Why Get Rid of Dealerships

Time for me to play a little devil's advocate.

I think it is good (financially) for Chrysler and GM to part ways with some of their dealerships (it would be nice if they were compensated, however).

Why? It limits supply, thus potentially creating demand. It is a gamble, but if it works, it could make both companies more profitable.

Not to sound like cold-hearted business guy (which I am not), but this happens in my industry a lot. I work in plastics, and when the price of plastic gets to low, the producers shut off their reactors to reduce the supply. Thus, when someone needs plastic, they are willing to pay more because it is harder to come by. The same goes with petroleum, when there is too much supply, producers turn off the pumps to raise prices. This is the basic premise of supply-demand that we learn in Econ 101.

Also, if the number of cars is limited, then those who truly need cars would be more willing to pay more. This is assuming that product produced by GM and DCX is equivalent or better to their competition (a big if). Higher prices, mean more % profit, which is the figure many shareholders find most important.

If there are less dealers, than GM/DCX need to produce fewer cars. This reduces labor costs, as well as the cost of running plants that are not being utilized to capacity. If fewer cars are made, than there is less aged inventory available. Why is that important? You cannot borrow against inventory over a certain age, which I believe is 18 months. Old inventory means less available credit.

Do I like this? No! I don't like people losing jobs, I don't like to see people lose their dealerships. I want to see this economy return to its vibrant self. However, due to our governments fiscal and monetary policies, I think we will see a lot more of leaner and meaner companies. I think this decision benefits GM/DCX, however it does hurt its employees and dealers as well. However, if they don't do this, they would possibly have to liquidate; which would be bad for our economy (that is why they are getting bailed out).

Personally, I would have liked to see GM and DCX go through Chapter 11 and reorganize to more profitable organizations, without government intervention. But whatever makes them profitable, increases the chance that our government will sell its share of the companies to private investors. These private investors will (if government allows it) be able to make these companies more successful, and perhaps introduce practices which will help them sustain their profitability.

My two cents.