By Bert Wyatt

A large question mark had been hanging over the Oldsmobile brand for several years. The times of a million sales were long gone, victim of a misguided attempt to re invent the brand. But annual sales had levelled out at just under 300,000, and the new range was attractive in both styling and price.

GM's top brass went into a huddle, emerging in the middle of year 2000's festive season to announce that the patient was terminal. This revered car, for almost a century the test bed for engineering innovation and bold styling, was given the death sentence.

General Motors' CEO and president Richard Wagoner had recently come into his job with the highest credentials and hopes. Perhaps he believed that a decisive stroke such as this would register with a dealer body inured to GM's waffling image over the past 30 years. Perhaps.

To say that the dealers were astounded is to understate the case. It was, of course, well known that Oldsmobile was not the hale and hearty icon of yore, its armoury of market winners such as the Regency 98 and Cutlass but a memory.

"Name one foreign automaker that would walk
away from 280,000 sales a year?

But sales of around 280,000 units (around 2% of the total market) were not to be sneezed at. The 2,800 Oldsmobile dealers have been making a reasonable living, and the new range of vehicles was making inroads, despite poor marketing.

But the deed was done. Dealers were stunned, bitter, and finally outraged. To one and all, this was confirmation that GM was as out of touch as ever. As if to support the dealers' verdict, the other GM divisions were soon casting their covetous eyes over models like Alero and Aurora, hoping to cash in on their marketability.

Well, if the aim was to focus dealers' attention, the startling announcement certainly did that. Unfortunately, the factory soon reverted to type with a series of equivocal pronouncements. No, it would not be possible to forecast exactly when the end would come. Franchisees should continue to promote the product, and maintain life as long as possible. In return, they would be amply rewarded for their efforts. All this took place only a few months after some dealers had invested heavily in new premises and facilities as the price of retaining the franchise.

Negotiations began on the complex terms of compensation. Under the scheme, known as the Transition Financial Assistance Package, dealers receive between $1,500 and $2,900 on their highest unit sales in either 1998, 1999 or 2000, the top award going to those dealers whose Oldsmobile sales account for between 76% and 100% of their total new vehicle sales.

Multi-franchise dealers therefore are paid less, from $1,900 for 50% to 75% of total sales, down to $1,500 for between zero and 10%. It is no surprise that many dealers are discontented with these terms, particularly the multi-franchise businesses.

Carl Woodward is an Illinois dealer accountant, and he pleads the case for equal treatment for all dealers. He also calls for recompense for other factors, such as recent building improvements required by GM, long-term commitments for advertising contracts and employee benefits, reduced real estate value, and even lost profit opportunity for recently being denied permission to take an additional non-GM franchise.

At the last count, only a few hundred had accepted GM's offer. After all, this is America, where nobody takes the first offer. You await the offer, and then recruit a team of avaricious attorneys to extract the last dollar.

"the termination announcement had 'increased brand awareness'!"

But when it came to staff and customer sales incentives, there was little discord. Each current sale brought the salesperson a $400 bonus, the sales manager $200, with the buyer earning a $1,500 loyalty coupon, a five year or 60,000 mile warranty, and other rewards. Staff bonuses have since been adjusted down.

Suddenly, the patient was found to be still breathing: 76,554 units were sold in the first quarter of 2001, almost exactly the same as in 2000, in a market down 5.8%. The division was down to a 45-day supply inventory, with availability of certain car models almost drying up.

This all brings up the question of whether the death sentence was justified in the first place. Even the Oldsmobile spokesman conceded that the termination announcement had "increased brand awareness"! Three months after the fateful announcement, dealers are still confused and furious. Vast the American market may be, but a rate of nearly 300,000 sales a year is not chickenfeed.

Does all this give you the impression that GM really does not know what it is doing? If so, you're in good company. At the recent NADA convention in Las Vegas, comments such as "They don't know what they're doing", "It's a crying shame", "The decision [to cancel] was a terrible one", "A stupid and heartless move", were heard around the hall.

George Nahas, a solus Oldsmobile dealer from Tavares, Florida, is perhaps typical of the breed that has been devastated by GM's decision. In his forthright way, he feels that the division has been "brand-managed to death".

"Name one foreign automaker," he asks, "that would walk away from 280,000 sales a year? Why is GM buying all these other car lines? How many Hummers and Saabs will they sell?" With Buick selling only 100,000 units more than Oldsmobile, he wonders just how safe that division is.

He is in a particularly vulnerable position. Cadillac, Buick, Pontiac and Chevrolet are all represented close by, so there is little chance that he can remain within the GM family. Tavares is a community of 8,000 people. If Nahas goes out of business, 40 employees will be out of work, equating to $2m million lost wages, and $500,000 in sales taxes will disappear.

"the most extraordinary part of this whole unhappy episode is the continued loyalty to General Motors"

On the basis of GM's present compensation scheme he would receive $645,000. He is quite clear that that is not enough. "I just signed a five-year sales and service agreement. GM has breached its contract with me. Unless the company does the right thing by the 63 exclusive Oldsmobile dealers, it will have a fight on its hands."

Despite the gnawing uncertainty of their position, his employees reflect the loyalty that he has shown. A third of his 40 staff have been on the payroll 14 years or more, and although mortgages are beginning to loom large in their minds, almost to a man they are resolved to stay with the employer who has taken care of them over the years.

But perhaps the most extraordinary part of this whole unhappy episode is the continued loyalty to General Motors. Even those dealers who are the angriest still cherish hopes of staying within the GM family. As Steve Moskowitz of Chicago put it: "I don't know any Oldsmobile dealer who wants to get out. We'll try to carry on. It's not just for me, but for all my employees." This from a man who will have to compete with 12 other Oldsmobile dealers in the Chicago area for any available GM franchises.

Better minds than mine have thought long and hard, looking for a rationale behind the decision. Commenting on GM's better than expected quarterly earnings, and the benefit drawn from the Oldsmobile uplift, John Casesa, a Merrill Lynch analyst, says: "While Olds represents only 6% of [GM's] North American deliveries, this has helped fixed-cost absorption."

As they say in America, "Go figure".

By Bert Wyatt

To view related research reports, please follow the links below:-

General Motors Strategic Review

The world's car manufacturers: A financial and operating review

Automotive regional report: North America