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How Much Does Loyalty Matter?

Chrysler and GM are conducting a giant, real-time experiment to find out. Maybe, along the way, they'll learn a real-time lesson in unanticipated consequences.

Thousands of dealers are being jettisoned as part of Chrysler's and GM's restructuring. I guess it's probably necessary; the consultants told us so.

But beyond those selling a single brand, I don't expect very many dealers to just fold up their tent and disappear. More likely, they'll do whatever it takes to keep the lights on - continuing to sell their other brands and used cars, competing for service and repair dollars, maybe even adding an upstart brand or two. Any new entrant to the American auto market can look at the castoffs and see a ready-made dealer network all set up and ready to go.

So Chrysler and GM are lowering their overhead at the risk of creating several thousand new competitors.

The presumption is that consumers loyal to Chrysler, say, will drive further to buy a car at a larger dealer, the one with the higher sales volumes and lower overhead. That's the theory anyway. As theories go it's not the worst I've heard from a consultant. But it's still just as wrong.

Car dealers aren't exactly known for magnanimously passing overhead reductions on to the car-buying public. Consumers know that. And consumers are funny creatures, interested in what's in it for THEM, expecting loyalty to be a two-way street yet these days finding it a rare commodity.

Companies (and their consultants) spend way too much time asking "What's good for THE COMPANY? What's good for US?" Such "inside-out" analysis assumes pliable and static consumers who're too uninformed (the charitable term) or too stupid (the consultant's term) to understand and act in THEIR own self-interest. Borrowing a term from physics, it's assuming an ACTION will produce no equal and opposite REACTION.

The question comes down to this: to which party - local, Little League-sponsoring dealers employing local people or some far-off auto company's brand - will a community remain loyal? I think I know the answer to that question. You probably do too. Maybe someone should tell the consultants.

UPDATE A DAY LATER: Don't believe me? Here's Chuck Tator, a Dodge dealer quoted in today's New York Times:
"Mr. Tator is still flummoxed. He figures 95 years of history should count for something, and cutting off his dealership, and its ability to service cars under warranty, will not help anyone. “They won’t save money by cutting me off; they’ll lose money,” he said. “I’ll bet you 90 percent of my customers would go to a different brand if they couldn’t buy from me. I think the company has lost sight of what the customer wants.”

"He plans to make his case to the judge handling Chrysler’s bankruptcy and figures he’ll stay in business as a repair garage, almost certainly keeping most of the Viper business no matter what."
How many more dealers are, today, making the very same decision? And how many will it take for Chrysler and GM to be in an even deeper hole?



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