General Motors is under pressure to shrink its dealer network more quickly, as the government demands more rapid progress on the automaker’s overhaul. How GM’s dealer body in Western New York will be affected is not yet known. But the region has built a reputation as a strong market for sales of domestic vehicles, with local dealers among the national leaders in the sales of some brands.
GM planned to reduce its number of dealerships to 4,100 by 2014, a decline of 34 percent from 6,246 in late 2008. But the government said GM can’t afford to take that long to make the reductions.
The Obama administration’s auto task force rejected the viability plans submitted by GM and Chrysler, demanding more far-reaching steps by each for additional financial aid.
In critiquing GM’s plan, the auto task force said GM has been pruning its dealer network, but “its current pace will leave it with too many such dealers for a long period of time while requiring significant closure costs that its competitors will not incur.
“These underperforming dealers create a drag on the overall brand equity of GM and hurt the prospects of the many stronger dealers who could help GM drive incremental sales,” the task force said.
GM’s new chief executive officer, Fritz Henderson, said in recent interviews that GM must act more quickly to reduce its number of dealers, mainly those affiliated with Chevrolet and Cadillac. But he told Automotive News the process would not be completed within the 60 additional days the government granted GM to rework its overall plan.
Duane Paddock, principal of Paddock Chevrolet in Kenmore, acknowledged changes are coming across GM’s dealer network. “There’s not one metro market that’s immune,” Paddock said. “Every metro market is going to be looked at and have some reduction somewhere.”
Yet even before the current consolidation efforts began, he said, Buffalo Niagara has seen a reduction in its number of Chevrolet and other GMaffiliated dealerships. And the Buffalo area has a strong base of viable GM dealers, he said.
As a result, Paddock said he expects to see a smaller number of reductions on a percentage basis come from the Buffalo area. Erie and Niagara counties have a total of 16 Chevrolet dealerships and four Cadillac dealerships, according to the two brands’ Web sites.
Paddock’s dealership was the No. 1 Chevy dealer in the country in retail sales of new passenger cars and trucks in March, selling 341 units. A total of four Western New York Chevy dealers were in the top 16, said Mike Howse, a zone manager with GM. Through the first three months of the year, Paddock was the No. 1 Chevy dealer, with 949 units sold.
Nationally, GM has coped with dismal sales figures this year, recording a 45 percent drop in March from a year ago. But the Buffalo area stands out with GM for having some top-selling dealers as well as the Town of Tonawanda engine plant, said Paddock, who has a national perspective as cochairman of GM’s National Dealer Council.
“We are very fondly looked at by GM, which I think is important for everyone who lives in Western New York,” he said.
Charles Keller, owner of Keller Chevrolet in Cheektowaga, also drew a link between the popularity of GM vehicles and local manufacturing.
“I think the support from dealers here ends up overflowing into what they’re manufacturing out of here,” said Keller, whose dealership has grown to nearly 50 employees thanks to some recent hiring.
Keller said it is difficult to predict whether GM will cut dealerships here, since it depends on GM’s view of the amount of dealer representation and market share. “I think if Western New York stays as responsive to the market as they have for the past 12 months, nobody has anything to worry about around here,” he said.
James Basil, president of Joe Basil Chevrolet, said GM will evaluate dealers’ profitability and ability to sustain themselves. “It’s all going to depend on how the dealers are doing, and there is no stamped plan in effect [from GM] right now.”
Basil said the Buffalo area’s Chevy base is exceptionally strong. “GM would be flying high if the rest of the country sold the product like we do in Buffalo.”
GM’s big-picture goal, he said, is to emerge with a stronger dealer network. “The stronger the dealer, the stronger the brand becomes.”
GM told the government most of its dealership reductions would take place in metro and suburban areas, “where dealership overcapacity is most prevalent.” In small-town markets, “GM intends to preserve its historic and competitive strength.”
It also said that the reductions “will evolve primarily from normal attrition and from dealer-initiated consolidations which are a minimal cost to GM.”
Some of those reductions will result from GM unloading three brands: Hummer, Saturn and Saab. Their individual fates have not been disclosed, but the outcome of each has local implications.
Buffalo Niagara’s two Saturn franchises, both owned by West Herr Automotive Group, are routinely among the top sellers in the country. The region also has two Saab franchises and one Hummer franchise.
As GM rushes to meet the government’s 60-day deadline for an acceptable overhaul plan, the potential for some form of bankruptcy filing persists.
Brad A. Birmingham, a partner with the Hodgson Russ law firm who has auto dealers among his clients, said such a filing would give dealers less leverage as the automaker thins the ranks. The bankruptcy process would trump protections the dealers enjoy under franchise agreements and state franchise laws, he said.
Like Paddock, Birmingham said he believes the Buffalo area’s domestic-brand dealerships have a good track record as GM decides where to shrink its network. “I think we are as well suited as anyone for that kind of survival,” he said.