Chrysler needs to cut 789 dealers, argues marketing chief Steve Landry, or all 3,100 retailers "face elimination."
Chrysler’s marketing chief is issuing a stark warning to those who insist it didn’t need to fire 789 of its dealers as part of its court-protected bankruptcy reorganization.
“The stark reality is all 3,181 dealers will face elimination,” Steven Landry, executive vice president of marketing, asserts in a new posting on the automaker’s blog, TheFirehouse.biz.
The troubled automaker, which filed for Chapter 11 bankruptcy protection, late last month, has taken some sharp criticism for its decision to eliminate nearly a quarter of its retail body, but in his blog, Landry insists the process of choosing which retailers to drop was “thorough, rigorous” and fair, and was based on a “data-driven metric” that looked at factors such as sales volumes, customer satisfaction, and whether the dealer handled all or just some of Chrysler’s three brands.
“Chrysler began the process to consolidate dealerships and locate all three brands under one roof more than 10 years ago,” Landry explains in his blog entry. “The Company made the decision not to continue to manufacture and market overlapping products. It is critical the majority of our dealers offer customers all three brands under one roof.”
The marketing executive insists that under current economic conditions, Chrysler and its retail network simply couldn’t survive without paring down. He also argues that if the reduction plan is approved by the court, “it doesn’t mean the 789 rejected dealers will close.” Nearly half operate showrooms handling other brands, and many others, Landry contends, will simply shift their focus to used, rather than new, vehicles.
“The automotive industry cannot support the number of dealers currently in the marketplace. From 1990 until 2007, the industry averaged 16 million new vehicles sold each year. In 2009, new vehicles sold are expected to be 10.5 million units,” Landry said in a separate statement today.
“Chrysler is treating the rejected dealers fairly by assisting in the redistribution of remaining vehicle and parts inventory, as well as paying incentive and warranty payments due,” Landry asserted.
Despite these contentions, numerous dealers and retail trade groups are trying to convince the judge in the New York court handling Chrysler’s bankruptcy to reject the plan. That includes the Monicatti brothers, who jointly own Monicatti Chrysler Plymouth Jeep, in Sterling Heights, Michigan.
They have joined in a class-action style suit against Chrysler trying to prevent the termination. “If this gives us an opportunity to do that, then we’re (going to pursue it),” Terry Monicatti tells TheDetroitBureau.com. “It’s a very sad time. We worked hard,” and hope to find a way to keep the store open. Monicatti is one of a dozen Detroit-area dealers being shuttered by Chrysler.
Others retailers, however, appear to have resigned themselves to the fact that, in the words of suburban Washington, D.C. dealer Jack Fitzgerald, they are being “extinguished.” A 53-year auto veteran – 43 of them spent running Chrysler stores – he plans to ramp up operations involving other franchises at his various locations, including the sprawling Fitzgerald Auto Mall, in North Bethesda, Maryland.
While Chrysler is using bankruptcy protection to try to sidestep restrictive state franchise laws, General Motors is hoping that it can eliminate at least 1,100 of its own retailers by subjecting them to the letter and detail of its corporate franchise agreements. And if, as many expect, GM also declares bankruptcy, it could also void its agreement with its entire retail network.
But for the moment, the giant maker is facing the threat that numerous dealers will either try to block their dismissal in court – or will seek damages for their losses. A dealership owned by former Detroit Pistons basketball player has filed what appears to be the first such suit. Owner Bob Sura claims GM’s decision to close or sell off its Saturn division makes his store, in Tallahassee, Florida, “worthless.”
Along with the 1,100 dealers already advised they’ll be terminated by October of 2010, GM’s own marketing chief, Mark LaNeve, revealed, last week, that another 500 dealers could be dropped from the automaker’s rolls after it either sells or closes its Saturn, Saab, Hummer and Pontiac brands.
Sura’s lawsuit, filed in U.S. District Court, in Florida, demands the automaker recompense him for damages and all the money he has invested in the operation. The former basketball player’s attorney may seek others to join in the action. And industry observers believe GM could be hit with a flood of action from disgruntled dealers facing the loss of their businesses.
Chrysler has provided TheDetroitBureau.com with further details on dealer consolidation:
Chrysler stated that the process to evaluate dealers was a thorough, rigorous process that used a data-driven metric that included the following factors:
Minimum Sales Responsibility — a scorecard that measured sales, market share, shipments, customer satisfaction index, service satisfaction index and warranty repair
Facility – the capacity of the store and whether it met the latest dealership standards or Millennium II standards
Location – is the dealer in am optimum retail area?
Dual – is the dealer is dualed with a competing manufacturer?
Market — the market’s total sales potential
Of the 789 rejected dealers:
— 44% dualed with a competing new vehicle franchise and can continue to sell those makes of vehicles
— 83% sell more used than new vehicles, many of these dealers will continue selling and servicing pre-owned vehicles
“Chrysler began the process to consolidate dealerships and locate all three brands under one roof more than 10 years ago. The Company made the decision not to continue to manufacture and market overlapping products. It is critical the majority of our dealers offer customers all three brands under one roof.”
Utter nonsense saying the health of the remaining dealers is dependant on the demise of the others! As a former dealer I can tell you the success of any dealer is entirely dependant on two things:
1. The quality/design and desireablity of the product he sells and,
2. The talent and ability of the dealer himself to operate his business.
It has never been dependant on his competition within his brand as territories are clearly defined most often. And the fact is since most advertising money is generated from manditory brand collectives the more dealers the larger the ad pool. Further, the dealers currently existing have seen a good number of competing stores close with 90% of those sales going to other brands and not the remaining dealers. This will be especially true with the elimination of the rural stores as Ford has openly stated they intend on keeping theirs open.
What you have here is the Feds merely looking as per store sales of the imports and ‘assuming’ reducing the number of domestic stores will produce the same when the problem is the imports are simply more popular. But if less dealers is what you want then act responsibly and buy them out as much as possible of their inventory, parts and special tools. What the reduction will do is forever end Chryler’s double digit market share days and create so much ill will in the process as to alienate many people formerly loyal to them. And the same will happen to GM should they follow the same course!
Hi Fred. Long time no see. I am in favor of reducing the dealer count if for no other reason than it is an opportunity to shuck habitually poor performers. The bulk of the dealers being terminated in North Texas are poor performers. Unfortunately there are some good ones being shucked as well.
One thing that galls me is the fact that Chrysler will keep their company owned stores open to compete with privately owned stores. The company owned stores sucked millions out of Chrysler’s pocket book last year and will continue to this year and next. Their presence weakens the very dealers Chrysler claims to be attempting to help by shutting down other dealers. Doesn’t make sense.
Folks, I don’t disagree with one key assumption of Fred’s, and that’s the likelihood that at least some once-loyal customers will abandon Chrysler for competing brands — whether Ford or the imports. You mention the ad pool, the fact is, that is as much based on units sold as it is on dealer count. If it were otherwise, Lexus or Toyota would have far less to spend, considering they operate a fraction of the dealers. So, if you were to assume – rightly or wrongly – unit sales would stay level, then the ad dollar pool would remain relatively flat. And, were sales to stay relatively stable, I agree with those who want to cut the dealer count that by dividing the pie between fewer stores, you’d see better per-dealer revenues and margins. That would translate, I believe, into more money back into the stores and likely better salespeople working Chrysler or GM showrooms. As is, dealers put money in where they eventually get it out, and domestic brand returns just don’t justify what a Lexus or Toyota store does.
The key point is that Chrysler and GM need to work with the dealers they’re firing. I don’t think a mega-buck payout is likely, nor even possible, as happened with the closing of Oldsmobile. But the dealers deserve to have help, as Fred points out, disposing of inventory, etc. Paul A. Eisenstein, Bureau Chief, TheDetroitBureau.com
The per sales outlet reasoning, let’s call it a theory, comes from assuming that customer satisfaction in some way correlates with dealer profitability. This could be a post hoc fallacy, of course, since one doesn’t necessarily follow from the other.
The last time I looked, the dealer agreement is contingent on being profitable, a provision that is flagrantly violated by company stores from all of the “Big Three.” And I wouldn’t be surprised if this “more honored in the breach” aspect applies to import stores as well.
One thing is certain in all this, Chrysler, GM and Ford want to shed dealers, and seem certain it is the right thing to do.