Pontiac Solstice: Dealers vs. GM

By Kevin

Ever so often the "dealer system" is revealed to be a strangely organized, unruly, complicated mess, as when it sets up incentives for dealers (agents) to interfere with the planned maximization of net present value for the whole company:

GM's performance brand already has piled up 9,000 orders for the sporty ragtop, about half the number it had planned to build this year.

But instead of celebrating, Pontiac is quietly -- and delicately -- addressing complaints that its dealers are asking "well above" the $19,995 base sticker price for Solstice, according to a memo sent to Pontiac's 2,700 U.S. dealers....

Pontiac contends that Solstice's $19,995 base price, including destination fees, is a crucial piece of its marketing efforts and that the rebounding brand cannot risk alienating buyers with inflated prices.

But GM already took that risk; I simply cannot believe that they didn't think of this ahead of time.

-- June 18, 2005 3:04 PM |

Comments

John Henry wrote:

Seems to me that there are a couple of things GM can do about this if it is a real problem.

1) It could promote the $19,995 price publicly which they may already be doing. Iv'e not seen, or at least not noticed, the ad. I pay little attention to car ads and even less to "Big 3" ads since there is *NO* way I will every by a GM, Ford or Chrysler product.

2) They can promote the price and say, if you can't find a dealer willing to sell it at this price, call 800-XXX-XXXX and we'll tell you a dealer who has them in stock at the list price.

3) Supply those dealers who sell at list and undersupply those dealers who try to bump it.

My guess is that this is sort of Brer Rabbit and the briar patch. GM get publicity about what good guys they are trying to hold the price. Dealer get denigrated but their reps are already so low that nothing can hurt them. Dealers get to make extra margin which makes them happier with GM and more likely to push their brand.

I think it is a big hoo-hah over nothing.

I am waiting for Toyota to take over GM. Then *maybe* I'll consider a GM car.

John Henry

-- June 19, 2005 1:57 PM ∞

Stretch wrote:

Working in a used car dealership, the recent foibles of GM never cease to amaze me. The truth is that GM is haveing such a hard time selling its cars that it has offered retarded incentives, including rebates that drive the selling price significantly below the cost.

Contrary to popular belief, new car franchises make very little on the sale of new cars (partly because the manufacturer sets prices). Most of their profit comes from service and (increasingly) their own used car sales. More than anything, GM needs to move units.

They've actually done a pretty good job reviving the Pontiac brand and it's now poised to reclaim some of the market lost by the now defunct Oldsmobile and faltering Buick. Hence GM has a reason to keep the price affordable and the dealer has a reason to capitalize on a growing brand.

Why didn't GM think of this ahead of time? It's not a usual problem. GM normally sits pretty with its set profit while the dealers compete with each other, largely by keeping prices as low as possible. Remember, dealers normally make their profit as a function of units moved, as each one makes another service contract and often a resalable trade-in. Apparently, the new Soltice is hotter than anticipated and the dealers are trying to squeeze as much profit as possible after several years of hardship.

The bottom line is that GM (as all manufacturers) has its franchise dealers by the skinnys. They are advertising the $19,995 price and, quite simply, they have the right to shut down any dealer at any time that doesn't do exactly as GM says. Nothing so drastic is required, of course, as a simple witholding of financing would send most dealers into fits.

-- June 20, 2005 12:48 PM ∞

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