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GM backs off on dealer plan
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November 1, 1999: 3:08 p.m. ET
Chairman says auto manufacturer will take only a minority stake in dealerships
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NEW YORK (CNNfn) - General Motors Corp. is backing away from some of its plan announced less than five weeks ago to own and operate up to 10 percent of its dealerships over the next decade.
The plan for a new subsidiary, called General Motors Retail Holdings, had sparked an outcry from GM dealers, who feared that company-owned dealerships would get preferential treatment. The company now says it will take only a minority stake in dealerships as part of the new operation.
The change of thinking was revealed in Monday's edition of Automotive News, a weekly trade publication. It quoted Jack Smith, GM's chairman, chief executive and president, as saying that the plan announced Sept. 28 was "quite premature, and frankly what played out wasn't really where our head was ever at."
Spokesmen for GM (GM) tried to characterize the statements as part of an evolution in thinking at the company, and not a change in direction. But they conceded that GM dealers had objected long and loud to the earlier announcement.
"At the time we made an announcement, we said we were sensitive to dealer concerns and that we would make modifications," said Terry Sullivan, spokesman for GM. "The dealers were pretty direct in indicating they didn't want the manufacturer going into the retail business, owning dealerships 100 percent."
'Eating the hand that feeds them'
Some of the dealers on a GM advisory forum were meeting with the company Monday and could not be reached for comment as to whether the change answers their concerns. When the original plan was announced, they said they feared GM-owned dealerships would get preferential treatment.
"We'll be in competition with our supplier," Tom Keery II, the chairman of the National Auto Dealers Association Industry Relations Committee for GM, and the owner of Frost Motors Inc. in Newton, Mass., said at the time. "It's not just biting the hand that feeds you, they're going to eat the hand that feeds them."
Investors and analysts were not enthusiastic about the plan either, suggesting that manufacturers had proven to be poor retailers when they tried that in the past. Smith conceded that point in his interview with Automotive News.
"We never had any intention of running factory stores," the weekly quoted him as saying. "We've done that before and it wasn't a great success."
Response to major dealerships
The manufacturers are concerned about the growing influence of large companies that own multiple dealerships, such as AutoNation Inc. (AN), said Bruce Belzowski, senior researcher at the Office for the Study of Automotive Transportation at University of Michigan. The move by GM and a similar move by Ford Motor Co. (F) is an answer to that trend.
But he said he's not surprised that GM is backing off to being only a minority-stake owner in dealerships. He said the automakers need to invest capital other places than in buying dealerships. And many states have franchise laws that prevent manufacturers from owning all of a dealership.
"They're telling you, 'We are not going to fight the franchise laws, We're not going to go to war over this,'" Belzowski said.
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General Motors Corp.
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