Wednesday, June 16, 2010

Dealer Relations : The Concept of the Corporation Chapter 2

Profit comes not only from buying low and selling high but also from increasing turnover and reducing risk. In the auto industry, turnover is connected to the model year and will be dealt with later. The reduction of risk is connected directly to dealer relations and making them feel that their commitment is secure.

I don’t know the kind of dealer that Drucker is describing. I helped the local Oldsmobile dealership move from a 1950s era building to a 1970s. The 70s building was a substantial investment and the owners were quite proud of it. The 1950s, though showing its age, was nice for its time. Judging from old pictures, the original owners clearly felt that they had moved into a new class.

What came before? Was it basically a field and a shack? Drucker is suggesting that dealers may have been little more than an open field because he talks about General Motors guaranteeing that dealer contracts will run for at least 2 years and will give at least three months notice. It seems to me that my dealership could have gotten the kind of loan that they would have needed to build either the 1950s or 1970s facilities on those kind of terms. But perhaps that is what the dealer policies were offering. General Motors had a strong market research group. Drucker hints that they had a strong sense of what the 1950s automarket would look like. The central administration was probably trying to protect their ability to terminate contracts while offering enough security for local dealers to get decent loans.

In business, nothing is ever free.

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