detroit and those effected communities would have benefited if this process had been allowed to take its natural course over the past years rather than blow up all at once.
Franchise laws exist for legitimate legal and economic reasons but frequently those laws have been co-opted by the franchisees to their benefit (most are state level). The auto industry is by no means the only industry impacted. So if you don't feel sorry for the union folks, you should not feel so sorry for these folks either.
From Economist:
"...Fitzgerald was among the 789 Chrysler dealers, a quarter of the total, that the carmaker “extinguished”, as he puts it, as part of its move through the Chapter 11 bankruptcy process. The decision had been expected: the firm had been saying it needed to cull its dealers for years.
The same is true of General Motors, which still had nearly 6,000 dealers in America last year, hardly fewer than in the 1960s when it controlled roughly half the domestic market (these days it is struggling to keep its share close to 20%). Just a day after Chrysler’s announcement, GM sent letters to 1,100 of its own retailers letting them know their franchise agreements would not be renewed. At least 500 more dealers will be dropped in the months to come as it closes or sells off its Hummer, Saturn, Saab and Pontiac brands. It eventually hopes to get the number down to 3,600.
Why are the companies desperate to reduce their dealer count when they are haemorrhaging sales and market share? Foreign firms such as Toyota have found that they can do a better job with fewer stores. Toyota now outsells Chrysler with barely a third as many showrooms. Its dealers do not have to compete with one another on price. That means they earn better margins which, according to Mark Templin of Lexus (Toyota’s luxury brand), they put back into their stores “to deliver a more attractive experience for their customers”.
...It is only thanks to bankruptcy (actual for Chrysler, imminent for GM) that the two carmakers can now overcome onerous state franchise laws that have long frustrated their efforts to modernise the system. Individually and through umbrella organisations, such as the National Automobile Dealers Association, car retailers are some of the country’s most effective lobbyists—which is not surprising as they are among the largest state and local taxpayers. In some states, such as Texas, taking away a franchise is virtually impossible, even when a retailer is convicted of fraud. A few years ago GM spent more than a billion dollars to buy out the retailers affected by its decision to eliminate its Oldsmobile brand..."
http://www.economist.com/business/displaystory.cfm?story_id=13703900
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