New GM + eBay = Dealer Death?

General Motors’ (GMGMQ) CEO, Fritz Henderson, was on the post-Chapter 11 bandwagon today, touting GM’s leaner, meaner prospects and insisting that the company will now build cars that people actually want on a fast timetable. But nestled in all the rah-rah was an announcement that GM will extend its partnership with eBay into new cars.

GM has been working with eBay (EBAY) for a while, and it’s certainly nothing new for car dealers to list inventory on the site. But the manufacturer-dealer relationship for new cars has traditionally been sacred. Dealers are of course a carmaker's first customers. And as such, dealers want to exert a lot of control over the pricing, when they begin working with the car-buying public.

New cars, unlike used cars, aren’t typically bought at auction because their prices need to be consistent. Dealers in particular don’t want some vehicles that they bought for price X from the automaker (often with money borrowed from the automaker) to get hammered down to lower price Y by a transparently competitive marketplace. Sure, things could run the other way and demand could bid prices up, but dealers are more interested in controlling their downside than exploiting the upside.

Dealers used to be viewed as an automaker’s emissaries in the community, and they still are for successful car companies. But in GM’s case, the dealer network had gotten too large and had become a drag on the firm. The Obama auto task force ordered massive cuts, and this new deal with eBay may hasten the demise of whatever marginal dealers are left.

However, there’s plenty of risk for GM. An auction environment could put immense downward pressure on car pricing for vehicles that GM needs to sell for a specific amount in order to recognize adequate profits. This is particularly true of the smaller cars it’s supposed to build, where profits tend to be slender. It’s also worth noting that upward price pressure may never materialize, unless GM manipulates supply, a tricky proposition when you’re talking about a large, complex piece of machinery like an automobile.

This is an interesting development and rather revealing in the sense that it hit the news on Day 1 of the New GM. Worth monitoring closely to see if it’s a big success or a spectacular failure.