Auto Industry Bleg

Auto Industry Bleg

I’ve been trying to understand the problems of the auto industry, and on a couple of points I can’t quite seem to figure out what’s going on. So I thought: why not ask?

(1) A quote from Business Week:

“Everyone knows that GM is over-branded. (…) At the core of GM’s problems is that it does not have, and has not had, enough resources to feed eight brands with unique products, and then the resources to feed each brand with unique and competitive brand campaigns.”

I assume that having too many brands implies not just a pointless attempt to distinguish them from one another, but separate management and marketing, and to some extent separate manufacturing, that might usefully be consolidated. I imagine that having too many brands would also make it harder to establish any particular brand: when you’re trying to make eight separate brands stand out, all of them probably have a harder time.

Question: are there other drawbacks to having too many brands, or is this it?

(2) Business Week again:

“The problem has long been that the company does not want to have to pay dealers to fold the brands it does not need as it did with Oldsmobile in 2001. State franchise laws prevent a car company from simply ending a brand. Closing down Oldsmobile cost the company around $2 billion.”

Question: Is there any obvious reason why state laws should be able to prevent a car company from closing down a brand?

(3) The WSJ:

“GM has about 7,000 dealers. Toyota has fewer than 1,500. Honda has about 1,000. These fewer and larger dealers are better able to advertise, stock and service the cars they sell. GM knows it needs fewer brands and dealers, but the dealers are protected from termination by state laws. This makes eliminating them and the brands they sell very expensive. It would cost GM billions of dollars and many years to reduce the number of dealers it has to a number near Toyota’s.”

What, exactly, does it mean to say that GM “needs fewer dealers”? Dealerships are privately owned. If there are too many of them, does GM incur financial costs, over and above dealers’ ability to block things like brand consolidation?

(4) In trying to answer some of these questions, I ended up reading a fair amount about state laws governing auto dealerships. (E.g., here, here, and here.) Short version: selling cars is a very, very heavily regulated activity.

Is there some reason why this makes sense? For instance, is it obvious that automobiles have to be sold in franchises, as opposed to stores in which the storeowner can stock whichever cars seem most likely to sell, the way bookstores do? Does it make any sense for Texas to prohibit this?

“Ford, an automobile manufacturer, operates the Showroom web site. At this site, Ford advertises for sale various used vehicles at set no haggle prices. At the time such advertisements are posted to the Internet, Ford holds title to the advertised vehicles. If a Texas consumer is interested in purchasing one of these vehicles, he can contact and deliver to Ford a refundable deposit. The vehicle will then be transferred to a Texas automobile dealer, who will take title to the vehicle from Ford by assignment. If the consumer, after a test drive, wishes to purchase the vehicle he will enter into a contract with the dealer at the price stated on the Showroom web site. If he elects not to purchase the vehicle, the dealer can either return it to, or purchase it from, Ford.”

Aren’t there better models for selling cars? Wouldn’t it make sense to try some of them?

I honestly don’t know the answers to any of these questions. If any of you do, let me know.