New GM Gets Strategic With Dealerships

General Motors’ (GMGMQ) decision, prompted by the auto task force, to shed dealerships has drawn a legislative counter-argument from some of the dealers who are slated to lose their franchise agreements. Basically, they’re saying that the market, and not the home office, should decide who stays in business and who goes. They’ve taken the case to Congress and have gained some early traction.

The dealers are lobbying for jobs, but their efforts, however noble, overlook an important aspect of how GM will brand itself in the future. Obviously, post-Chapter 11, the New General needs to make some major changes if it hopes to become robustly competitive in a remade North American auto market. Supporting twice as many dealerships as it needs isn’t the way to go.

A while back, GM consolidated several brands into a dealership channel, with Pontiacs, Buicks, and GMCs for sale at single dealer locations. Under new GM, with Pontiac dropped, that would mean a dealer selling three Buick models and some trucks and SUVs—what was a slightly awkward product lineup before would be more awkward.

GM is aware of this. According to spokesman John McDonald, Buick may be adding models in coming years, if newly unretired former product czar Bob Lutz get what he wants. This would create balance in that channel, allowing it to function alongside Chevrolet and Cadillac, which stand to become the two dominant GM brands moving forward.

What this means for dealers under threat of not having their franchise agreements renewed by October 2010—the point at which GM expects to have its dealer network right-sized, winnowed down from more than 6,000 dealerships—is that GM knows it can’t support everyone, wants to create some profitable consolidation, and needs to be strategic now rather than waiting for a sales rebound to prove that certain dealerships on the margins may have a future with the New General. The company is even willing to add product to Buick, an expensive proposition for a brand that has been losing ground in the United States—and losing models—but that remains strong in China.

Ultimately, it boils down to a question of whom to commit resources to immediately, rather than allowing the market to decide later.