Analyst Questions the Sense of Massive Car Dealership Closings

In good conscience, David Cole says he can't just sit and watch what looks like the dismantling of the U.S. auto industry, at least where General Motors Co. and Chrysler Group LLC are concerned.

Cole has become an advocate for dealer rights and restoring closed franchises, not an area in which he normally gets involved as a respected auto analyst, chairman of the Center for Automotive Research in Ann Arbor, MI, and son of the late Ed Cole, a former GM president.

“When I looked at (the auto makers') plans to reduce dealers, it didn't have any common sense to it,” he says. He is especially concerned about the closings of midsize and rural dealers and the impact this will have on sales and market share.

Cole says faulty logic is inherent in shuttering nearly 40% of GM's retail sales force and a significant portion of Chrysler dealers. So far the two auto makers have closed or sent termination notices to more than 2,000 dealers.

“Brand elimination and dealer elimination will both prove to be negatives” in keeping or growing market share, he says.

Hit by steep domestic industry losses, Cole believes GM and Chrysler are losing focus on smaller and midsize markets, and that will haunt them in years to come by eroding market share even farther.

GM already has slipped to about 19% share, from a high of nearly 50% in its heyday years ago. Chrysler has 9% share.

Cole hasn't been afraid to take his message directly to Washington. He was called on by a Congressional investigative team for testimony on dealer closings.

He went to the top of GM, when recent CEO-President Fritz Henderson was in place, to complain of GM's faulty logic on dealers closings. Cole also has contacted the federal auto task force to state his case.

“Dealers who have lost their (domestic) franchises can call Hyundai (Motor America Inc.) or another import maker and press their claims,” Cole tells Ward's. “There's something wrong here. Someone didn't do their homework.”

Part of the problem lies in the pressure from the automotive task force and Obama admin. to quickly reorganize GM and Chrysler.

“They were in a rush and not as smart as they should have been,” says Cole.

The auto makers were “not dictated to by a very sophisticated team, but by people with no clue as to what's going on in the auto industry,” he says, criticizing the auto task force for its lack of industry expertise.

At GM, “lots of backs were against the wall,” he says. “Senior management's position was they had to do this (the dealership eliminations) or the administration would take jobs away.”

GM and Chrysler face tough challenges even without whacking their retail force, Cole says. Some consumers are critical of government aid to bankrupt companies.

“Why throw another big problem into it which reduces volume even more?” Cole asks. “The last thing you want to do is throttle business opportunities by cutting your dealership sales force.”

Are domestic makers having second thoughts on the closings?

“I hope so,” Cole says. GM has restored some 70 dealers to active status after a review. “But the Chrysler board just blew dealers out” with no chance to review.

“I'm not picking winners and losers,” he says. “But I see something here that does not make sense. It's hard to sit on the sidelines and just watch. Where's the catch? Where's the winning part of the deal?”