Drastically cutting dealers could cause plunge in sales
What if the auto makers' grand plans of cutting domestic-brand dealerships don't boost sales per store and bring greater profitability to the survivors?
What if, instead, it slashes into vehicle sales for the likes ofand ?
Then what? Reopen shuttered stores? Send a search party to find disencumbered dealers who, gee, maybe weren't so bad after all?
The impending severance of so many dealerships might further harm the domestic auto industry at a time when it already has the tourniquet on tight.
Years ago, Detroit's retailing plan was to put dealerships all over. The premise was the more stores, the more sales.
OK, auto makers got carried away, distributing franchises like local politicians handing out campaign buttons at the county fair. The industry ended up with too many domestic-brand dealerships.
But that doesn't mean the entire dealership strategy of the past was all wrong. It may have been executed poorly. It might have needed some refitting. But is it wrong to make it easy for customers to buy your products by having plenty of conveniently located sales points?
Car buyers shouldn't have to go on a road trip to reach a domestic-brand dealership. If they are faced with that proposition, they may end up somewhere else, such as a closeror store.
Auto makers' internal data show that if a dealership is far away, a consumer is less likely to go there to buy a vehicle, let alone service one.
“You see a significant customer unwillingness to travel to a dealership that is more than 15 miles (24 km) away,” aexecutive once told me. “As miles increase, customer reluctance goes up exponentially.”
The number of domestic-brand dealerships has steadily, if not dramatically, decreased in the last several years.
Now, largely because of government pressure to downsize fast, domestic auto makers are whacking dealerships. How did federal officials become the new instant experts on auto retailing?
GM,and Chrysler have about 14,000 U.S. dealerships. That compares with about 4,000 Toyota, and points. Per store, Toyota sells an average of 1,500 vehicles compared with 444 for GM, 483 for Ford and 405 for Chrysler.
The belief is that if the domestic dealership ranks go down, sales per store, or “throughput,” will go up. That's premised on the Detroit Three keeping all their current customers, who will dutifully go to the next-closest dealership of the same ilk. That's awfully hopeful thinking.
Supposedly, the number ofdealerships is just right. But who knows? Maybe Toyota would sell more vehicles if it had more dealerships.
Toyota certainly shouldn't match GM by opening 5,000 more dealership points. That would be dumb. But perhaps Toyota is missing sales opportunities with only 1,200 dealerships in the entire U.S.
The current-generation Toyota Tundra pickup truck has failed to meet sales expectations. Why? One reason is that most Toyota dealerships are in urban markets, yet rural and outlying areas account for lots of pickup sales.
A farmer in Texas is unlikely to drive 100 miles (160 km) for the privilege of buying a Tundra in San Antonio.
Toyota had made a big deal about building Tundras in San Antonio — the so-called heart of pickup country. But consumers don't really care where vehicle factories are located. They care how conveniently dealerships are located.
Meanwhile, too few dealerships can cause unhappy customers. For years, Toyota dealerships have ranked poorly in customer satisfaction surveys. To its credit, corporate is trying to fix that. But the inherent problem may be that there aren't enough Toyota dealers to properly serve the needs of customers.
Domestic auto makers should ponder that as they prepare to hack away.