What’s the Score? Cali GM Dealer Wins Against, erm, GM
The never-ending, weirdly symbiotic, and often counterproductive relationship between OEMs and their dealers wrote another chapter yesterday, as a court in California may force GM to rethink the way it measures and administers sales effectiveness at the dealer level.
Sacramento-area dealer Folsom Chevrolet was deemed by The General as having failed to meet sales expectations and pursued the revocation of its franchise a couple of years ago. Folsom was having none of it, dragging the state’s New Motor Vehicle Board into the fight — an entity which handed down its decision in Folsom’s favor on August 13th. GM remains unhappy.
Remind me again how the dealer model is such a good idea?
Retail Sales Index (RSI) is a performance measurement to gauge the retail sales performance of a dealer. This is then compared to a statewide average. GM is not alone in deploying this tool. The company then sets the target for individual dealers by applying the brand’s market share in the state for each vehicle segment.
From that projection, a store’s RSI is shown as its retail sales as a percentage of that target. If GM expects a dealer to sell 50 vehicles in a month but it sells only 30, its RSI score is 60. Unofficially, you can be pretty much guaranteed this score determines a dealer’s allotment of product, too.
Folsom Chevrolet was apparently at or near the bottom of the RSI barrel when GM tried to pull the plug. According to Automotive News, the dealer’s RSI was 40.9 in 2013, 44.4 a year later, and 57.1 in 2015. This placed them 129th out of 133, 124th out of 128, and 115th out of 131, respectively.
Our other takeaway from those stats should be that GM’s total number of California dealers swung on a +/- 5 store pendulum over three years. Take from that what you will.
The dealer in question protested that construction scuppered its performance during some periods of the above RSI calculation. It also argued vehemently they should be given consideration for their fleet business, which is apparently quite robust. GM said non but the state apparently agreed, leading the New Motor Vehicle Board to rule in Folsom’s favor.
Administrative Law Judge Evelyn M. Matteucci and the board determined GM’s reliance on RSI was a violation because it failed to account for a number of market circumstances, including brand preference, geography, and demographics. The board also found that The General failed to meet its burden of establishing good cause for termination because it failed to submit sufficient evidence as to the business transacted by Folsom relative to the business available.
“The decision puts General Motors and all manufacturers on notice that termination cannot be based on flawed sales performance metrics such as the Retail Sales Index, commonly known as ‘RSI,’ and similar sales efficiency metrics,” explained Scali Rasmussen Partner Halbert “Bert” Rasmussen, who, along with Senior Associate Jade Jurdi, led the legal team’s victory.
Unsurprisingly, GM spox Jim Cain said the company “strongly disagrees” with the decision and has no plans to alter its RSI measurements. They’re likely to appeal. A partner at the legal firm representing Folsom noted that the board’s decision cited GM’s attempt to yank the franchise as a violation of California law. What this does for future measurements is anyone’s guess.
Similar flaps reared their head in New York state a couple of years ago. There, the court found that GM’s RSI formula was not a reasonable sales performance formula, as required by New York law, because it failed to take into account local market circumstances out of the dealer’s control.
[Image: General Motors]