GM Will Push Dealers to Upgrade


Dealers may get hundreds of thousand of dollars to relocate and spruce up their showrooms to better compete with import brands

To shine its image, General Motors has launched a new ad campaign to show its cars are as good as imports, and it put in place 60-day money-back guarantees. Next up: sprucing up its dealerships.

Starting on Oct. 1, GM will begin a program called Essential Brand Elements, aimed at pumping money into dealers that bring their stores up to snuff. Many of GM's dealers have been around for decades and are paired up with an import-brand store, have old showrooms, or are in the wrong locations. GM is already mandating that its dealers split and relocate their import stores to another site. Now any dealers willing to invest the cash to update their showrooms to GM's new standards can get big payouts every quarter, according to several dealers briefed on the plan.

GM Chairman Edward Whitacre, CEO Fritz Henderson, and Vice-Chairman Robert Lutz met on Sept. 9 with the company's 15-member Dealer Advisory Board and the company's sales and brand heads, where they were told about the plan. The goal, says California Buick-GMC and Cadillac dealer Leo Bunnin, is to put dealerships in better locations and decouple some of them from other stores selling imported brands on the same patch of land. "The facility issue is an immediate issue," says Bunnin, whose dealership group is based in Ventura, Calif. "Some dealers have been restrained by being in an old, small metro toilet."

Starting on Oct. 1, GM will send inspectors from an independent firm to the dealerships to see which stores should move, upgrade, or separate their showrooms from an import brand. Dealers have to submit photos of their stores for evaluation. They will have two years to move if they need to be in a different location within the market, a year to upgrade facilities, and four months to split away from an import store.

Cash incentives for upgrades

If dealers comply with the upgrades and meet GM's suggested standards, they will get cash payouts every quarter. The money could be substantial—several hundred thousand dollars for a dealer with a high-volume store that makes significant improvements.

Bunnin says GM also wants each brand to have common signage and a nicer reception area. The plan is to give GM's dealerships, some of which have been in existence for decades, the same fresh feel as import showrooms built in more recent years by foreign brands that have been expanding in the U.S. market.

The plan would move some dealers from areas with lower retail traffic to a better area within a market. But aesthetic improvements are less of a factor, says IHS Global Insight analyst John Wolkonowicz. "If you move a dealership to get in the right population area, that's one thing," Wolkonowicz says. "But if it's about building Taj Majals, it's a waste of money. That kind of thing matters for Cadillac but not for mass-market brands like Chevrolet and Buick."

The move is not only part of GM's efforts to spruce up its brand image but also its move to strengthen its dealer network. When the company was in bankruptcy this summer, executives announced a plan to cut 2,000 dealers and get the U.S. total down to 4,000 by 2010. The idea was to give the remaining dealers a bigger market area and a chance to make more money, says Mark Rikess, president of Rikess Group, a dealer consulting firm in Los Angeles.

The problem GM and other domestic automakers have is that their dealers greatly outnumber those of foreign carmakers. A Toyota dealership might sell 1,400 cars a year, more than triple what many domestic brand dealers sell. So the dealers in every town compete on price and give their profit away to consumers, making it tough to retain experienced sales staff and upgrade facilities, Rikess says.

But there is one element that is at odds with GM's new marketing strategy. While GM's new ads will directly compare the virtues of its new models against imports—say, a Chevy Equinox vs. a Honda CR-V—pushing dealers to move import stores away from GM stores makes it tougher for shoppers to make those comparisons on the showroom floor. Says Rikess: "Now you'll have to go down the block to do that."

Welch is BusinessWeek's Detroit bureau chief.

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