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Friday, May 15, 2009

187,000 more jobs are cut

The efforts to bail out the automakers are looking more and more counterproductive.

As part of their reorganization plans, Chrysler and GM are eliminating 1,800 dealers. Chrysler listed 789 dealers it will cut from its franchise. GM will send out letters of notification to 1,100 dealers today that it will not renew their franchises. The total number of employees that work in those dealerships is 187,000. That is more than the two companies employ directly in their operations.

While the dealers can stay in business by selling other brands and products, the survival of most of them is unlikely because of the severe recession that has hit the automobile business generally.

While the auto firms insist that the dealer cuts are needed to make their operations more efficient and profitable, they are not making any comment on what is known of the effects of such massive dealer cuts. While companies can withdraw franchises from dealers who do not serve the customers well and bolster their reputations for supplying good products and good service, the closing of dealers who have sold and serviced products in good faith has a backlash effect.

Dealers who have been eliminated withdraw their support for the brand. If they successfully acquire different franchises, they will be in active competition against the GM and Chrysler brands. If they close their businesses, they supply good reasons to consumers and potential employees for avoiding those companies and their brands. Dealers are the point of contact that the company brands have with consumers. Cutting dealers creates a powerful negative attitude toward the brand.

The cutting of dealerships also creates doubts about the wisdom of the government efforts to save the companies. If the bailout efforts are designed to save jobs, the dealer cuts refute the validity of those efforts.

It might be time to let Chrysler and GM fail and encourage other companies to become competitive and supply the jobs. GM and Chrysler are downsizing and damaging their brand names to the point that that they are becoming irrelevant as major players in the economy.

1 comment:

Douglas said...

Looks to me like GM and Chrysler are whacking away at the wrong end of the chain. Getting rid of a few grossly over-paid executives would make more sense than cutting out local dealers.

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