Following the termination of over 1,000 dealerships by General Motors and nearly 800 by Chrysler, federal legislation (HR 3288, Sec 747) was introduced to provide a procedure for the review of the termination decisions. The bill, signed into law on December 16 of 2009, established criteria for the arbitration process, which was organized through the American Arbitration Association. Among the criteria that arbitrators were to consider were the dealership’s profitability, economic viability, market territory, sales performance metrics, and the manufacturer’s business plan.
Seventy-three of the dealerships that pursued arbitration retained Anderson Economic Group for expert analysis in the areas of demography, geography, sales performance analysis, economic viability, and financial analyses. These dealers were located across 23 different states. Fifty-five were General Motors dealerships, and 18 were Chrysler dealerships.
We worked with each dealership to develop a plan of work that focused on the critical elements of their case. These included geographic and demographic assessments to determine if trade area’s were properly assigned, and if performance metrics accurately accounted for local market conditions. In a number of cases we also provided financial analyses to measure the economic viability of a dealership from a profitability standpoint, and to benchmark historic financial performance against an industry average. We also assessed the overall industry structure, economic conditions, and the business plans that manufacturer’s cited as reasons to support dealership terminations. In doing so we were able to illustrate inconsistencies in their positions, and demonstrate that, in many instances, the termination of dealerships was actually harmful to the manufacturer’s economic interests. We also provided consultation regarding settlement and hearing strategies, as well as rebuttal to opposing expert analyses.
Our analyses were used by dealerships to evaluate the strength of their case, to negotiate favorable settlements prior to arbitration, and in 19 cases our experts presented findings before an arbitrator. By the end of the arbitration process more than 90 percent of our clients had received favorable financial settlements, or had been reinstated as dealerships.
Analysis of the 2006 Ryder Cup’s likely economic impact on the country of Ireland, prepared jointly by Anderson Economic Group of East Lansing, Michigan, and Anarach Consulting, or Dublin, Ireland.
In response to a notice of termination and sales performance review from General Motors and ChannelVantage, a Michigan Cadillac dealership retained Anderson Economic Group (AEG) to provide an independent analysis for the dealership. The analysis specifically focused on 1) the factory’s assigned sales and service area, and 2) the methodology used to calculate the dealership’s Retail Sales Index (RSI).
To begin, we reviewed GM’s sales performance calculations and the methodology used by ChannelVantage to arrive at the dealership’s RSI score. Our Geographic Information System (GIS) was utilized to plot the location of the dealerships, its assigned Area of Geographic Sales and Service Advantage (AGSSA), nearby Cadillac dealers, and a ten-minute drive-time area from each dealer. The latter helped to identify census tracts within our client’s AGSSA that were more naturally and/or easily served by another dealer. Measuring the drive-time distances from each of center of these census tracts’ to nearby dealers aided in our revision of the assigned AGSSA. We next analyzed the demographics from the assigned AGSSA and the revised AGSSA, with a focus on variables that correlate with luxury vehicle sales, such as education levels, age, and income. We adjusted the RSI to account for our revisions to the AGSSA based on the reduction in the targeted demographic base, and a reduction in expected market share capture for the vehicle segment.
Our findings illustrated that our client had an unreasonably large market area, including over 20 census tracts that were located closer to other Cadillac dealerships. We also accounted for local demographics and customer behavior, as opposed to broad reaching assumptions based on state-level data, to estimate expected sales levels in the market. With these adjustments, we arrived at a significantly higher RSI relative to what GM determined, and used as a primary factor in termination the dealership. We compiled these findings in a report for the client, which he has shared with members of Congress while lobbying for passage of the Durbin-Hoyer bill that was enacted, and allows all terminated dealership a chance at arbitration.
This guide is for dealers that are considering participating in the arbitration process established by H.R. 3288, which was signed in to law by President Obama on December 16, 2009. It reviews the timeline and arbitration process, and the criteria that will be considered by the arbitrator. It concludes with some practical steps dealers should take as they consider whether to participate in the arbitration process.
As part of its dealership restructuring efforts, one of the Detroit Three invited current dealers to submit proposals for a new luxury vehicle dealership in suburban Detroit. Our client, a large dealership group in the Detroit area, retained us to assist in evaluating the OEM’s preferred site and an alternate site that was believed to be better positioned in the market.
We began with an assessment of the current dealer network in Wayne, Oakland, and Macomb counties. This included a drive-time analysis to assess market coverage, both for the current structure and for the structure after the known dealerships closing. We next identified the most likely site for a new dealership in the OEM preferred area and our client’s preferred area, and delineated a market area for each, accounting for drive-times, infrastructure networks, natural barriers, and the market areas for existing dealerships. A demographic and socio-economic analysis was done for each trade area, focusing on variables that predict the success of luxury automobile dealerships. We also analyzed luxury vehicle registration data from RL Polk to measure historic vehicle purchase patterns in each market. Lastly, we considered site specific factors, such as visibility, traffic count data, and proximity to other luxury vehicle dealerships.
Our final results were summarized in a memorandum and presentation to the client, and found the client preferred site to be a much stronger location. Our deliverable included summary data tables and custom maps showing market areas, demographics, and luxury vehicle registrations. The memorandum and presentation was included by our client in their proposal to the OEM.
Patrick L. Anderson and Ilhan K. Geckil
A review of valuation methods in the alcoholic beverage industry.