Why Chrysler and GM’s Dealer Slash and Burn Won’t Work

As usual, when the government gets involved...problems:

Editorial: Why Chrysler and GM’s Dealer Slash and Burn Won’t Work | The Truth About Cars

GM and Chrysler, under orders from the PTFOA, are decimating their dealer network in the perverse expectation that doing so will lead to higher sales and/or profits. The word decimate comes from the Romans’ practice of showing displeasure with the soldiers by randomly killing one-in-ten of them. While the famously brutal Romans capped their ritual slaughters at 10%, GM and Chrysler are killing off more like 30% of these formerly loyal partners.

Many have made the argument that the bloodletting is necessary to improve GMAC’s cash flow, reduce GM and Chrysler’s inventory costs and give the remaining dealerships the chance to make better profits with which to support future sales efforts.

All of those arguments point to second order effects, not primary effects. GMAC’s floorplanning business, for example, has historically been wildly profitable. Credit worthy dealers paying their floorplan loans on a timely basis are a benefit to GMAC, not a liability. What bank hates having good paying revolving loan customers?