Dealers Are Getting Nervous: GM Threatens Franchise Agreement Terminations

It’s no secret that most major auto manufacturers are looking for ways to cull the herd of weak and underperforming dealers. Now the pressure is on large manufacturers to streamline their dealer networks, and dealership owners are getting a little nervous.

Major automakers are struggling to manage an overabundance of car dealerships accumulated during the good old days when the Big Three automakers and their competitors wanted to claim as much “territory” as they could. The Big Three, in particular, gave out dealerships to aspiring owners like candy. Now, it’s coming back to bite them in the ass, and they want to cut ties with weak dealers to save money and reduce inventory as the car market cools.

However, as you can appreciate, most dealership owners aren’t too keen to stop the gravy train, and most won’t end their franchise agreement voluntarily. Automakers are trying to push out dealers with low margins by increasing the pressure with margin contribution, service scores, and customer satisfaction ratings. They want to reduce the glut of dealerships cannibalizing a shrinking market for new buyers.

Now it looks like General Motors might have gone a bit too far with a few testy dealers.

The automaker might have actually breached their franchise agreements. The company wanted to penalize dealers, including the threat of termination, if dealers didn’t provide data on customers that were buying non-GM service contracts, used vehicles with non-GM parts, and anyone who purchases a new or used car with non-GM parts. (Let that sink in for a minute—seems a little too Big Brother-ish to us.) Needless to say, there was a huge push-back from the dealer associations and frustrated dealers who claim that these new enforcement agreements are in breach of contract. The company countered the dealers and said they need the information to ensure that the consumers are aware of the limited liability that comes when using unauthorized parts. We can buy that argument, given how litigious the industry can be, but at the end of it, we’re going to side with the dealers and say the threat of termination is overboard for non-compliance on this issue. GM obviously wants to cull the herd, but these bulls are fighting back.