Beware: GM sent 4500 Letters re: New Areas of Responsibility

[DealerLaw.com]

Hello all GM Dealers: In the middle of the Holiday rush, when most dealers were distracted with year end business and social activities, GM, on December 17th to be exact, sent all 4500 dealerships letters with new market areas to be used in 2011 sales performance reviews. GM dealers have 30 days to object. Why should GM dealers view this as a call to action ?

GM relies upon a sales performance measurement called "Retail Sales Index" (RSI) . Pursuant to the Dealer Sales and Service Agreement, dealers are required to maintain an RSI score of at least 100%.

If your dealership falls below 100%, it leaves itself vulnerable in the event GM seeks to initiate termination proceedings, or if a relocation request, dualing or other request is made. During my handling of a large number of GM reinstatement arbitrations in 2010, GM hammered home this deficiency to justify its decision.

Why is this relevant now ? GM's action in issuing the letters is based upon the voids in the market left from the Bankruptcy terminations ( wind-downs) and involuntary closures. While GM claims that these changes are the result of its own "market studies", you can rest assured that most were simply a seat of the pants re-apportionment of those census tracts which were previously assigned to now terminated dealers.

All of the revisions I have seen have greatly expanded a dealer's AOR. A dealer with an inappropriately large AOR will look as though it is underperforming.

GM simply continues its practice of assigning unrepresented areas to the closest dealer, without regard to whether a neighboring dealer has a reasonable expectation of capturing that business. Keep in mind the fatal flaw of most manufacturers' views on this subject -- that consumers will travel further to buy its products, and ignore the realities of convenience and competition. History has shown that customers are not brand loyal, and a closed Chevy store does not mean its customers will drive 20 miles away for their next purchase, but rather will buy a Ford or Nissan in their hometown.

Back to the main question -- why is this important ? Because a dealer who unwittingly files the letter away and ignores the 30 day deadline to object, may be setting him or herself up for dissapointment when GM's internal measurements show the dealership to be less than 100% RSI, and the deficiency letters start flying.

We are helping many dealers prepare their own market studies to rebut this arbitrary action by GM. Key factors may include customer demographics, traffic patterns, geographic conditions, competitive factors, etc.

I would be curious to know if dealers are being proactive in responding to these letters. It is important to share strategies. I am more than happy to weigh in on this Forum and respond to your general inquiries about this important process. Waiting until GM takes action against you based upon an 85% RSI ( which should really be 110%) will be too late. I hope this helps. Happy New Year to all. --- Len Bellavia

[XDCX]

Len - Thanks for starting this thread - it's a great topic which warrants further attention.

As I've watched the GM and Chrysler OLDCO termination saga unfold over the years I've reached the following conclusions:

1. OEMs place significant emphasis on their Dealer Sales Performance measurements
2. The underlying data the OEMs use to calculate their Dealer Sales Performance measurements is often flawed
3. Dealers who do not challenge their Sales Performance measurements are assumed to be in agreement with them.

Concerning the last point, I recall hearing about an arbitration case where the dealer challenged his RSI calculation. The arbitrator appeared to comprehend the dealer's concern but couldn't understand why the dealer hadn't questioned the RSI calculation years earlier. The fact the dealer waited until there was a dispute before he questioned the RSI calculation definitely worked against him.