Local dealers survive GM cuts

As automobile dealerships nationwide brace for fallout from General Motors’ bankruptcy and restructure, local dealerships-their franchises safe for the time being, are rising to the challenge of representing the recovering auto corporation.
As part of GM’s bankruptcy and reorganization, the company announced plans to layoff tens of thousands of employees and informed about 1,000 dealerships their franchise agreements would not be renewed. An additional 900 dealerships are expected to close as a result of GM’s decision to sell or discontinue Hummer, Pontiac, Saab and Saturn brands.
But Herndon Chevrolet and Reynolds Pontiac-Cadillac-GMC-Buick-Subaru, both in the Town of Orange, are among the survivors of what’s become known to GM dealerships as Black Friday-June 12, when GM corporate mailed packages via Fed Ex to franchises whose contracts won’t be renewed.
“Our dealer restructuring is also an effort that is quite painful - for us, for our customers, and especially for our dealers,“ GM President and CEO Fritz Henderson said.
From the time GM announced its plans to file for bankruptcy until Black Friday, business partners Donnie and Steve Herndon said waiting for the news was excruciating. But as Black Friday’s Fed Ex deliveries were made, Orange County’s GM dealerships could finally exhale-cautiously, according to Donnie Herndon.
“The last three months have been challenging,“ Steve Herndon said. The worst part, amid rumblings and rumors of contract non-renewals was “fear of the unknown.“
GM’s decisions about which franchises would be continued were made largely on the basis of performance. Franchises which survived GM’s sweeping reductions were selected for high customer service indexes and sales market penetration.
The local dealers’ similarly high marks for service and sales were enough to satisfy GM’s corporate cullers.
The Herndons said their business’s decades-long personal relationship with the community was what guaranteed them immunity on GMs Black Friday.
That’s what Kevin and Tom Reynolds said, too.
“Buick and GMC made their decision [based] on the fact that we’re in the top 95th percentile for our area of responsibility,“ Kevin Reynolds explained. “Buick and GMC truck and Subaru felt that this area and our historical performance is a profitable thing for them.“
But a corporate-level decision to reduce 1,400 Cadillac franchises down to just 400-which won’t include the Reynolds business-has Kevin Reynolds scratching his head, he said.
“Cadillac made their decision based only on the fact that this is a small, sparsely populated area,“ he added. With the Cadillac brand, he explained, “GM is mimicking the marketing strategies of other ultra-luxury brands.“ 
Similar to the business models and marketing strategies of Lexus, for example, GM hopes to drive up consumers’ demand for Cadillac by reducing the supply (in this case, by eliminating most of the dealerships,) and locating sales only in select, high-population urban centers.
According to Reynolds, from what he’s heard from his Caddy customers, that’s a mistake. Instead of highlighting the cars as exclusive extravagances, Reynolds said he suspects GM has effectively shot itself in the foot by cutting out a portion of the market.
“I think Cadillac is going to lose some business because they’re cutting out high-performing rural dealers,“ he said. “Our customers are very upset because they don’t want to be inconvenienced by having to drive to other localities for a new Cadillac.“
Reynolds said sales of late model Cadillacs will fill the slots on the lot where the brand new ones sat prior to GM’s decision and service on the luxury cars will continue “forever,“ he promised. But regardless, losing the franchise feels like losing an old friend, he said.
According to Reynolds, these are uncharted waters for franchisees. While the Herndon and Reynolds dealerships have survived, at least for now, GM’s bankruptcy and federal bailout have altered the structure by which dealerships have based their businesses ever since Louis Chevrolet’s horseless carriages started rolling out of Detroit factories a century ago.
“Car dealers are dealing with an economically strong, bankrupt company. This new bankrupt company has the upper hand and can call all the shots,“ Kevin Reynolds said. “It’s the first time this has ever happened in the history of the United States, so nobody knows what to expect.“
GM’s sweeping industry changes, including what they’ve titled a “wind-down” process, will undoubtedly devastate some dealerships.
“We’ve talked to some dealers that are in the process of wind-down,“ Steve Herndon said, “and we feel for them.“
But as some auto industry brethren undergo an involuntary wind-down, remaining franchises will be expected to gear up. GM executives have set new, lofty sales and service goals for dealers who survived the cut. With the GM reinvention, corporate level’s expectations of sales and service at remaining dealerships will be higher. Meeting those goals may seem like a tall order in Orange, where there’s scant evidence that the economy is starting to make a turnaround. But the Herndons and Reynolds both say their dealerships are ready for the road ahead.
Donnie and Steve Herndon said GM’s higher expectations are an opportunity to expand their existing operation.
“We’re seeing the opportunity to move forward and by golly, we want to do just that,“ Steve Herndon said.
“We’re going to continue to move forward, taking care of our area of responsibility with Buick, GMC and Subaru,“ Tom Reynolds said.
One of only a few clear upshots of GM’s reinvention may be an industry initiative to develop Buick as a competitor to import passenger car perennial favorites like Honda.
“We’re really excited about Buick, in particular. You’re going to see Buick expand and develop a wider range of automobiles and you’re going to see a stronger lineup,“ Tom Reynolds explained.