Tuesday, June 15, 2010

Losing the Franchise: The Concept of the Corporation Chapter 2

Last year, when General Motors ceased to be General Motors, or at least the General Motors of Peter Drucker, a large number of dealerships lost their franchises. At the time, I remember it being a bit odd that GM could do that unilaterally. Only when I read this did I realize that dealerships were not a franchise arrangement but a sales agreement, a right to sell. Drucker notes that in this kind of arrangement, the small dealers stake their capital, good will, and sacred honor on the manufacturer with little guarantee of stability. It was probably was a decent arrangement in the 50s and 60s when auto sales were climbing. That arrangement changed in the fall of ’73 when the first oil crunch hit.

The 1973 model year had the biggest sales for American manufacturers ever. It never achieved that again. With that fall, when sales stalled before lumbering forward, we saw the first signs that things were never going to be the same again. I was new enough to business to think that the problem was merely the fact that the owners of the dealership were risking their capital on their business. Little did I know that the power relationship with the manufacturer was so unequal.

Thus the world changed.

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