Why are car dealerships closing?

May 29, 2009 2:00 PM

What is the financial gain to GM and Chrysler from forcing many of their dealerships to close? I always thought that car dealerships were independent franchises and therefore cost the parent company very little except for the complexity of delivering cars to so many locations.
posted by DrGail to grab bag (4 comments total)

Slate's Explainer answered this a couple weeks ago
posted by brozek at 2:12 PM on May 29

Thank you, brozek. My google search didn't turn up anything like this.
posted by DrGail at 2:17 PM on May 29

Also, a particular dealer's inventory might be better sent somewhere else. Most of the cars a dealer has on their lot are financed. In many cases they're financed through the manufacturer's credit arm, so the manufacturer won't get paid until that vehicle is sold. Taking cars back from low-performing dealerships and giving them to dealers who can actually move them off the lot can improve cash flow tremendously.
posted by kindall at 2:47 PM on May 29

The key thing is the last sentence in the slate article. No one is making any money when a dealership sells 124 cars annually. When no one is making money shady, underhanded things start happening. Reduce the number of dealers by half and boom; now you're selling 250 cars annually. You've just become much more competitive.
posted by Mitheral at 3:52 PM on May 29