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Saturday, July 22, 2006

Dealer Consolidation is Copout
By Jerry Flint
WardsAuto.com, Jul 19, 2006 5:21 AM

The best way to sell cars and trucks is through a dealer with just one brand in the showroom.
No others. Exclusive. One hundred years of history prove it.

When new makes such as Hyundai and Kia debut in a market, they often start out dualed with other brands at a retail outlet, but as soon as they can, they try to line up exclusive dealers. Two Detroit companies are ignoring all this history: General Motors is consolidating Pontiac-Buick-GMC, and Chrysler is pulling together Chrysler-Dodge-Jeep in certain major markets.

It's either this or kill off more brands as they did with Oldsmobile and Plymouth.

Neither GM nor Chrysler has enough products to hold onto an exclusive Buick or Dodge retailer. These dealers are looking to add another line, maybe Kia or Subaru, and GM and Chrysler don't want that. They want to keep the store in the family, even if it means combining family brands. Ideally, combining Buick and Pontiac with GMC gives a store a nice variety of products: rear-drive body-on-frame trucks; Buick sedans for mature buyers; and Pontiacs for younger, more performance-oriented shoppers.

The Chrysler retail strategy is harder to understand. It is adding lots of new products: two lower-priced Jeeps, the Compass and Patriot; the Chrysler Aspen, a luxury SUV; the Chrysler Aspen; a new family sedan, the Chrysler Sebring; the Dodge Nitro, which is a Jeep Liberty variation; and the new Dodge Caliber cross/utility vehicle.

Problems are apparent with both retail approaches. You get salespeople who just don't know all the products, for one. There are 18 different vehicle lines at Pontiac-Buick-GMC and 20 at Chrysler-Dodge-Jeep. How can salespeople keep track of all those models?

And with all that complexity, how efficient is service going to be in the back shop? What are the chances needed parts will be in inventory?

As for increased volume, it doesn't grow in proportion to the brand collection. It's the law of diminishing returns.

You have a store that sells 1,000 Chryslers. Another sells 1,000 Dodges. A third sells 500 Jeeps. You put them together. What's the volume potential? Maybe 2,000 unit sales total. There is a limit to how many customers and vehicles one showroom can handle. Maybe this is the only way to save or promote these six lines at GM and Chrysler. But it seems like they are giving up on themselves. Every truly successful brand fights to get exclusive showrooms.

The answer is not more and more consolidation. Thats too reactive and ignores the real problems with products and brands.

Auto makers need to strengthen lineups with more distinctive models and create brands with stronger identities that draw customers to showrooms.

Toyota and Lexus stores share numerous similar products, including the Toyota Camry/Lexus ES sedan and Toyota Highlander/Lexus RX cross/utility vehicle; as well as several trucks. And yet, we don't hear any demand for Toyota and Lexus dealers to merge. Why not?

Jerry Flint is a columnist for, and a former senior editor of, Forbes magazine.