GM Takes Wheel of 9 Outlets to Jump-Start Sales

By D. B. YOUNG

Feb. 15, 2000 12 AM PT

SPECIAL TO THE TIMES

After some early bumps in the road, a pilot program by General Motors Corp. to improve its fragmented and underperforming dealer network in the San Fernando Valley appears to be picking up steam.

GM caused a stir among local dealers two years ago by moving to buy and consolidate Valley dealerships--a dramatic bid to boost a local market share that was well below its national average.

Two years later, the nine Valley dealerships that GM bought have been consolidated into four, which are now operated by a partnership with North Dakota-based Rydell Automotive Group. In that time, GM’s Valley market share has grown from 13.8% in November 1998 to 14.4% in November 1999, said Doug Herberger, general manager for the GM Western region office in Thousand Oaks.

Sales gains at the four Rydell dealerships--one each in Van Nuys and San Fernando and two in Northridge--have also nearly doubled to 6,200 last year from 3,600 for the nine separate dealerships in 1997.

Rydell appealed to GM for a number of reasons, most notably its no-haggle pricing policy and its practice of paying salespeople on salary, rather than commission, said Frank Liebgott, GM’s market area manager for the San Fernando Valley.

Rydell also emphasized customer-friendly policies such as extended service hours for repairs and employee pay incentives based on customer satisfaction. GM was anxious to try the model in the Los Angeles area and, after considering others, decided to go with Rydell despite its out-of-town roots, Liebgott said.

Although this business model has led to some strong gains, GM’s market share in the Valley is still well below its Western states’ average of 19% and its national average of 28.8%, Herberger said.

“We’ve made better progress in the Valley” than the rest of the region, he said. “That’s got a lot to do with the product and the market, but it’s also the low base from where we started. There’s a lot of opportunity.”

Indeed, GM’s decision to emulate its Valley model elsewhere in the nation speaks volumes about its satisfaction with the effort, said Chris Denove, director of automotive retail/distribution analysis for Agoura Hills-based automotive consultant J. D. Power and Associates.

“One way to gauge success of any manufacturer retail experiment is to see whether they let it die or they expand it into other markets,” he said. “General Motors has stated that it wants to expand this concept into other markets, which suggests to me that General Motors was pleased with the outcome.”

GM’s Valley operations are chugging ahead at the moment, but the pilot program got off to a start that was anything but smooth.

In its initial phase, Rydell was faced with the daunting task of integrating nine auto dealerships, each with its own administrative systems and selling philosophy, said Jim Lynch, general manager of the four Valley-based Rydell dealerships.

GM first approached North Dakota resident Wes Rydell in late 1997 about forming a partnership in the San Fernando Valley, Lynch said.

“The market was performing very poorly for GM, and Mr. Rydell has an excellent track record,” Lynch said. “GM realized that of all the things they might know, one thing they don’t know is how to run a retail operation.”

But once the nine dealerships were assembled, the task of integrating them posed more of a challenge than either GM or Rydell envisioned, Lynch said.

“We had to put in one computer system, one telephone system for all these dealerships,” he said. “It was a good deal like being in combat.”

Whereas traditional dealers typically focus on closing a sale and then moving on, Rydell’s dealerships place a greater emphasis on bringing customers back, Lynch said. One way it does that is by tying pay to long-term factors such as customer satisfaction, sales volume and ongoing improvement, rather than only focusing on immediate sales, Lynch said.

Bill Murphy was one of the last local dealers to sell out to GM.

Murphy had owned a GM Chevrolet dealership in San Fernando and still co-owns Murphy Shelby Dodge there.

“The reason I ended up selling was because I had an older building, and they were giving me substantially more than I had invested in it,” he said. “I also had another place to go--I had a Dodge dealership.

“I felt I wasn’t getting enough product out of GM to make it worthwhile,” he added. “I think they squeezed everyone when they started to do this project. Dodge has been much easier to work with than GM. You call up Dodge and say you want 50 pickups, they send them to you. You call up GM, and they send one.”

Meanwhile, the Valley’s GM dealerships that didn’t sell out also voiced some initial concerns that Rydell would get preferential treatment from its investment partner, according to several parties involved.

“At first there was a lot of fear that the Rydell thing would cave in everyone’s operations and dominate the retail market,” said Steve Livingston, owner of Livingston Motor Car Co., which operates a Pontiac, Buick and GMC Truck dealership in Woodland Hills. “Was it really privately owned or factory-owned was the real issue.”

In response to dealer concerns, the state Department of Motor Vehicles held a series of meetings with GM and the dealers.

GM assured DMV officials that it plans to sell the dealerships once it is satisfied they are running smoothly.

“GM is not in the business of buying and owning retail outlets,” said GM’s Herberger.

Rydell entered the partnership with a 10% stake, and will gradually buy out GM’s share in each year the operation turns a profit, according to Rydell’s Lynch.

Livingston said the GM initiative pushed everyone to improve their service.

“I think they cleaned up all the issues that were outstanding,” Livingston said. “I know our sales are much better. The fear at first that [the Rydell-GM dealerships] would be something special and own and operate the market is ridiculous.

“We’ve become better dealers because of that project,” he said.

M.J. Vaughn, owner of Guy Schmidt Automotive Group, an Oldsmobile, Cadillac, Pontiac, GMC and Buick dealer in Glendale, expressed similar thoughts.

“Any time you try to implement a change, it always comes with a certain amount of fear and pain,” he said. “Certainly, GM needed to make changes. I did voice some concerns initially [about the Rydell group]. . . . I don’t have any particular concern over the end result, because our sales have improved with the increased activity.”

The emerging GM network in the Valley also appears to be benefiting consumers, said Denove of J. D. Power.

“General Motors, like most auto manufacturers, is very concerned that its dealers provide customers with a pleasant and hassle-free sales process,” he said.

“That’s one of the reasons why manufacturers are making a push toward obtaining controlling interest in dealerships. Although I haven’t seen any numbers yet, there’s no question that GM’s factory-backed dealerships have installed policies that are very customer-friendly.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

9 to 4

Dealerships bought by GM:

Century Chevrolet, Van Nuys

Craig Buick, Van Nuys

Century Oldsmobile, Van Nuys

Bill Murphy Chevrolet, San Fernando

Walter Reuff Pontiac Buick GMC, San Fernando

North Hollywood Pontiac Buick GMC, North Hollywood

Competition Chevrolet, Northridge

Northridge Oldsmobile Cadillac

Martin Chevrolet, Woodland Hills