General Motors, Chrysler, and Ford suffered devastating losses in early 2008 during the financial recession in the United States. Their market share in the auto industry rapidly decreased from 70% to 53% during this time, yet only GM and Chrysler accepted a government bailout to stay afloat. Given this shock, changes in management, distribution, and operations were needed to adjust to their losses in hopes of recovering their previous market share and profits.
However, reports have shown increasing tension from the owners of GM’s franchised dealerships and their corporate headquarters. In late 2009 the before and after agreements that GM’s corporate office sent to their dealers was published online. The wording and agreements written in these reports faced a lot of controversy among the franchise dealers and investors in the market. The agreements stated that the corporate office would now be able to “dictate cars purchased, the buildings they are sold in, and power to change the terms of the agreement at any point in time” (Farago, 2009). Bloggers of the industry predicted major public outcry from franchise owners, loss of customers and profits, and future declarations of bankruptcy. In recent years GM has managed to recover and increase profits and their stock, but the bloggers were correct in their assumptions regarding attitudes of franchise owners toward the corporate conglomerate.
Following the recession, GM believed it was necessary to lay-off a lot of their employees and pressure franchise owners to do the same. This may have been an unavoidable course of action, but it did leave franchise owners and local employees feeling resentful. Some experts in the field and other economists believed this strategy was against the general philosophy of franchising. Individual dealership owners no longer had the same oversight and power over the location they worked so tirelessly to make their own. Soon GM would issue more guidelines, protocols, and warnings to dealerships.
In 2011 GM’s corporate office sent letters to dealership owners that strongly encouraged them to improve their sales and market strategies, while also stating that their current operations were “simply unacceptable”. The letters measured each individual dealerships sales performance reports using a RSI measure. The letters were sent out to the bottom 25% of dealers in each state using their RSI measure of their sales performance. Many of these letters claimed the sales of the respective dealerships were “unsatisfactory” or “in need of significant improvement”. However, as pointed out in a post on an online auto blog, it is mathematically impossible to have all of the franchised dealerships have above average sales when compared to one another. Some experts have stated that these letters could be a precursor to GM’s intention to abandon smaller family-owned dealerships and move to larger dealer groups who have larger access to the capital and in locations with larger consumer bases.
While GM has been able to recover from the financial crisis of 2008, their management philosophy and relationships with dealerships continues to be strained. Public outcry of their initiatives is limited to local employees and dealerships most affected by their change, but GM will ultimately not suffer if their plan works and dealers who are able to meet their demands will experience increased revenues.