Too Many Dealers, Not Enough Customers

Car in a Shopping Cart

Here’s a quiz for you: who has more retail outlets — Starbucks or General Motors (GM)?

If you listen to all the late night comics with their shtick on Starbucks and how there’s one on every corner, you think you know the answer. Well, you’d be wrong. Starbucks has about 6,300 company-owned stores and GM has almost 7,000 dealerships. Wow…

Now this is just a little unfair, Starbucks has another couple thousand franchise locations inside places like grocery stores and theme parks. And GM owns virtually none of their stores. But the fact that the numbers are even in the same ball park is stunning to me.

I wrote a couple of months ago about what a terrible experience buying a car is, and the toll it takes on the people who have to do it for a living (see that piece here). And about how the differences between the retail experiences can be easily seen here.

It’s a sick business that someone needs to change.

Simply put, buying a car is the worst shopping experience that you can have. Bar none. And people with any scruples find it impossible to work in the business for very long. It’s a sick business that someone needs to change.

I don’t mean to pick on GM just for the excess of dealers. A piece in the Wall Street Journal today (subscription-only link here) points out that none of the US automakers are immune from this issue. All the “big three” have well over 2-1/2 times the number of dealers per point of market share of Toyota, for example. Perhaps that (and this) explains why Toyota is doing so well, and eating Detroit’s lunch.

I think this excess of dealers is one good reason for the problem. Too many dealers chasing too few customers. And it leads to a fetid culture of sleeze-ball sales tactics, terrible service, and lousy margins. It’s little more than vultures preying on the few customers there are.

Starbucks has nothing in their store that costs over $250, and the vast majority of sales are under $10. I don’t know for certain, but I would have to imagine that their average transaction is in the $5 range. This just begs for a lot of outlets, to make the impulse purchase easy.

Why on earth do they need so many stores?

GM, on the other hand, probably has an average transaction around $10,000. I don’t know many people who decide on a whim to just drop by the Cadillac store and pop for a new $60,000 Escalade. Or stop in for a quick brake job. Why on earth do they need so many stores (or brands, but that’s another story)?

If the new purchasers of Chrysler, Cerberus Capital Management LP, want to really make an impact on the car business, they could start here. And rumor has it, they are going to — by combining all the Dodge, Chrysler, and Jeep dealers together. It’s a good start.