From the WSJ: “The company has requested a June 3 court hearing to approve the planned cull of 789 of its 3,188 nationwide dealers by June 9. Chrysler’s North American sales and marketing chief Steve Landry said the affected dealers represented about 14% of its total sales by volume. “
How does cutting a collection of dealerships that represent 14% of Chrysler LLC’s total sales by volume help the company become more profitable if it doesn’t cost the company anything to maintain the network beyond possible marginal administrative expenses?
Here is an outline of some of the information out there:
Lets start at the horses mouth. Paul Smith of News Talk 760 AM “The Voice of Automotive” interviewed Jim Press, Vice Chairman and President of Chrysler, LLC on May 15th. Take a listen.
Jim gives a pretty heart sagging account of where they have been and how hard this decision is for him. He describes it as “gut wrenching”. The host Paul summarizes his view that “..these people were never just numbers on a piece of paper….They were families…, representing family businesses, legacies…”
He then quickly gets into the crux of the situation:
“…If we don’t pair back on the dealers, we are going to lose the whole thing…. You can’t stay in business as a manufacturer when you have to make unique vehicles to satisfy different brands.”
This is the central issue. They can’t keep up with unique vehicles for their brands. Here are the points summed up perfectly by commenter Jack in the Bogleheads forum discussion on the topic:
Some of his points:
1. Most of the closed dealers sold less than 100 cars a year.
2. Most made less than $100,000 in profit each year.
3. Many were mixed dealers that sold Chrysler cars in addition to a competitor’s cars.
4. Lots of small dealers makes them all weak so that they can’t afford to advertise.
5. Lots of small, weak dealers reduces the quality of customer service.
6. Small dealers can’t provide the well-maintained, modern showrooms and service facilities like their competitors.
7. Many small dealers sold only a single product line like Jeep. It requires multiple models to support a single product line. For example Jeep Cherokee, Jeep Liberty, Jeep Wrangler.
Chrysler can no longer afford to develop that many models for each line so they need dealers that instead handle all the Chrysler, Dodge, Jeep products at a single dealer. There will be fewer models in each product line.
Basically, Chrysler will not save money directly by closing dealers, but they will have fewer dealers that are much stronger, able to advertise and compete better with the other car companies. Toyota manages to sell twice as many cars with one-third the number of dealers.
So it now makes sense but I am sure there are many other arguments that can be made on how to fix things. What’s your view of the whole mess?
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{ 5 comments… read them below or add one }
Closing down operating dealers is the dumbest thing Chrysler (and GM) an do. During a sales slump, the last thing you want to do is cut your sales staff – especially when it isn't costing you anything.
If the product isn't selling, perhaps Chrysler should look in the mirror. Maybe it isn't a vible product. Or, perhaps, not suficiently well marketed, or over priced, or poor quality, etc.
These are all factors which ONLY Chrysler can fix – not their dealers.
Having a large dealer base (even though not high volume players) offers the customer the POTENTIAL for better, more available service (on a product which requires skilled service). Thus, Chrysler (and GM) should be improving their dealer service base and using it to encourage reater sales.
Note that modern, computer managed (engine and transmission, and accessories) automobiles REQUIRE a manufacturer trained (or access to the maker) mechanic for problem diagnosis and repair. This makes the dealer a potentially far superior service resource.
My take is that it (theoretically) makes the remaining dealers stronger. The remaining dealers get to sell more cars. If your dealers are able to sell more, you can sell the cars to them for a little more (increase the dealer invoice), and they won't feel the sting because they will be able to make up for the increased cost per unit by selling more units. Chrysler's corporate profits go up, the dealer's profits stay the same, and the car buyer does not see a price increase.
The risk I see is if the Chrysler dealer in your town gets shut down, you may not go to the next town over to buy a Chrysler, you may instead just go the next block over to the Ford, or Toyota dealer and buy one of their cars.
Per Mr. Press' interview: Some of his points;
;1) Sold less than 100 cars per year: 100 X 789.X $27,958 (AVERAGE COST OF A NEW CAR, 3RD 1/4 2005) = $2.2 billion in sales, Chrysler will have to make that up…can't do it, too much competition. How much do they lose every year?
2) The dealers made less than $100,000 profit last year…Some small town economies depend on some of these little dealers THESE DEALERS ARE PROFITABLE …Definition; PAID ALL THEIR BILLS!!! Chrysler lost how many BILLIONS! FOR DECADES DIDN'T PAY ALL OF THEIR RETIREMENT AND HEALTHCARE OBLIGATIONS ,BUT PAID THEIR EXECUTIVES BILLIONS!!!!
3) Sold competitors cars also…The dealers paid Chrysler their franchise fees like clockwork, as well as the competitors. VContinued…
JUST ONE MAN'S OPINION
4) Too many small dealers can't afford to advertise…THEY CAN( AND PROBABLY DO) CO-OP TOGETHER TO REDUCE COSTS AND BE AFFORDABLE…
5) Lots of small dealers can't provide quality service. No qualified mechanics want to work for small dealers…NONE… REALLY???
6) They can't maintain their facilities, modern showrooms and service facilities??? The "small" dealers havre shacks for businesses… not hardly, they mostly have clean well equipped smaller facilities that are usually paid for!
7) I believe he misspoke
JUST ONE MAN'S OPINION
Continued…
Chrysler could require franchisees to start bringing in ALL OF CHRYSLER'S PRODUCT LINES SLOWLY!…INCREASE REVENUE!!!
If Chrysler and G.M. steals, oops wrong term, closes the dealerships, why would anyone purchase their vehicles any longer. They take OUR money to run their businesses and then steal,
oops wrong term, close our businesses to make our competitors wealthier, by giving them our customers and our decades long hard earned business? Bring these executives and
politicians back to earth, close them down, prosecute the guilty, preserve the innocent, breakup the U.A.W. IT'S OUTLIVED IT'S USEFULNESS! CREATE A BUSINESS THAT ACTUALLY CAN BE SUSTAINED… LIKE THE DEALERSHIPS THE'RE TRYING TO CLOSE!!!!!!!!!!!!!
JUST ONE MAN'S OPINION