This would be comical if the stakes weren't so high. According to a story in today's Detroit News, General Motors is enforcing every jot and tittle of its franchise agreement against dealers who are trying to survive the auto industry slump by adding non-GM brands to their product line.
The News article points out that the standard GM franchise agreement "prohibits dealers from selling under the same roof any brand other than what is spelled out in their dealer agreement with the automaker." GM argues that the restriction is needed to ensure that dealers focus on GM's brands. It also believes that devoting space to rival brands hurts sales and service.
GM is within its rights in enforcing that clause, of course, but its hard-nosed attitude is yet another example of the company's habit of winning battles and losing wars.
There's more behind the parts counter...
A little background. I've lived in the Detroit area for more than 30 years, and my work in academia and consulting has enabled me to watch the Big Three up close and personal. I've found these companies, GM in particular, too focused on the short term, insular to the point of having a "not invented here" mentality, and notoriously high-handed.
Auto lemon laws are a good example. During the early 1980s, Mrs. DTM and I have owned some seriously awful American-made cars, the worst of which the aptly-named X-car. Owning that car put me on a first-name basis with the service techs at the local Buick dealer, and familiarized me with an auto industry practice called the "secret warranty."
It was about that time that state lawmakers concluded that the laws governing faulty products didn't offer much recourse to owners of crappy cars. That was due in large part to stonewalling by the manufacturer, which refused to take the car back but instead forced the owner to make an endless series of trips to the dealer.
Lemon laws provide that if a major problem goes uncorrected after a given number of attempts to fix it (typically, three), the owner can demand that the manufacturer either buy it back or replace it.
The Big Three spent a great deal of time and energy fighting lemon laws. They lobbied heavily in state legislatures, where they insisted that the laws weren't necessary. In the end they lost: every state has some kind of lemon law. And the Big Three's market share has steadily eroded.
Wouldn't it have made more sense if the Big Three spent their time and money on making better cars and keeping customers satisfied instead of lobbying and litigation?
Which brings me to relations between automakers and their dealers. A generation ago, dealers got tired of the ham-fisted treatment they received from the Big Three. They did what any red-blooded American businessmen would do: lobby their legislators for relief. The result was state franchise laws.
In my consulting work, I've analyzed state franchise laws. These laws are a work of art, a triumph of special-interest lobbying, and a reflection of how adversarial relations are between manufacturers and dealers.
Franchise laws dictate how much a dealer must be paid for warranty work, limit the manufacturer's right to veto the sale of a franchise, and even restrict the opening of a new dealership near an existing one of the same brand. Franchise laws also protect dealers in the event the manufacturer decides to eliminate a brand. As the News article notes, GM had to pay $1.2 billion–yes, billion–dollars to Oldsmobile dealers when it did away with that brand.
Detailed as they are, many states' franchise laws don't deal with facilities requirements. So in states like Minnesota, where GM took a dealer to court over merging its facilities with Chrysler (by the say, Chrysler had no problem with the arrangement), the manufacturer can still take a hard line.
But with the auto industry on death watch, what's the point? Last October, the Wall Street Journal reported that two big auto retailers had conclude that many Detroit auto franchises have become practically worthless. So if a Chevy dealer combines his facilities with, say, Dodge, does the value of the Chevy franchise fall below zero?
There's a further irony to this story:
"You've got GM begging Congress and the new president for help to survive and on the other hand they're trying to knock out dealers who are trying to survive the old-fashioned way: without government help," said Sheldon Sandler, CEO of Bel Air Partners, a New Jersey-based financial firm that specializes in representing dealers.
The bottom line? At a time GM needs friends, it continues to pick fights.
You would think that after all these years, GM's management has figured out the difference between real victories and Pyrrhic ones. Evidently not. Even with the company's survival in doubt.