GM to Close 40% of Canadian Dealerships

Summary

General Motors is planning to close up to 40% of its Canadian dealerships as part of a larger restructuring effort. This move mirrors similar actions in the U.S., where GM aims to close over 1,100 dealerships. The closures are expected to impact thousands of jobs and are part of GM's strategy to create a more competitive and profitable dealer network. The restructuring could cost the U.S. federal government over $100 billion.

Canadian Dealership Closures: A Strategic Move

In a bid to stave off bankruptcy and streamline its operations, General Motors Canada is preparing to close a substantial number of its dealerships. This move is not isolated but part of a larger strategy that also includes significant closures in the United States.

The Numbers

• U.S. Closures: GM plans to close more than 1,100 U.S. dealerships, representing at least 25% of its American dealer network (source).
• Canadian Closures: In Canada, GM aims to close 245 out of its 709 dealerships by October 2010, coinciding with the renewal of franchise agreements. This figure does not account for additional closures of Saturn, Saab, Hummer, and Pontiac dealerships, which could push the total percentage of closures above 40%.

Impact on Jobs

The closure of these dealerships is expected to result in the loss of approximately 10,000 jobs in Canada. This is a significant blow to the Canadian automotive retail sector, which employs thousands of people across the country.

Parallels with the U.S. Market

The strategy to close a large number of dealerships in Canada mirrors GM's approach in the U.S. The goal is to eliminate geographically close and unprofitable dealerships to create a leaner, more competitive network. This approach is inspired by the business models of Asian automakers like Toyota and Honda, which typically operate fewer, larger dealerships that are spaced further apart. This strategy helps to limit competition and price-cutting, allowing each dealership to achieve higher sales volumes and profits.

Competitive Landscape

Asian automakers such as Nissan, Mitsubishi, and Subaru have successfully implemented this model, resulting in higher sales volumes and profits per dealership compared to GM's current network. By adopting a similar approach, GM aims to enhance the profitability and competitiveness of its remaining dealerships.

Timeline and Future Prospects

GM has already begun notifying affected Canadian dealerships of their impending closures. The company issued a statement to its Canadian dealers, emphasizing the need for a more competitive and viable network configuration across the country.

"Due to the unique aspects of our Canadian dealer network, we have focused our network rationalization efforts on key urban markets in an effort to achieve a viable network configuration all across Canada. The end result in Canada will be a more competitive dealer network with higher volumes, while continuing to maintain the strongest and broadest dealer network in the country better equipped to serve GM customers."

Financial Implications

The restructuring of GM is expected to cost the U.S. federal government tens of billions of dollars, with estimates suggesting that the total cost could eventually exceed $100 billion (source). The company also holds special debtor-in-possession financing, which could push the total restructuring cost past $160 billion.

The Road to Viability

The ultimate goal for GM is to return to profitability and offer a product mix that meets customer expectations in terms of price and quality. However, this will be a challenging journey, requiring significant efforts from both its U.S. and Canadian operations.

Interesting Stats

• Dealer Density: Before the closures, GM had one of the highest dealership densities in North America, with many dealerships located in close proximity to each other.
• Sales Impact: The average GM dealership in the U.S. sold fewer than 500 vehicles per year, compared to over 1,000 vehicles per year for the average Toyota dealership (source).

Conclusion

The closure of 40% of GM's Canadian dealerships is a bold and necessary step in the company's broader restructuring efforts. While the move will undoubtedly have significant short-term impacts, including job losses and community disruptions, it is aimed at creating a more competitive and profitable dealer network in the long run. Only time will tell if these efforts will be enough to restore GM to its former glory.

By restructuring its dealership network, GM hopes to create a more sustainable and profitable business model. This move, while painful, is seen as essential for the company's long-term viability.