Virginia Chevrolet Dealer to close due to GM's Facility Demands

[XDCX]

In a story I fear will become more common, a newspaper report indicates that Wyatt Chevrolet from South Boston, VA will be closing their doors because they do not want to spend the money required to meet GM's new facility demands. Here's a link to the report - click here (http://www.yourgv.com/index.php/news/local-news/7747-breaking-wyatt-long-time-sobo-dealership-closing-doors)

Wyatt Chevrolet has a 74 year history in South Boston and likely shares the struggle that many rural dealers feel as they try to compete in an industry that has razor-thin margins. The more specific threat, in this instance, is an OEM that's increasingly putting demands on their dealers to make investments that don't necessarily add to their dealership's sales volume or profits.

It's sad to think Wyatt Chevrolet survived the GM OLDCO cuts, the worst recession since the Great Depression and they get taken out because GM's facility demands.

[Lakeshow]

Sad story for sure, hope he enjoys the hell out of retirement.

We've seen two dealers in the last six months do the same thing. Both made it through BK untouched, but severed ties with GM due to being starved of the inventory they needed and costs of facility upgrades to stay competitive.

[XDCX]

We've seen two dealers in the last six months do the same thing. Both made it through BK untouched, but severed ties with GM due to being starved of the inventory they needed and costs of facility upgrades to stay competitive.

That's interesting - especially the part where some NEWCO GM Dealers are having trouble getting enough inventory/allocation to remain viable.

That said, I'm surprised these rural GM dealers have decided to close rather then trying to sell off their dealership. Given the recovery in U.S. auto sales I'd think there's some General Manager out there who's just waiting to invest his/her life savings for the chance to get a store.

Who knows, maybe there's not much of a market for smaller/rural dealerships?

I'll send an email to Moshe Stopnitzky from Performance Brokerage Services and see if he has an opinion he'd like to share on the market for smaller/rural stores.

[Lakeshow]

I'd like to hear Moshe's opinion, have actually thought about messaging him on the subject.

A smart General Mgr that has been dealing with GM the last five years should know better than to put his life savings in a small rural dealership in my opinion.

The other big hurdle that many rural dealerships must get over is getting GM to approve another buyer. That's going to be extremely hard, considering they'd like them all gone anyways.

[ohiobuckeyes]

It is a sad day for all small hometown dealerships. I recall Fritz saying this during the GM 2009 BK:

"We know that our strong presence in rural areas, small towns and "hub" towns gives us a strong competitive advantage on average of more than 10 points in market share, and we would like to maintain that advantage. When our rural and small town dealers perform to our standards, they are a huge asset, and so we intend to retain an extensive rural network of 1,505 dealers nationally."

I feel for these people both employee's and residents of South Boston. To lose your your hometown dealership, now having to travel outside of the community to get service and recall work done. And supporting the Little Legal teams, Friday Nite Football something we as dealers have done forever.

To GM Chrysler and Ford we are just our dealer code no matter if we sell 10 units a year or 3,000 units a year, the CEO's VP and brand managers don't care if we can put up the arch all they care about is UNIT NUMBERS. It's becoming a Sad State Of Business.

I too would like to hear Moshe's opinion of where this market place is heading for Rural and Hub-Town dealerships.

@Lakeshow from what I'm hearing GM is pulling First Right's on a few small dealers during the buy/sell process.

[XDCX]

I'd like to hear Moshe's opinion, have actually thought about messaging him on the subject.


I too would like to hear Moshe's opinion of where this market place is heading for Rural and Hub-Town dealerships.


I received an email back from Moshe - he's currently away from his office but he'll respond to this thread with his thoughts when he returns. :)

[XDCX]

The other big hurdle that many rural dealerships must get over is getting GM to approve another buyer. That's going to be extremely hard, considering they'd like them all gone anyways.

@Lakeshow from what I'm hearing GM is pulling First Right's on a few small dealers during the buy/sell process.

That's interesting.

I'm obviously not a lawyer but I think it would be hard for an OEM to outright block a buy/sell if the dealership is viable and it's meeting the OEM's standards for MSR, CSI and facility compliance.

To ohiobuckeye's point, I could see an OEM exercising their right of first refusal and paying a modest amount of Blue Sky and then simply closing the point. Then again, why would GM (or any other OEM) want to close a rural dealer if they've already managed to transition to NEWCO and they survived the recession?

[lsx only]

ebe is not required to sign up for, i would like to know the whole story

[XDCX]

ebe is not required to sign up for, i would like to know the whole story

That's a good question - I'm not sure exactly what GM was requiring the dealer to do to upgrade his facility. The newspaper report mentions a requirement for a new façade but it's not clear how much that would have cost.

I'll send an email to the dealership and make them aware of this thread and invite the owner to join the forum and provide us with more information.

[Lakeshow]

Dad and I walked into XYZ Chevrolet this winter to say hello to some old dealer friends, and check out the $1.5million remodel on their less than ten year old building. We were met in the showroom by the owner and as we walked towards him my father slipped and fell on the wet, snowy floor. The owner tells us that happens weekly with this new tile GM required for the remodel. My father jokingly tells the guy, "maybe you should send any claims to GM and see if they'll pay them for you." The owner replied that he already mentioned that to his rep, and the reply he got was..."You know Mr. XYZ, you didn't have to do that $1.5million remodel and use our required tile, that program was optional."

His take on this "optional" program was if your five nearest competitors are doing it and getting the kickbacks and you're not, you are already at a disadvantage price wise. He acknowledged that a good dealer with great service, etc. can retain a good portion the customers without the program, but a lot of times you'll lose the price shoppers.

We all know the program is optional, but most dealers believe to stay competitive it is not an option.

[XDCX]

Dad and I walked into XYZ Chevrolet this winter to say hello to some old dealer friends, and check out the $1.5million remodel on their less than ten year old building. We were met in the showroom by the owner and as we walked towards him my father slipped and fell on the wet, snowy floor. The owner tells us that happens weekly with this new tile GM required for the remodel. My father jokingly tells the guy, "maybe you should send any claims to GM and see if they'll pay them for you." The owner replied that he already mentioned that to his rep, and the reply he got was..."You know Mr. XYZ, you didn't have to do that $1.5million remodel and use our required tile, that program was optional."

That's a great example of a "regional difference" where GM should allow some flexibility in their requirements. The floor tile that might work well in Arizona probably wouldn't work well in North Dakota - why should GM force all of their dealers to use the same materials?

His take on this "optional" program was if your five nearest competitors are doing it and getting the kickbacks and you're not, you are already at a disadvantage price wise. He acknowledged that a good dealer with great service, etc. can retain a good portion the customers without the program, but a lot of times you'll lose the price shoppers.

We all know the program is optional, but most dealers believe to stay competitive it is not an option.

I agree - if the OEM's program establishes two-tier pricing it's not really optional.

[Moshe @ Performance Brokerage Services]

Gentlemen,

Small and rural stores are being sold all the time. We currently have four such stores under contract. However, not as many are sold lately by comparison to the period prior to 2008.

In the last 18 months, it has become a seller’s market again. Goodwill values are at their highest levels that we have seen in 22 years.

If a dealership is priced reasonably, it will sell. Besides, every pot has a lid. You just need to give it a wide exposure and kick over every rock.

Unless a dealer is losing a lot of money, he/she should definitely try to sell the dealership rather than shut it down. When selling, he/she will get some money for the franchise, fair-market-value for the fixed assets rather than a liquidation value, and most importantly, since the building is designed for a single purpose use, a sale of the dealership will preserve the value of the real estate via a lease or a sale. Please note - a value of real estate that used to house a dealership can drop in value by as much as 50% if sold for a different use, especially in a rural area where other properties are available.

Moving on, keep the following in mind:

Each dealership is as complex and unique as the dealer who runs/owns it.
Dealerships are no longer sold based on their past track records.
Nowadays, dealerships are sold based on buyer’s pro-forma!
Therefore, even if a dealership is losing money, it can still bring a healthy goodwill value if a buyer sees potential to do better.
In over 22 years in this business, and hundreds of consummated transactions, we have never sold a dealership to a buyer who did not think he could do better than the seller….


There are only 3 types of buyers that could buy such stores:

Regional dealers looking for expansion - in that scenario the dealership must be able to make enough money to plug in a General Manager and still produce a return on the investment. Typical expectation from the buyer - 20% cash on cash return on investments.
General Manager looking for his/her first store. I must mention at this juncture that the dealeritis is not contagious as it used to be. Those buyers watched the carnage of 2008-2010 and have yet to return to the market. Those buyers used to represent 50% of our business years ago! They are more selective and careful, they lost equity in their homes, their stock portfolio has shrunk, etc.
A buy/in - buy/out candidate. A talent looking for a home. Without assistance and cooperation of the existing dealer, that type of a buyer will never have the opportunity to own his own store. I have touched on that type of a program/sale in other threads on this site. If done correctly, it becomes a win-win; however, if done incorrectly it can become a nightmare for all.


Regarding other comments in the thread above:

We receive calls from buyers asking for rural stores!
As for the comment that a buyer will not invest in remodeling a rural market store - not an accurate statement. Buyers do invest indeed. It seems that the threshold is about $200K. If the pro-forma can show profit above $200K per year, they invest their own money, borrowed money and/or EBE money that is now available.
As for the comment regarding manufacturers’ approval - the manufacturers love to see an ownership change in an old store. They don’t want to see them all gone as someone suggested above. They like to have service points for their customers. But they also want newer facilities, higher sales volume and good CSI.
As for the comment regarding approvability - qualified buyers can’t be unreasonably rejected. However, the manufacturers must still deem the point viable. Yes, they can exercise their right of first refusal of course, and they do so at times, but that would be a great outcome for the seller.
As for allocation etc. - that game has always been played. But if the sale is approved, and the new buyer sells cars, it does not seem to be a problem anymore.
As for two-tier comments. Yes, depending on the laws of the state the dealership is located at, the size of the store and who the buyer is, the approach by the manufacturers varies.


Moshe Stopnitzky
www.performancebrokerageservices.com

[steve_biegler]

Gentlemen,

In the last 18 months, it has become a seller’s market again. Goodwill values are at their highest levels that we have seen in 22 years.

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As one of the 789, that statement really makes me feel good. :rolleyes::mad:

[XDCX]

Moshe,

Thanks for sharing your insight - that was an excellent post. :)

I'm happy to hear there's still a market for smaller/rural stores and it appears clear that a dealer who chooses to close his/her store before they contact a broker could be leaving a lot of money on the table. And perhaps just as important, a dealer who chooses to close his/her store ultimately impacts their customers, their employees and their community. Selling the store saves jobs, keeps sales tax revenue in the community and allows customers to have their cars serviced locally.

It was also interesting to hear your insight regarding Blue Sky values and how pro-formas are being favored in determining dealership valuation as opposed to historic earnings.
Thanks again for a great post. And a message to our members and guests, if you know a dealer who's planning to close his/her store please encourage them to contact Performance Brokerage Services and investigate their options. Their store may be worth more than they think and there are buyers who are willing to buy smaller/rural stores and invest the capital to meet the OEM's facility demands.

[Lakeshow]

Thanks for taking the time to post Moshe, just curious what you would define as a small rural store? As far as new sales volume for a true small rural store, what kind of numbers are we talking yearly?

[XDCX]

Thanks for taking the time to post Moshe, just curious what you would define as a small rural store? As far as new sales volume for a true small rural store, what kind of numbers are we talking yearly?

I'll send and email to Moshe to make sure he's aware of your question.

My guess is Moshe will be less concerned about volume and more concerned about net profit. He commented that the threshold seems to be about $200K/year on the pro-forma. With a small overhead a rural dealer could probably hit $200K/year on a light mix of new and used cars.

[DealerEx]

I'll send and email to Moshe to make sure he's aware of your question.

My guess is Moshe will be less concerned about volume and more concerned about net profit. He commented that the threshold seems to be about $200K/year on the pro-forma. With a small overhead a rural dealer could probably hit $200K/year on a light mix of new and used cars.

The problem is that "small overhead" hardly exists anymore. Smaller dealers pay a disproportionate percentage of sales for all the fixed expenses compared to a larger volume store. All the insurance coverages base off a minimum charge that's the same regardless of total coverage, so the small dealer pays the same base charge as a metro store, then it's just a matter of how high a limit they carry...once you get past the first million, each added step goes down in cost per million. Health insurance is a HUGE cost to everyone, but the small dealer is again at a big disadvantage because "small group plans" ( less than 50 employees) are rated on an individual group basis and can be hit with a much higher premium if several employees have risk factors (heart condition/ back problem) whereas a large group can't be rated up...all employees pay same rate regardless of health history. The factory requires the small dealer to purchase the exact same special tools as the large store...he has to spread it out over 200 sales versus the metro store amortizing it over 1000 units...it's costing the little guy 5 times as much on a per unit sold basis. Small dealer pays the same for "unlimited long distance" as the big store. Expensive facility requirements, increasingly specific training requirements for service techs in order to apply for different warranty labor ops, two-tier pricing, factory stair-step dealer cash and other incentive programs are set up to favor the metro stores and are making it more and more difficult for the small town dealer to sell the same volume now that he was 10 years ago. Not saying it can't be done, but there are a lot of hoops to jump through that make it much harder than it was 20 years ago! :(

[Moshe @ Performance Brokerage Services]

By definition, anything that is not urban is rural. But I am sure that you did not mean to ask that in your question.:)

We consider rural dealerships those who are located at least 30 minutes outside of an urban zone and/or urban cluster.

Those dealerships vary in size of course and typically located in towns with population under 10,000. Those dealerships typically represent domestic brands, are too far from being able to pump into the nearby urban zone and typically (depends on market size) sell less than 500 new vehicles per year. More accurately, they sell 300 to 500 new vehicles per year.

Surprisingly, we receive a rather large number of inquiries from buyers for such stores:

buyers who are looking to semi-retire
buyers who are looking for a life style dealership
buyers who can only afford the less expensive stores


A good rural dealership should do very well in the service department. A good dealer/owner gets involved in the community, takes care of his/her customers, sells 300-500 new units per year, and twice as many used vehicles, if possible.

With honest dealing and leveraging local relationships the dealer is able to maintain good grosses and therefore can make a great living with income that can range from as low as $200K to as high as $750K per year.

Moshe Stopnitzky

www.performancebrokerageservices.com

[XDCX]

The problem is that "small overhead" hardly exists anymore. Smaller dealers pay a disproportionate percentage of sales for all the fixed expenses compared to a larger volume store. All the insurance coverages base off a minimum charge that's the same regardless of total coverage, so the small dealer pays the same base charge as a metro store, then it's just a matter of how high a limit they carry...once you get past the first million, each added step goes down in cost per million. Health insurance is a HUGE cost to everyone, but the small dealer is again at a big disadvantage because "small group plans" ( less than 50 employees) are rated on an individual group basis and can be hit with a much higher premium if several employees have risk factors (heart condition/ back problem) whereas a large group can't be rated up...all employees pay same rate regardless of health history. The factory requires the small dealer to purchase the exact same special tools as the large store...he has to spread it out over 200 sales versus the metro store amortizing it over 1000 units...it's costing the little guy 5 times as much on a per unit sold basis. Small dealer pays the same for "unlimited long distance" as the big store. Expensive facility requirements, increasingly specific training requirements for service techs in order to apply for different warranty labor ops, two-tier pricing, factory stair-step dealer cash and other incentive programs are set up to favor the metro stores and are making it more and more difficult for the small town dealer to sell the same volume now that he was 10 years ago. Not saying it can't be done, but there are a lot of hoops to jump through that make it much harder than it was 20 years ago! :(

Great post - I agree with all of your points.

There's part of me that's still very nostalgic toward the role of the rural dealer in his/her community and I'm reluctant to face the reality that smaller dealers face more challenges today than they did 20 years ago.

I still think a rural dealer can prosper, it just takes a more work and talent than it did in the past.

[Lakeshow]

More accurately, they sell 300 to 500 new vehicles per year.

Surprisingly, we receive a rather large number of inquiries from buyers for such stores:

buyers who are looking to semi-retire
buyers who are looking for a life style dealership
buyers who can only afford the less expensive stores


A good rural dealership should do very well in the service department. A good dealer/owner gets involved in the community, takes care of his/her customers, sells 300-500 new units per year, and twice as many used vehicles, if possible.

With honest dealing and leveraging local relationships the dealer is able to maintain good grosses and therefore can make a great living with income that can range from as low as $200K to as high as $750K per year.

Moshe Stopnitzky

www.performancebrokerageservices.com

Great answer, thanks so much! I ask because obviously we are a little different out here in the middle of nowhere. Your description fit us perfectly, except our new sales numbers were always 100-130 new units per year. I always considered us a rural dealer, but until the last few years there were "rural" dealer around here that sold less than 50 units per year. Glad to hear these dealerships values are on the rise, thanks for your input!

[XDCX]

Surprisingly, we receive a rather large number of inquiries from buyers for such stores:

buyers who are looking to semi-retire
buyers who are looking for a life style dealership
buyers who can only afford the less expensive stores
Thanks for the information - it's great to see that there's still a market for smaller/rural stores. :)

I liked the comment about a "life style" dealership. Over the years I've known Dealer Principals who were nearing retirement and they wanted to buy another dealership near the area they planned to retire so they would feel connected to the community. In fact, I believe one of Chrysler's Regional Managers bought a CJD store in Napa, CA after he retired for that exact reason.

On a different note, it's worth repeating that Chrysler's top volume retail dealership for several years was Dave Smith Motors in Kellogg, ID. Kellogg only has a population of 2,105 people... :rolleyes:

[DealerEx]

On a different note, it's worth repeating that Chrysler's top volume retail dealership for several years was Dave Smith Motors in Kellogg, ID. Kellogg only has a population of 2,105 people... :rolleyes:

I'm not familiar with the Idaho store, but reminded me of a guy I went through GM's Dealer Candidate School with back in 1983, by the name of Frank Halvorson from Jackson CA, a small town on the western edge of the Sierra Nevada mountains in the old gold rush country about 60 miles southwest of Lake Tahoe. They were the largest volume Chevy dealership in the US at that time, handling many, many thousands of fleet deliveries for companies all over the country, out of an old "middle of downtown" 1950's building in a town of less than 3,000 population. As I recall, Frank said they had 80 employees that did nothing but paperwork, make readies, and transport for the fleet deliveries. Haven't talked to him in years, and seeing this thread I googled his store and was saddened to see that he had been forced to close down in December of 2008 when GMAC pulled his floorplan after he was 16 days late on his "FACILITY" payment. He had given in to pressure from GM to build a big new branded dealership 20 months prior to the credit crunch. As you can imagine, such a business model (thousands of units, at $200-300 net per unit, required a massive amount of floorplan capital to function, and he was unable to obtain another source at that time. His brother David is still in business in a Chevy store in Modesto, CA and said he was able to survive because he was in an older building that was paid for. :(

[DealerEx]

Great answer, thanks so much! I ask because obviously we are a little different out here in the middle of nowhere. Your description fit us perfectly, except our new sales numbers were always 100-130 new units per year. I always considered us a rural dealer, but until the last few years there were "rural" dealer around here that sold less than 50 units per year. Glad to hear these dealerships values are on the rise, thanks for your input!

Your numbers sound a lot more like what most of the small dealers in Texas sell...somewhere between 100-250. At a GM Regional Dealer meeting in Dallas, way back in 1985, the President of GM was addressing over 600 dealers from the Southwest region, and was asked the question: "What do you see as the future of the small GM dealer over the next 20 years?" He told us that personally, he would hate to try and survive as a small dealer (and he clarified that by saying he regarded anything less than 500 units as small), because he felt the "the costs to be a dealer", were going to increase so much, particularly in the technology area, that smaller volume dealers would be put in a non-competitive position relative to the large volume dealers. A bunch of us were talking about it in the bar later, and as best as we could calculate, that "less than 500 units" applied to about 70% of the dealers in that room. It made an impression on us...you had to figure he knew what he was talking about, and it turns out he did.

[steve_biegler]

I'm not familiar with the Idaho store, but reminded me of a guy I went through GM's Dealer Candidate School with back in 1983, by the name of Frank Halvorson from Jackson CA, a small town on the western edge of the Sierra Nevada mountains in the old gold rush country about 60 miles southwest of Lake Tahoe. They were the largest volume Chevy dealership in the US at that time, handling many, many thousands of fleet deliveries for companies all over the country, out of an old "middle of downtown" 1950's building in a town of less than 3,000 population. As I recall, Frank said they had 80 employees that did nothing but paperwork, make readies, and transport for the fleet deliveries. Haven't talked to him in years, and seeing this thread I googled his store and was saddened to see that he had been forced to close down in December of 2008 when GMAC pulled his floorplan after he was 16 days late on his "FACILITY" payment. He had given in to pressure from GM to build a big new branded dealership 20 months prior to the credit crunch. As you can imagine, such a business model (thousands of units, at $200-300 net per unit, required a massive amount of floorplan capital to function, and he was unable to obtain another source at that time. His brother David is still in business in a Chevy store in Modesto, CA and said he was able to survive because he was in an older building that was paid for. :(

https://www.youtube.com/watch?v=E1nwJZtWpdU

Watch this and tell me there should not be outrage. DealerEx I had to look for and find this, it made me cry that Sunday morning. Little did I know I would be with him, without a dealership, less than 6 months later.:mad:

[Lakeshow]

Your numbers sound a lot more like what most of the small dealers in Texas sell...somewhere between 100-250. At a GM Regional Dealer meeting in Dallas, way back in 1985, the President of GM was addressing over 600 dealers from the Southwest region, and was asked the question: "What do you see as the future of the small GM dealer over the next 20 years?" He told us that personally, he would hate to try and survive as a small dealer (and he clarified that by saying he regarded anything less than 500 units as small), because he felt the "the costs to be a dealer", were going to increase so much, particularly in the technology area, that smaller volume dealers would be put in a non-competitive position relative to the large volume dealers. A bunch of us were talking about it in the bar later, and as best as we could calculate, that "less than 500 units" applied to about 70% of the dealers in that room. It made an impression on us...you had to figure he knew what he was talking about, and it turns out he did.

I totally agree with this post and your previous one. It was getting harder and more expensive to stay a dealer. At the same time we were still able to make a great living, and support our community. It did just take more work and talent, but the benefits were still worth it.

By looking at the map of originally effected dealers in our state, GM wanted no dealers that were less than 500 units(the one exception is a former NADA president). That would have left 6-8 dealers in the nations fourth largest state, geographically. Any < 100 unit dealers were wiped out or quit on their own(with the exception of the guy that now has our franchises and sold 48 new units last year). And as we know they are working hard to get rid of the rest of the small guys. Too bad the mom and pop stores that help build and support these communities are being labeled as poor performers and cast aside.

X- Dave Smith is a very unique example of a large dealer in a small town. And a great example of what GM/Chrysler would let you get away with if you were pumping out that kind of volume, but I'll save that for a different thread.:D

[DealerEx]

https://www.youtube.com/watch?v=E1nwJZtWpdU

Watch this and tell me there should not be outrage. DealerEx I had to look for and find this, it made me cry that Sunday morning. Little did I know I would be with him, without a dealership, less than 6 months later.:mad:

Thanks for that link Steve! Watching that and reading some other articles, it appears that the Halvorsons had moved away from the huge fleet business they were doing back in the 1980's to a more traditional operation but he must have still been doing considerable volume given that he had 82 employees in a town that small. He had also added Toyota and Dodge/Chrysler/Jeep franchises at some point. Almost the whole town turned out for a "Save Prospect Motors" rally to try and influence GM, but to no avail. Listening to Frank's comments and those of the townspeople, it is clear that he was very well thought of and was involved in every facet of the community. 16 days overdue on his facility note to GM and they attacked like a rabid dog, and wiped out another long time dealer. I'd be willing to bet there's not a dealer alive that hasn't had to fight for months and months to get the factory to pay them money THEY owed. :(

[XDCX]

I'm not familiar with the Idaho store, but reminded me of a guy I went through GM's Dealer Candidate School with back in 1983, by the name of Frank Halvorson from Jackson CA, a small town on the western edge of the Sierra Nevada mountains in the old gold rush country about 60 miles southwest of Lake Tahoe. They were the largest volume Chevy dealership in the US at that time, handling many, many thousands of fleet deliveries for companies all over the country, out of an old "middle of downtown" 1950's building in a town of less than 3,000 population. As I recall, Frank said they had 80 employees that did nothing but paperwork, make readies, and transport for the fleet deliveries. Haven't talked to him in years, and seeing this thread I googled his store and was saddened to see that he had been forced to close down in December of 2008 when GMAC pulled his floorplan after he was 16 days late on his "FACILITY" payment. He had given in to pressure from GM to build a big new branded dealership 20 months prior to the credit crunch. As you can imagine, such a business model (thousands of units, at $200-300 net per unit, required a massive amount of floorplan capital to function, and he was unable to obtain another source at that time. His brother David is still in business in a Chevy store in Modesto, CA and said he was able to survive because he was in an older building that was paid for. :(

https://www.youtube.com/watch?v=E1nwJZtWpdU

Watch this and tell me there should not be outrage. DealerEx I had to look for and find this, it made me cry that Sunday morning. Little did I know I would be with him, without a dealership, less than 6 months later.:mad:

As soon as I watched the video that Steve linked I knew I remembered hearing about this dealership before. Here's a link to a thread on the forum discussing the closure of Prospect Motors back in December, 2008 - click here (http://www.dealershipforum.com/forums/showthread.php?t=671)

I'll copy the above posts to the thread about Prospect Motors and continue the discussion there.

[XDCX]

Sadly, here's another example of a small/rural GM dealer who's decided to close his dealership because he cannot keep up with his OEM's facility demands and the increasing levels of governmental regulations.

Jason Black Chevrolet of Sharpsville, PA has closed down. Here's a link to the full report - click here (http://sharonherald.com/local/x508490302/Fade-to-Black-as-car-dealer-closes-shop)

[ohiobuckeyes]

Sad day for sure. Jason Black was a great partner when I was a Chevrolet dealer, did many dealer trades. He also was an great partner for AutoSoft he was a beta test dealer for many products. Since ASI is only 5 miles from his dealership.

I was reminded of a comment left on a newspaper article about my dealership closed...

"As the retail world changes, small rural car dealerships are fast becoming extinct. The massive capital requirements, facility requirements of the car companies, and the customer demand for large inventory have pushed out the small local businesses. Take a close look at those left for they have a very uncertain future."

Sad but true

[XDCX]

Sad day for sure. Jason Black was a great partner when I was a Chevrolet dealer, did many dealer trades. He also was an great partner for AutoSoft he was a beta test dealer for many products. Since ASI is only 5 miles from his dealership.

It really is sad that stores like Jason Black's are disappearing from the landscape. Mr. Black sound like a great guy and I thought it was interesting that he commented that he "had nothing bad to say about the bowtie" despite the fact that GM's facility demands likely played a role in his decision to close his store.


I was reminded of a comment left on a newspaper article about my dealership closed...

"As the retail world changes, small rural car dealerships are fast becoming extinct. The massive capital requirements, facility requirements of the car companies, and the customer demand for large inventory have pushed out the small local businesses. Take a close look at those left for they have a very uncertain future."

Sad but true

That comment's probably almost two years old and it's just as relevant today as it was when it was written.

It's sad that some small/rural stores continue to struggle despite the fact the entire industry is recovering from the worst recession since the Great Depression.

[Lakeshow]

I had an interesting conversation with a long time dealer friend yesterday as I was having some warranty issues taken care of at his dealership. They are a smaller dealer like us, averaging 120-150 new GM units per year in a town of 10k people. Since BK they have averaged 180-200 new units, most of the increase is due to the new deliveries we are doing through their dealership; and also because three smaller dealers within 60 miles were closed during BK or quit within the last couple years.

They recently completed a $1,000,000 remodel per GM's EBE program, so recent that the grand reopening isn't until next week. As we discussed the remodel, GM, and the current state of the industry he pulls out a large three ring binder he's compiled. The man has been in the business 60 years next week, a former NADA President, and a former CPA. According to his figures with the new car margins where they are at now, running a profitable service and parts dept; a dealer meeting GM's standards will have to sell a minimum of 200 new vehicles per year to stay viable. Or as he put it, "to make enough money to put up with the bull****." He estimates at 200 new units per year from 2010 to 2016 they can recoup approximately 60% of the remodel costs through the EBE program.

Obviously this number is based off his dealership and their overhead/profits, and variable for every dealer. The building they remodeled was 20 years old and fully paid for. But after looking through his binder I could see exactly how he came up with this figure, and how it's a pretty good number across the board.

So you smaller guys still with GM, is 200 units really the new magic number for a small rural dealer? Or is that high due to his cost of this "optional" program? If it is the new magic number, these closure threads will be more common every day, at least for dealers in our area.

[XDCX]

So you smaller guys still with GM, is 200 units really the new magic number for a small rural dealer? Or is that high due to his cost of this "optional" program? If it is the new magic number, these closure threads will be more common every day, at least for dealers in our area.

Thanks for the post - that was very interesting.

As I understand it the dealer has calculated he'll recoup about 60% of his $1 Million remodel cost over a six year period if he increases his sales to 200+ units per year.

I guess the question that would go through my mind if I were in that position is "would I be willing to spend $400K of my own money on the remodel and will the remodel increase the value of my business by $400K or more after six years?"

The downside is 100% of the $1 Million remodel is at risk if GM ever decides to terminate the dealer or change the EBE program.

On a side note, I was watching one of the old (1970s version) of Hawaii Five-O the other day and the episode was about the mafia shaking down local business owners - essentially the business owners had to pay the mafia once/month or have their business destroyed. I think I see more similarities than differences in GM's "optional" EBE program... :rolleyes:

[DealerEx]

On a side note, I was watching one of the old (1970s version) of Hawaii Five-O the other day and the episode was about the mafia shaking down local business owners - essentially the business owners had to pay the mafia once/month or have their business destroyed. I think I see more similarities than differences in GM's "optional" EBE program... :rolleyes:

Yep...whether you call it paying "protection" like the wise guys do, or "dealer insurance" like the car industry does, it's still paying for "them" allowing you to operate your business under the veiled threat of "gee, it'd be a shame if something bad happened to your building" or "gee, it'd be a shame if your MSR went up to where you couldn't meet it and your franchise got terminated". :parnoid:

[XDCX]

Yep...whether you call it paying "protection" like the wise guys do, or "dealer insurance" like the car industry does, it's still paying for "them" allowing you to operate your business under the veiled threat of "gee, it'd be a shame if something bad happened to your building" or "gee, it'd be a shame if your MSR went up to where you couldn't meet it and your franchise got terminated". :parnoid:

Great analogy - there are clearly more similarities than differences. :sniperer:

[chadbferguson]

Wondering how many have had this assessment and what did you score? And what have you done to get prepared if you have not set up a BDC yet...

I am worried about the 20% Reduction in my SFE money..

[mryan55]

I'm not a General Motors guy by experience, but I can say that I am happy Fiat Chrysler's attempt at Dealer Standards back in 2010 and 2011 has been scrapped.

As for a BDC, I personally think there are better ways to handle internet leads than having a BDC. I know that GM has pushed this consistently since the pre-bankruptcy era, but I have found the most success by just hiring and retaining salespeople who have above average communication skills, especially using today's mediums.

Yes, margins are smaller, volume is key, but with some of the tools out there (live chat, SMS, etc) there are chances to make the process even easier.

It is funny that the more we focus on internet and selling from outside of our trade zones, the less important these shiny new facilities become -- although the gun is always to your head to make the necessary upgrades.

It sounds like us FCA dealers experience this less than GM stores, but it's kind of crazy. Really, with the decrease in walk-in traffic the facility will be probably be nothing but an afterthought to online shoppers, especially if you are pumping out of your trade zone and will never see the customers for service.

[XDCX]

Wondering how many have had this assessment and what did you score? And what have you done to get prepared if you have not set up a BDC yet...

I am worried about the 20% Reduction in my SFE money..

Will GM allow the BDC to be off-site or does it have to be on-property?

I know of a megadealer in Phoenix (who has GM Dealerships) and he started using a BDC 10+ years ago and he used one central location for all of his franchises to maximize efficiency/productivity.

It would seem counter-productive if this dealer had to break apart something that worked well and go to an onsite BDC to ensure he wouldn't get hit with a 20% reduction in his SFE money.

[XDCX]

It is funny that the more we focus on internet and selling from outside of our trade zones, the less important these shiny new facilities become -- although the gun is always to your head to make the necessary upgrades.

It sounds like us FCA dealers experience this less than GM stores, but it's kind of crazy. Really, with the decrease in walk-in traffic the facility will be probably be nothing but an afterthought to online shoppers, especially if you are pumping out of your trade zone and will never see the customers for service.

I totally agree.

It seems that all of the major OEMs are obsessed with making sure their dealers have new/remodeled facilities despite the fact that the trend is clearly moving away from the traditional sales model to an Internet based one.

What happens if the customers ever figure out that they're ultimately paying for the Dealer's upgraded facility that doesn't provide them much value?

[johnpico]

Folks, With respect to Prospect Motors, in Jackson, CA, I think your outrage is misplaced. The outrage should be directed to whomever advised these guys. They had every major franchise and combined they could not retail more than 20 units per month. Does 17 retail units per month justify a $1,000,000 remodel and 82 employees?

According to Dominion's Cross-Sell Report for California, Prospect motors sold
60,026 sales of which 59,682 = 344 retail in 2005
47,348 sales of which 47,023 = 325 retail in 2006
40,871 sales of which 40,616 = 255 retail in 2007
32,328 sales of which 32,121 = 207 retail in / 2008
746 sales of which 743 = 3 retail in / 2009

Over 2,000 people may have protested the closing, but if the deal was a good deal, why did not the city step in to help? According to the report, they lost $300,000 per year in tax revenue. Where were the bankers and the merchants who say their business were damaged? If it was such a good deal, why didn't they step up to help?

I feel bad for anyone who loses their business and their job, but before I condemn GMAC or the factory, I would need to know more.

[steve_biegler]

If you need to know more..........Here you go! And by the way, back then the market SUCKED!!! I'm sure there is more to it than ANY of us will know but it still seems like the manufacturers did him no favors, and don't get me started on banks!

http://www.ledger-dispatch.com/news/frank-halvorson-the-rise-fall-of-prospect-motors

[DealerEx]

Folks, With respect to Prospect Motors, in Jackson, CA, I think your outrage is misplaced. The outrage should be directed to whomever advised these guys. They had every major franchise and combined they could not retail more than 20 units per month. Does 17 retail units per month justify a $1,000,000 remodel and 82 employees?

According to Dominion's Cross-Sell Report for California, Prospect motors sold
60,026 sales of which 59,682 = 344 retail in 2005
47,348 sales of which 47,023 = 325 retail in 2006
40,871 sales of which 40,616 = 255 retail in 2007
32,328 sales of which 32,121 = 207 retail in / 2008
746 sales of which 743 = 3 retail in / 2009

Over 2,000 people may have protested the closing, but if the deal was a good deal, why did not the city step in to help? According to the report, they lost $300,000 per year in tax revenue. Where were the bankers and the merchants who say their business were damaged? If it was such a good deal, why didn't they step up to help?

I feel bad for anyone who loses their business and their job, but before I condemn GMAC or the factory, I would need to know more.

I don't know all the background, but I did know Frank Halvorson, and he wasn't stupid. We both started in the new car business about the same time, but on two very different paths. Frank had worked for GM and had a lot of factory contacts that he utilized to set up their fleet business model that made them the #1 volume Chevy dealer in the country at the time we met at the Chevrolet School of Management in January of 1983. I remained a "mom and pop" operation until I sold out in 2005. As to who advised him to spend all the money on new facilities and remodels, I'd put my money on the factory.

The best advice I ever received was from my Dad when I was put on paragraph 3 of the franchise agreement in 1984 as Dealer Operator at the age of 27. He had typed the following and laminated it on the back of one of his business cards for me:

"SOME things the factory wants you to do will be good for YOUR business. ALL of the things the factory wants you to do will be good for THEIR business. As Dealer, your job is to recognize the difference."

I have seen the manufacturers push the dealers to invest in "bricks and mortar" every time we've had a run of 5 or 6 good years. I learned that when they started bringing that up at all the dealer meetings, it usually heralded an upcoming downturn in the market within the next year or two. I saw for the first time following the recession in 1979 when prime hit 18% and the factory started the incentive programs that forever changed the retail car industry. By 1985 we had been setting new car volume records for the industry for 3 consecutive years and every meeting we were told "it's time to put some of those profits back into bricks and mortar". A large number of long time dealers bought into the spiel and several built all new "showplaces" in the DFW metro area. In 1987 & 1988 the industry suffered a 30% downturn. Six longtime DFW Metro dealers wound up losing their businesses. One of them hung on ONLY because he owed Ford Motor Credit so much money (on the first "multi-franchise mega store" in the southwest) that FMC couldn't find anyone willing to take it over. After a couple of month they told Charlie they'd just have to ride with him and loaned him some more money to keep going. A Cadillac dealer that had been in downtown Dallas for 50 years was talked into building a new facility in north Dallas with marble floors and underground garage, etc... and they closed the following year. I saw it happen again in the late 90's. This is a cyclical business and it happens over and over, but too often the dealer's forget that no one at the Zone Office or Detroit is risking a penny of THEIR money on what they advise the dealer to do. When it doesn't work out like they projected, they shake their heads and say that's a shame...then they go find a new dealer to take his place.

[steve_biegler]

"SOME things the factory wants you to do will be good for YOUR business. ALL of the things the factory wants you to do will be good for THEIR business. As Dealer, your job is to recognize the difference."

I sure hope you still have that card! Fantastic advice from someone who sounds like knew the business, very well.