Chrysler Dealer Cull Not a Done Deal

John Horner
by John Horner

Although Judge Gonzalez has so far given Chrysler-Fiat just about everything it has asked for, approval of the dealer cull still isn’t a done deal. The AP reports that: “U.S. Judge Arthur Gonzalez will hear arguments Thursday on the Auburn Hills, Mich.-based automaker’s motion to eliminate the franchises. Chrysler executives are also expected to testify. The motion was expected to be heard Wednesday.” In parallel actions, the Senate is holding hearing today on the very same issue. Again from the AP : “Lawmakers contend the dealership closings will put thousands of people out of work and offer few savings to GM or Chrysler, which have received billions in federal aid as they attempt to restructure and return to profitability.”

The justification for these dealer culls is weak at best. Last week during testimony, lawyers for the targeted dealers had the opportunity to question Nardelli on the rationale for these forced closures:

Amy Brown, an attorney for the Committee of Chrysler Affected Dealers, which represents more than 330 dealers, asked why it was necessary to eliminate the franchises when neither the government or Fiat asked for it to happen. Nardelli said that the 789 dealers, which represented 14 percent of Chrysler’s 2008 sales, also represent ‘a host of expenses’ for Chrysler related to things such as tooling, service training, advertising and sales incentives. But when asked to quantify how much those things cost the automaker, Nardelli said he could not and wasn’t sure if the automaker had determined those exact costs.

We may yet see at least one surprise out of the Gonzalez court.

John Horner
John Horner

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  • Gardiner Westbound Gardiner Westbound on Jun 03, 2009

    I don't understand how reducing dealer populations materially benefits GM and Chrysler. Dealers are factory resellers. If a dealer consistently sells below cost he is out of business. An analogy might be Chrysler refusing to sell cars because of excessive warranty costs, though it hasn't deterred it yet. The solution is to build quality cars, not fire the customers. Hyundai will be signing up displaced rural dealers to replace GM and Chrysler as small town mainstays. The industrious Koreans undoubtedly have a pickup truck in design! Then the shrunken, government subsidized two will whine about unfair foreign competition stealing their key market.

  • Nicholas Weaver Nicholas Weaver on Jun 03, 2009

    menno: So? And are you so sure? Honda may not exist in the small towns, but it has a significant presence in the cities in the midwest. EG, put in the zip code for Wichita Kansas into Honda's dealer locater. You find two in Wichita (pop ~300K), one in Hutchinson (pop ~40K), one in Salina (pop ~50K), one in Manhattan kansas (pop ~50K), one in Topeka (pop ~130K...)... And at that point I give up and stop separating out Kansas from Oaklahoma in the list.... You can have a significant presence in the midwest without having agazillion dealers. And its not like they are underserviced. The entire STATE has less than 3 million people, and as a result, Honda probably has as many dealers per-capita in Kansas than they do here in the SF bay area.

  • Paul Niedermeyer Paul Niedermeyer on Jun 03, 2009

    In Europe, where there aren't these franchise laws, the manufacturers have been culling smaller dealers for years. The Rationale for Culling Dealers: Each dealer does cost the manufacturer; reps, support, training, materials. etc. To my understanding, the overwhelming majority of the culled dealers are small, carry only one Chryco line, and have not scored well on a number of objective critera. I doubt there are any/many smaller towns losing their only Chryco dealer. In Eugene, the Jeep dealer is also a Volvo dealer. They are pulling the plug in order to give it to the Chrysler/Dodge dealer. They want to integrate their stores to carry all three Chryco lines. Cheaper advertising, etc... The big manufacturers want to have big, strong, healthy dealers so they can afford to upgrade their facilities, personnel, and pay for expensive advertising. It clearly is in the manufacturer's best interests. And given thta these manufacturers are fighting for their life, why cull dealers unless its in their best interests? Now, there may be some exceptions along the way, but trying to make a sausage out of the dead meat of GM and Chrysler isn't going to be pretty. Ask the bondholders how they feel.

  • Dr. No Dr. No on Jun 04, 2009

    I want to scream. Dealers are NOT overhead of the manufacturer. Do you know that the dealers PAY for the transportation costs of the vehicle AND advertising costs of the vehicle? If you believe competition is good (I still do) then the elimination of dealers is a mistake. The channel question is another matter, wherein I support a fair-minded approach with combining Jeep/Chrysler/Dodge dealers under one roof. GM has a similar challenge without the "one dealership for all GM brands" constraint of Chrysler. It's also wrong to think more dealers automatically produce lower transaction prices. They don't. Dealers compete on many levels, including customer service. Yes, you can believe that. The fact is, one dealer can sell Ram trucks for an average $3,000 gross profit (yes, that's a higher transaction cost) and another dealer realizes only a $1,500 average. Why the difference? It is NOT the # of dealers in the market! Rather, it's a host of things, including a better customer experience, sales training, etc. It's not just about price. Jim ("burn us down") Press and Fritz ("I'm not creative") Henderson are being disingenuous, at best. GM and Chrysler have a chance to become profitable again, but it's going to take better leadership than what I've seen from these two.

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