According to the latest bankruptcy court filings by Chrysler, the company plans to cut 789 dealerships (one quarter of the current dealer network) in an effort to emerge as a financially viable company.
The company sent out overnight letters to the dealerships that will be eliminated.
As expected in bankruptcy, Chrysler will not buy-back the vehicles, tools or parts, but it will put the dealerships in touch with surviving dealers who can then work out a purchase.
Chrysler also plans to push ahead with a plan to put all of its brands under one roof. Currently 68 percent of dealerships carry Dodge, Chrysler and Jeep products, but after the 789 are closed, that number will rise to 80 percent.
There appears to be even more strategy involved as well as 345 of the dealerships being shut down (or roughly 44 percent) also sell vehicles from a competing brand.
Steven Landry, Chrysler's VP of Sales, spoke optimistically about the future of the 789 dealerships, stating that 83 percent of the businesses sell more used cars than new and that half of them sell fewer than 100 cars per year. "The majority of these dealerships are going to continue on and prosper either selling used cars or other brands," he said.
The 789 dealerships will receive a 23 business day court review of their individual situation.
i work at a dodge dealer near cleveland ohio by realtune and we got a call yesturday morning to start clearing out.
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So how does this help Chrysler? Dealers are independent businesses; they're not owned by Chrysler. The employees work for the dealer/franchise, not for Chrysler, so what exactly is the benefit to the corporation? The biggest expense I can think of is warranty work, but if one dealership closes the work will just get done at another. Even in the announcement I saw, Chrysler said nothing about how much this will save the corporation, because it probably doesn't save them much of anything.
Yeah....it doesn't make sense, unless dealerships work like a reverse-franchise (in other words, the company pays the franchisee for the right to sell product). Or, unless there's additional expense in maintaining a larger dealer network.
It will actually make the surviving dealers stronger. In previous years, there were 16 million people in the market for new cars, and now there's an estimated 9 million. Right now, it is a buyers market. The supply outweighs the demand, and now even Dodge dealers (or GM, or Ford) are even competing amongst other Dodge dealers just to make the sale. This is unhealthy for business, good for buyers. By reducing the amount of dealerships, those remaining dealerships will be much stronger in the end.
While these dealerships are privately owned, I'm pretty sure they would only close the lowest performing dealerships in the area, but then again, that would make good business sense.
There were several letters-to-the-editor by local car-dealer associations in our two newspapers over the weekend. They all maintain that closing dealerships won't save the manufacturers anything, despite the impression given to the public that it's about them saving money.
Shouldn't these local dealers, who are independent businessmen, have the right to decide for themselves how to make a profit or weather the economic storm? One thing is for sure: closing dealerships will make the surviving ones more powerful, but not necessarily any better; and less competition will mean less bargaining power, not to mention less choice and convenience, for the consumer.
There are a few reasons for this move. It's also been something Chrysler and GM have been trying to deal with for at least a decade, but couldn't handle due to tough franchise laws.
Here are some of the reasons:
1. The captive financing arm finances the purchase of the dealership inventory. That way, the manufacturer gets paid right away. With the current credit crunch and banks changing lending practices, there is less money going around, and its more expensive to borrow. Having less dealers lessens the strain on vehicle financing.
2. Many of these dealerships don't really sell many new cars, as it's more profitable to sell used ones. These dealers have their franchise but aren't really engaged in the programs/procedures of selling new product.
3. As you lower product lines and/or brands, you don't need as many dealerships. Chrysler wants (and should) move into an "Alpha" store structure, where you sell all brands (like in Canada). Chrysler still has a dealership structure from when they were a 5 brand company (Chrysler, Jeep, Eagle, Plymouth, Dodge) That is why you had so much 'badge engineered vehicles' back in the 80's - 90's. You had to fill this huge dealership network. Now, you just don't have as much product to fill the showroom.
4. Too much competition between dealers makes dealer profitability drop. This isn't hurting Chrysler directly unless they have to boost OEM to dealer incentives do to lowering profitability. Also, I am not sure if Chrysler lends any assistance/incentives to dealership renovations, but that could be an additional cost. Also, its just not healthy for business, as lower dealer profitability means less upkeep on the dealerships, less money for sales people/staff, less dealer advertising etc...
There are probably some other reasons, but these are the ones that come to mind.
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Last edited by wonderboy : 05-19-2009 at 11:59 AM.
Interesting thoughts. At least from the "decreased competition" perspective, all it would do is force someone like me, into broadening their prospective dealer search. In the end, those of us in the generation X / Y crowd will research, shop and travel to get our price.
The average sucker who walks into a dealership, maybe a different story I guess.
Obviously they aren't CLOSING any dealers.. they just won't have a franchise, right?
The franchise is what we're talking about. And for all these smaller dealers, they still get the attention of District representatives in parts/service, sales, use of call centers, etc. The more of these dealers, the more other hires chrysler will be paying for. There is a lot of money that is involved with babysitting some of the smaller dealerships that isn't a productive use of capital.
You are right. They are not 'closing' any dealerships, they are just pulling their franchise.
There are still some profitable and strategically placed group 1 dealers (small dealers). But its when you have 10 dealers in one city when 4 or 5 could do the job. If each dealer is cutting each other's throat to make a sale, its not helping the dealer network or the OEM.
On the side:
Chrysler has a program called '5 star' which is supposed to measure dealerships on a bunch of metrics. Some of the dealerships don't give a damn about these metrics, even though there are some incentives attached to meeting the criteria. I imagine there may be some correlation between the affected dealers and how they have performed.
Quote: Originally Posted by thepowertowin
Obviously they aren't CLOSING any dealers.. they just won't have a franchise, right?
The franchise is what we're talking about. And for all these smaller dealers, they still get the attention of District representatives in parts/service, sales, use of call centers, etc. The more of these dealers, the more other hires chrysler will be paying for. There is a lot of money that is involved with babysitting some of the smaller dealerships that isn't a productive use of capital.
I was glad to not see my family's dealership on that list. You are right, there is to much competition among the dealers. I feel very sorry for the dealers that have to close, but I think it will help out the dealers that do not greatly.
Quote: Originally Posted by TheBugBox
It will actually make the surviving dealers stronger. In previous years, there were 16 million people in the market for new cars, and now there's an estimated 9 million. Right now, it is a buyers market. The supply outweighs the demand, and now even Dodge dealers (or GM, or Ford) are even competing amongst other Dodge dealers just to make the sale. This is unhealthy for business, good for buyers. By reducing the amount of dealerships, those remaining dealerships will be much stronger in the end.
While these dealerships are privately owned, I'm pretty sure they would only close the lowest performing dealerships in the area, but then again, that would make good business sense.
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Chrysler to Close 789 Dealerships by June 9th
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