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Fewer car dealerships in the area just doesn't compute

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Closing automobile dealerships as a way for auto companies to save money doesn't compute, unless the companies believe further irritating their customers translates into higher profits.

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The Forum talked with several dealers who stand to either be shut down or lose a line of cars. They wonder how the strategy announced by Chrysler and General Motors is going to save the manufacturers money. After all, the dealers said, manufacturers have little or no expense at the dealership level. Nearly all costs, from training to advertising, are borne by the dealers.

Both companies have announced dramatic reductions in their networks of thousands of dealerships. Several in The Forum's circulation area are on the closure lists. It's all alleged to be part of the companies' restructuring and downsizing. But closing outlets where the customer comes in contact with the product seems counterintuitive.

A basic tenet of Marketing 101 is getting the product in proximity to a potential buyer. The more places a car shopper can shop, the greater the chances the shopper will buy. Given the condition of auto sales in the country, making access to a point of sale more difficult for the consumer does not make sense. But that's precisely what the companies' drive to starve or close dealerships would do, especially in rural states with small-town dealerships.

The companies' dual rationale is that fewer dealerships will mean fewer opportunities for a customer to bargain and save, maybe $500, on a car purchase; and few dealers will sell more cars.

So a vehicle sells for a higher price, thus improving the profit picture for the companies in the long run. But the strategy is essentially anti-consumer, which is the wrong approach to take at a time when U.S. auto sales are in the tank. Why further irritate the consumers the companies are trying to get into showrooms?

Government intervention in the marketplace is seldom a good idea, but it is acceptable to require companies to justify closing small, rural dealerships. Sen. Amy Klobuchar, D-Minn., and Sen. Byron Dorgan, D-N.D., are asking the right questions. The senators noted that while the closures have been characterized by GM and Chrysler as cost-cutting measures, they are in effect a way to raise prices. Putting company executives on the Senate's hot seat in order to get a bit more clarity about their strategy serves both dealers slated to be shut down and consumers who might be contemplating a car purchase.

-- The Forum

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