Despite sales of the Fiat 500 picking up, Fiat dealers are getting antsy for new product, with some showrooms struggling to turn a profit based on sales of the subcompact alone.

Reuters reports that dealers have been given the runaround about future product – including everyone’s favorite phantom marque, Alfa Romeo. Fiat has twice postponed a meeting to discuss these matters, and no future date has been set.

But dealers are feeling the stress of having to market a small, subcompact car in a market that has traditionally been less than receptive to these products. Gary Brown, chairman of the Chrysler dealer council and the owner of a Fiat store on Long Island, described his sentiments

“I’m struggling to break even…With the one car in a small (volume) segment, it’s a tough go right now. The real key is rolling out new product, additional offerings,” said Brown. “The four-door (500L) is really going to be a shot in the arm. It will put a franchise on more people’s radar as they are shopping for a small car.”

Fiat’s sales are up slightly in 2013, growing along with the rest of the market. The brand has managed to reach the milestone of 40,000 vehicles annually, something that took rival brand Mini twice as long. But the constant delays and backtracking around product, especially Alfa Romeo’s return to America beyond the pricey 4C sports car is an obvious source of frustration to a dealer body that has  committed to significant investment on the promise of a range of new cars from both Fiat and Alfa.

Opel sales chief Matthias Seidl

The rebellion of German Opel dealers against a new, complicated and  – in the dealers’ views – disastrous distribution system was victorious.  Opel’s sales chief Matthias Seidl withdrew  the discredited and disdained design. “Dealers succeeded with their demands for a simpler system,” writes Automobilwoche [sub].

The nixed system was said to destroy dealer margins and to be  so complicated that “I have to hire a mathematician to understand it,“ as an enraged Opel dealer told Automobilwoche [sub]. Opel dealers threatened to stop selling Opel cars.

In the wake of the European Block Exemption Regulation, the regulatory landscape of the European motor trade became much more liberal than that of the U.S.A. Pretty much anybody can sell cars. OEM cannot block dealers from selling competing brands. OEMs can set dealer standards (under the watchful eyes of the EU), but those can be easily circumvented with a much easier service contract with the OEM. Many German Opel dealers already sell Volkswagen.

The new system cuts into dealer margins and is so complicated that “I have to hire a mathematician to understand it,“ an enraged Opel dealer told Automobilwoche [sub]. The dealers say the system is similar to those at Volkswagen and Skoda. Neumann was Volkswagen’s chief in China before  he decided to take the top job at Opel. Seidl came from Saab, but spent 20 years at Volkswagen . Some point the fingers at Girksy “who wants to increase Opel’s profits by decreasing dealer profits,” as a comment in Das Autohaus reads.

Being a Suzuki dealer is surely one of America’s least enviable jobs; franchise holders must choose whether to accept a cash settlement and a contract to provide parts and service in exchange for their franchises, or whether they want to fight the matter in court.

Based on Suzuki’s estimate of $50 million in total, the settlements average out to about $227,000 per dealer. Payouts are set to be calculated based on sales volume, rent, how much inventory is held, facility investment and other factors. But by taking the deal, they waive the right to any future claims against Suzuki.

Automotive News highlights the main question on the minds of Suzuki’s former sales force; will a payout be comparable to what dealers would receive in accordance with state franchise laws. The predicament, according to AN, is this

Had Suzuki simply canceled the franchises, outside bankruptcy court, state franchise laws would have compelled the automaker to buy back new-vehicle inventory and parts and to compensate dealers for facilities and other costs.

A National Automobile Dealers Association official last week said Suzuki dealers should receive what they would be entitled to under franchise laws and advised them to consult attorneys. Dealers were receiving the offers late last week and were bound by confidentiality agreements.

Suzuki dealers can choose not to sign the settlement offers and file a claim in the bankruptcy case for what they believe they are owed. But such a move means a dealer’s claim could be worth just pennies on the dollar by the time Suzuki pays off other, higher-priority creditors.

While one attorney says that the dealers will represent the largest unsecured creditors, only a small percentage of Suzuki dealers sell most of the cars. A majority of them sell fewer than 5 new Suzukis per month.

The Mitsubishi dealership in Easley, South Carolina is aiming for new business by offering a free gun with the purchase of any new or used vehicle, according to Columbia’s Channel 10.

Having firearms on hand during the negotiation process is probably not a good idea, so buyers at Mitsubishi of Easley are given a $250 gift certificate redeemable at Sharp Shooters Gun Club and Range in Greenville.

This is the second South Carolina Mitsu dealer in the news recently for a dubious sales scheme. Indicted Spartanburg Suzuki dealer Paul Gibson also lost his Mitsubishi franchise when he filed for bankruptcy as he faced having to reimburse hundreds of car buyers that his stores had defrauded.

Many of you told us that the brand will be the next to exit America. Mitsubishi’s sales are down 28.7% this year through October versus 2011. Their 400 U.S. dealers sell an average of 13 cars a month apiece. The Lancer and Galant drive off into the sunset in 2013 and their replacements have yet to be announced. Only the Outlander is keeping Mitsubishi outlets alive. Their products are ranked 32nd out of 36 brands in Initial Quality per J. D. Power.

The end result is a desperate dealer body that resorts to cheesy giveaways to move the units to their low FICO score customers. It is no surprise that Mitsubishi is consistently at the bottom of Power’s Sales Satisfaction surveys.

So would a free firearm incentive entice you to buy a car? Or is it simply Robert Farago’s wet dream?

Long-time TTAC readers know of my sentimental fondness for Crain Communication’s Jamie LaReau. Now the first lady of automotive journalism has uncovered some interesting news about Lincoln’s continuing attempts to, like, do crazy stuff, man.

According to Ms. LaReau’s article in Automotive News, Lincoln is planning to revamp their dealer pricing strategy in January. Invoice prices will be raised 1 percent. Holdback — the old chestnut of domestic auto sales, an incentive between 2 and 3 percent of sticker price kicked to the dealers once a quarter or so — will be eliminated. Instead, dealer bonus payments will be handed out based on customer satisfaction index results and other nebulous factors.

The reason given for this change: BMW and Mercedes don’t have holdback, dontcha know, so Lincoln is going to get rid of it too. But that’s like me deciding to wear a satin dragon suit to the gig I used to do playing acoustic guitar at a restaurant during lunch. Jimmy Page wasn’t awesome because he wore a dragon suit; dragon suits are awesome because Jimmy Page wore one. Cause and effect. Can’t get ‘em confused. This is the same kind of stupidity which leads to Cadillac chasing Burgerkonigring records. Dancing with a candy cane doesn’t make your ugly-ass hipster girlfriend Katy Perry. Beating BMW around a racetrack doesn’t make the tree-seeking ATS a panty-dropper like even the most prosaic Dreier $299/month lease special. Cutting holdback won’t make the MKS an equal driveway trophy to a 535i.

Since the dealers still need cash over and above the invoice/sticker difference in order to keep the lights on, Lincoln’s going to tie that cash to a variety of eminently stupid ideas — such as requiring that all dealers have a “Lincoln Brand Champion” on site. As a former dealership employee, your humble author can assure you that these ideas will last until dealers start missing checks because of them, at which point the dealer association is going to call the attorneys and shit’s gonna get real in a hurry.

In the meantime, there will certainly be some bizarre behavior as a result of the incentive programs. Way back in the dark days of 1994, your humble author was a salesman at an Infiniti dealership. Our equivalent of “holdback” was paid based on the results of a phone call made to the customer after the sale by Infiniti. The purpose of this call was to measure customer satisfaction. Well, we regularly dissatisfied our customers in every way possible, from screwing them on the trade to accidentally putting nine hundred and eighty-one miles on their car before they picked it up.

How’d we deal with this? Easy. We had our extremely sexy sales manager* bring each customer into the office. She would offer them a set of Infiniti-engraved coffee mugs to be delivered, by her, in person, after the call “turned out alright”. Somehow this worked. At the time I was too young and stupid to understand that the men buying these cars were extremely interested in having this woman visit their homes — but she was not, and therefore our dealership got the cash we needed to keep the Dealer Principal’s nose stuffed with that sweet, sweet coke. When the pixie-MILF was fired in favor of a 300-pound Polish gentleman, customer-sat numbers promptly headed down to the proverbial Challenger Deep. Lincoln appears to be just as naive as I was in 1994, so we’ll see how long it takes them to smarten up.

* So…. I took a moment from writing this article to Facebook-stalk the old sales manager in question. My G-d, she is still gorgeous, and she has to be every bit of 52 years old now. Kind of thinking about sending a friend request. What say you, B&B? Should I?

Chrysler dealers who were terminated and then re-instated have been left out in the cold, after a federal judge ruled that the Federal Appropriations Act, a 2010 law that opened the door for dealers to regain their franchises via arbitration, did not overrule state dealer laws that deal with dealer markets.

In 1992, the Ritz-Carlton chain won the Baldrige Quality Award for its excellence in customer service. Their idea was to write all customer preferences down, to feed them in a database and to henceforth deliver as expected.

Twenty years ago, I pointed this out to Volkswagen. I was VW’s customer service guru at the time and thought it was a swell idea. Volkswagen enthusiastically adopted the program. It was a failure, what do you expect from a company that retains me as a guru. Also, VW did not want to spend the money on a database. Instead, the Ritz-Carlton ended up running the hotel at Volkswagen’s Autostadt, and giving the occasional seminar to car dealers who still roll their eyes over the “gottverdammte Unsinn.”

Twenty years later, “Ford draws on luxury hotel experience for Lincoln overhaul,” writes Reuters, reporting that “in the plan to overhaul its luxury Lincoln brand, Ford Motor Co is embarking on a new approach, leaving behind the routine ideas of the auto industry and instead taking cues from the likes of high-end boutique hotels.”

Before that happens, Ford is reducing its dealer network to boutique size. Ford announced that it had reduced dealerships of its Lincoln luxury lineup to 325 from about 500.in the top 130 markets. That’s not all dealers, mind you. NASDAQ reminds us:

“Ford began to expand its luxury Lincoln line-up at the cost of its Mercury line-up from late 2010. The company has suspended production of its Mercury branded vehicles in the fourth quarter of 2010 and started diverting resources from the brand towards its core Ford brand besides enhancing the Lincoln brand.

At that time, Ford had announced to eliminate a third of its 1,200 Lincoln dealers in the U.S., mostly in urban areas. The company has 700 dealerships in rural areas.

The automaker has asked the Lincoln dealers to upgrade their showrooms and services in order to meet the rigorous competitive standards. Dealers have revealed that the renovations would cost about $2 million per showroom.”

Actually, at that time Ford believed that only some 300 Lincoln dealers have a fighting chance. Reuters reported in October of 2010:

“Only about a quarter of Ford’s 1,187 Lincoln dealers now have the kinds of facilities that the automaker believes it needs to compete with luxury-market competitors.”

The call to investments met with lukewarm success. “More than half of all Lincoln dealers in the top 130 U.S. markets have committed to upgrade their facilities, creating a new sales and service experience for future Lincoln owners,” Ford announces today in a press release.

Careful, we are talking about the top markets again. Nobody even mentions the hordes of Lincoln dealers in the sticks anymore. They appear to be written off.

Also, out of the “more than half of all Lincoln dealers in the top 130 U.S. markets” only “seventy-five dealers in cities including New York, Los Angeles, Dallas, Philadelphia, Atlanta and Chicago already have completed new facilities or major facility renovations” says the press release. We are finally approaching manageable numbers.

From my days as a guru I remember what happens to dealers who don’t follow a manufacturer’s call to pour concrete according to the latest Corporate Identity guidelines: Their bonus payments dry up, the bank wants to see cash, car haulers dump duds on the lots and bring the sellers to the other guy. Sooner or later, all dealers will be up to standard – those who balked, died.

In the meantime, Ford is contemplating how to bring that high-end boutique hotel style to its surviving Lincoln dealers. The first ideas appear a bit pedestrian. Reuters says:

“Ford is considering creating four or five standard “rituals” that can be employed by Lincoln dealers throughout the country. One example might be to ask each salesperson to provide potential customers with their personal cell phone number.”

Wow. Just wow.

Jeep, Ram and Dodge landed at the very bottom of the latest J.D. Power Customer Satisfaction Index (CSI) index. Sergio Marchionne is not amused and tells dealer to shape up. “We’re not top league”, Marchionne told Automotive News. “We moved up. But that’s not true of the customer interface. We’re doing well, the dealers are doing well, but they’re not doing well with the customers.” Dealers blame the fact that Chrylser no longer rewards dealers for meeting company standards. Dealerships that were up to snuff could collect up to $200,000 per quarter. With the program suspended, dealers must excel for free.

GM has another problem: GM dealers are ordering too many cars. Automotive News [sub] reports that “General Motors is cracking down on dealers who it says are “gaming” its vehicle-ordering system to finagle more cars and trucks than they deserve.” GM says it has uncovered “significant ordering and reporting abuses” by dealers who are trying to get more cars than they deserve. Damn if you do, damn if you don’t. In the olden days, dealers were drowned in cars they had not ordered, now they get rapped for ordering too many cars.

Ford brought two pieces of good news for their dealers at this year’s NADA meeting: The dealers will get more cars. And they will get more cash. But wait, there will be less …

Ford will increase its production targeted at its U.S. dealers by 13 percent this quarter. If the market wants more, Ford will make more. They will even lay on more shifts, says the Wall Street Journal.

What usually makes dealers much happier: Ford will dole out extra spiffs. Ford dealers will get $50 for every vehicle they order with Sync and $75 if they order cars equipped with Sync and MyFord Touch. This “technology allowance” is meant to reimburse the dealers for the extra time it takes to teach customers how to use the in-vehicle technology.

Dealers had been complaining that the new technology eats up their precious time. Automotive News [sub] wrote recently that “delivering a new vehicle used to take a dealer 45 minutes. It now could take up to two hours for some. That’s productivity time lost by the salesperson who could be making another sale instead of teaching a customer three different ways to turn on or adjust the air conditioning.”

So that was the good news. “Later Sunday, Czubay and Jim Farley, Ford’s global marketing chief, told Lincoln dealers that Ford wants to reduce the retail network from 434 showrooms to about 325 in the country’s 130 largest markets,” writes the Freep. There had to be a catch.

Troubled BYD has even more problems: Dealers defect the Chinese car maker, because the alleged master of the electric vehicle has perfected one ancient tradecraft: The art of channel stuffing. A Beijing BYD store switched to another brand because BYD required them to carry a whopping six times the monthly selling rate on the lot. The poor dealer that moved 70 BYDs in a good month was sitting on a steadily restocked inventory of 400 units.

Even that generous inventory strategy did not help: In 2010, BYD’s sales grew only 15 percent, less than half the performance of the overall market.

Now a contrite BYD Chairman Wang Chuanfu swore to the Wall Street Journal that this won’t happen again. “Our objective now is to ask dealers to carry stock that is twice the monthly selling rate.”

The result of the strategy? “Because of the dealer inventory reduction and other changes to its strategy, BYD is forecasting even less sales growth this year,” says the Journal.  “The company says it sees its sales growing only around 10% to roughly 550,000 vehicles in 2011, more or less on par with the 10 percent to 15 percent growth analysts predict for the China car market as a whole.” Given past performance and overfilled lots, even that target may be audacious.

To right the listing ship, BYD also plans to slow the roll-out of new cars (not good for sales) and spend more time on quality and styling (good for sales in about 5 years.)

And here another BYD first: BYD is the first Chinese company to perform a massive dealer cull.  “BYD has admitted its sales network grew too fast and has cut the number of dealerships by 100,” reports People’s Daily.

BYD had created a 1,200 dealer network to keep up with the projected demand for 800,000 cars. By the end of last year, BYD had sold only 520,000 cars. BYD’s annual growth of 15.5 percent was less than half of the overall Chinese market.

For this year, BYD has set more conservative goals: They estimate an increase of 10 percent to about 550,000 cars. The company still wants to go ahead with its planned mainland A-share stock listing.

Forget about Europeans complaining about missing parts. Over in America, there is an acute car shortage. Dealers blame who they always blame: The manufacturers. “They’ve cut back production so much that we’ve run out of cars,” Boston dealer magnate Herb Chambers tells his hometown paper, the Boston Herald. He says he had to “beg, borrow and steal” Cadillacs from dealers in other parts of the country. Down at the South Shore, dealer Dan Quirk loses 60 to 90 sales a month. “The Big Three just don’t have enough manufacturing capacity any more,” kvetches Quirk. “Some of the automakers, particularly General Motors, closed a lot of their plants when the meltdown hit.” Supposedly it’s not just a Bostonian phenomenon. Supposedly. At closer look, it might be a fire breathing, rip-snorting chimera.

“The average U.S. dealer had just a 75-day inventory of domestic cars and light trucks on hand during October, down from a 146-day supply in early 2009,” a big-eyed Herald cites WardsAuto.  But if you really look, and if you read beyond that sentence, you’ll see that Wards calls a 60-70 day supply “normal.” In September, the average inventory was 64. Inventories are up, not down. Somehow, the Herald forgot to mention this item.

Supply is slowly getting in sync with demand, and manufacturers echo that sentiment: “When we emerged from bankruptcy in July 2009, we restructured our business and got our capacity in line with what demand was at that time,” GM spokesman Tom Henderson said. “That’s a situation few dealers are used to, but it’s actually good for business.”

Wardsauto doesn’t see signs of a sudden run on the dealerships. For November, they project a daily sales rate of 35,504 and a slight gain of 1.3 percent over October. They maintain their projection of 11.5m cars sold in the U.S.A. by the end of the year.

J.D.Power agrees in principle, but is even more cautious. They expect November SAAR at 12.2m units, unchanged from October, but up from the miserable 10.9m SAAR in November 2009. They also expect 11.5m cars having changed hands by year end.

For 2011, J.D.Power sees “a moderate level of risk with automotive sales. ” Which caused them to slightly down-revise their next year outlook to 12.8m units in total sales.

So why the sudden talk about car shortages in Boston? Let’s get our tinfoil hats off the rack and look at the GM stock. What, no post-IPO pop? On the day of GM’s IPO, Ford gets downgraded from “buy” to “neutral” (translation: dump it, fast) by an analyst who echoes the cautionary outlook? Could it be that a New England investment banker or someone at the Boston Consulting Group (advisors of the Treasury) had a cocktail with someone at the Herald? Could the article have been written under the influence of said cocktail?

Only by wearing beer goggles can one overlook that the leading scorekeepers of the industry don’t see signs of shortages. If they see a shortage, then it’s a possible shortage of buyers.  Nothing dramatic, but the domestic market is expected to remain as flat as a lake for a while. The stock market doesn’t like flat.

Contracthireandleasing.com reports that BMW and Mini dealerships across the UK have launched a new customer service system that allows every customer to rate their dealership experience on a five star scale. The system also includes a facility for the customer to leave feedback comments which are posted on the dealer’s website. OMG, eBay scores for BMW dealers?  ”We are committed to providing the very best service for our customer and believe that this level of openness and transparency is not only desirable but essential,” said Tim Abbott, Managing Director of BMW UK.

Customers will be given a unique code, specific to a particular sales or service experience and will be invited to assign a star rating (out of five) and make comments. The comments and ratings will stay on the dealer’s website for 90 days and will be available to anybody who visits the site. For a dealer to score five stars, they have to achieve a stellar rating between 95 and 100 per cent satisfaction. One star means satisfaction is below 20 percent. That dealer shouldn’t get a star, he should be handed a gun with one round in the chamber.

The system has been trialed by BMW and Mini since January 2010. “This is a brave decision,” said Tim Abbott, “There is no hiding place in a retail environment displaying this kind of transparency. But I am confident that our dealers truly understand the importance of satisfied customer. For those who are not yet rated with four to five stars it will drive their future performance and deliver a more focused customer culture.” Translation: sloppy dealers will get an arse-kicking.

Incidentally, a system already exists for the United States. In researching this article I found a website which does rate dealers across the country. The problem with those is that ANYBODY can post feedback on there. Even if you’ve never been to the dealership. A bit like the NHTSA database. Or Dontdatehimgirl.com .

A few days ago Ford reported that 35 percent of the Lincoln dealers are superfluous and should be sent out to pasture – to avoid the word “cull.” The metro areas appear to have a particular overabundance of Lincoln dealers. According to Mark Fields, President of Ford Americas, this is where “the efficiencies” need to come from. The news didn’t go down too well. The Freep quoted one dealer. “It was a somber day,” said Larry Taylor, Lincoln-Mercury dealer near Dayton, Ohio, “I’m secure. But there are some guys who have had a store for 50, 60 years who are going to have to give that up.” Mark Fields, President of Ford Americas is adamant: “We are fully committed to transforming Lincoln into a world-class luxury brand.” Now Ford is upping the ante against uppity Lincoln dealers.

Automotive News (sub) reports that Ford has issued an ultimatum to Lincoln dealers: Invest money in your dealerships to meet new service and dealership standards or kiss your franchise goodbye. Ford staffers will be sent to dealerships to talk to and negotiate upgrades which dealers need to make. If the dealer does not make the required changes, then they will have to take whatever severance package Lincoln will offer them. As Mark Fields puts it, “Dealers will decide”. It is estimated by Ford that about 25 percent of all Lincoln dealerships meet the standards that they want. What makes this decision even tougher for Lincoln dealers is that they have to commit money to improving their dealerships, while the return on investment doesn’t look that great. In September, 2010, Lincoln sold 7,510 units in the whole of the United States. Now compare that to Mercedes-Benz who, in the same period, sold 20,666 units. Or BMW, who sold 18,228. Or Audi, who sold 8,151 units. Or Lexus, who sold 16,948 units. Or Cadillac, who sold 12,620 units.  Even Acura sold more, at 10,720 units. So did Buick, they sold 12,875 units. And Infiniti, they sold 8,305 units. In short, Lincoln is one of the weakest luxury brands in the US market. It’s not that they don’t have too many dealers. They don’t have enough sales. And Ford is asking them to stump up more cash in order to make their dealerships meet new standards or risk getting cut. It’s not an attractive proposition.

How about something revolutionary: One Ford. Also in the dealer channel. People love multi-brand auto malls. No? Never mind.

Ford is in pretty good shape now and it’s quite clear that they’ll survive, provided they don’t fall under the huge amount of debt they have. But don’t be fooled that things are safe at Ford. Especially if you’re a dealer.

The Day (based in Connecticut) reports that Jim Farley, Ford’s Vice President of global marketing, sales and service, is looking at reducing the United States’ Ford dealer network further. He would like to see it at under 3,000 dealers for the United States. At the end of 2009, Ford had 3,553 dealers in the United States, but now that Mercury is being put to rest, the existing Lincoln/Mercury dealers (about 276) will find it difficult to stay in business without Mercury. “The dealers are full partners in every decision the company makes,” said Mr Farley, “When you are trying to consolidate your network from 6,000 down to 3,000 the dealers are on your side and they will help you participate in the consolidation.” Of course they are on your side, and of course they will help you, Mr Farley! They’ll try to persuade you to close OTHER dealers, just not their own. So, if you own a Ford dealership and think the sky is the limit with Ford’s newfound success, be careful. Ford might not want you to be part of it. Maybe Hyundai has a couple of spare franchises?

When I had business at Volkswagen, arriving at Wache Sandkamp, I was always asked whether I have a cell phone on me. “Ja,” I said. “Does it have a camera?” “Nein,” I said. The guard didn’t want to see the phone, and I could keep it.

At Chrysler’s big dealer convention, to be held in September in Orlando, they won’t be so lenient. Dealers have already been told to leave all cell phones, video equipment and cameras in their hotel rooms. To ward off the intrusion of rogue recording equipment, metal detectors will be put up at the show’s entrance.

What’s the fuss about? The Wall Street Journal reports that “Chrysler is being cautious because Chief Executive Officer Sergio Marchionne is providing a deep breakdown of the vehicles dealers should expect to see coming to their lots over the next six to eight months.”

That’s it? Ultra-high security for cars that are six to eight months out? What are they worried about, that someone will build a copy?

To make matters worse, dealers have to pay $900 each to attend. Highly, highly, highly unusual. Dealers are used to be treated like royalty at these gatherings, with sumptuous dinners, big name entertainers and sometimes more, all on the dime of the carmaker. At our meetings, they received armfuls of glossy brochures featuring the cars. No own picture taking necessary. If someone did, even better. So $900, and they can’t even take an “I have been there” picture?

“The cost isn’t a major issue but it is a thorn in their side,” said Scott Hogle, founder of the auto retail blog DealershipForum.com. “They wait 15 months to see Mr. Marchionne and now they have to pay $900.”

Scott Hogle must be out of touch with his readership. “Not a major issue?” I’ve seen dealers bitch about much lesser amounts. Or that they had to pay taxes on entertainment that wasn’t strictly business.

Usually, car manufacturers worry about dealers showing up at the events, even when everything is paid for. It doesn’t sound as if Chrysler wants a huge attendance.

Chrysler is doing better than GM. At least when it comes to winning arbitration cases brought by culled dealers. GM lost both cases brought against them. Chrysler bats much better.

Out of nine arbitration cases brought so far by eliminated dealers, Chrysler won 8, reports Automotive News [sub]. This week alone, Chrysler won three. The unlucky dealerships were Hinckley Dodge in Ogden, Utah, Tenafly Chrysler Jeep in Tenafly, N.J., and Midway Motors in Framingham, Mass. Out of the 9 cases  that have been decided, Florida’s Deland Dodge was the only dealer to prevail.

After going bankrupt, Chrysler terminated 789 dealers last year. In December, law was passed to give any rejected dealers of Chrysler or GM the right to seek arbitration.

Chrysler reinstated 36 dealers and sent letters offering reinstatement to 50 more. Approximately 400 Chrysler dealers initially went for arbitration. That number dwindled to less than 250, as cases were withdrawn, dismissed, or settled.

It’s a little-known fact that nearly half of the 2,000 or so dealer franchises that GM began winding down during bankruptcy were Cadillac stores, most of them located in rural areas. The General’s plan was to focus Cadillac’s dealer network on  standalone stores in major metropolitan areas, following the strategies of more premium luxury competitors like BMW and Lexus. But having marked 922 largely small-town Caddy dealers for death, GM saw 2009 sales of its luxury brand fall 15 percent, or twice the rate of Buick and Chevrolet in the same period. The lesson: small-town Cadillac dealers (like attempts to sell the brand in Europe) are worthwhile after all. Automotive News [sub] reports, the majority of those dealers being reinstated are small-town Cadillac dealers. Will Cadillac’s brand integrity suffer by having to serve the small-town American market as well as competing with the European brands? Probably, but at least Caddy dealers can take heart knowing that things could still be worse: they could be Lincoln-Mercury dealers.

While GM flip-flops on whether it wants small-town dealers representing its “world-class luxury” brand, Lincoln-Mercury’s dealers are sticking with their long-standing strategy: survival by any means. Undistracted by esoteric debates over the importance of dealer network image to the overall brand, Ford’s L-M dealers are desperate for anything to keep their cashflows steady. Literally, anything. One dealer tells Automotive News [sub]:

The only other answer is to find another franchise, any other type of franchise — Suzuki, Honda — you name it. We’re a dwindling group of dealers.

You know you’re in trouble when selling Suzukis starts to sound good. Ford is technically working to consolidate its L-M network in metro areas, although without the bankruptcy dealer-culls enjoyed (but since reversed) by GM, the work has been more methodical. In further contrast to GM’s post-bankruptcy strategy, Ford is focusing on eliminating standalone Lincoln-Mercury dealers, and was down to 292 at the end of 2009, down from 357 at the end of 2008. Also, consolidation is focusing on metropolitan areas, as Ford would likely prefer to allow its rural dealers to die of natural causes and sell as many cars as possible first.

And dying they are. An Automotive News [sub] survey shows that nearly all Lincoln-Mercury dealers believe that their two brands don’t have enough products to attract the kind of customers they need to survive, and most believe themselves to be at a disadvantage compared to Ford’s three-brand stores. High costs and insufficient service business are similarly hurting Lincoln-Mercury dealers, and most report no assistance from Ford in breaking out of the L-M ghetto.

Though the cases of Cadillac and Lincoln-Mercury are different, they both speak to Detroit’s inability to pull off modern luxury brands. And in both cases, dealer woes reflect larger issues surrounding each brand. In the case of Cadillac, the story is of identity crisis. Is Cadillac a European-grade maker of world-class, dynamically-focused and fashion-forward driving machines, or the small-town America symbol symbol of petty-bourgeois success, with an emphasis on the old-school American  values of wide seats, big power, and a cosseting ride? The brand’s product line displays this identity crisis (compare CTS and DTS) as much as the dealer network does.

That volume is dictating a pendulum swing back to the small-town strategy (or at least an embrace of this split-identity) shows that GM is no closer to figuring out what it wants out of Cadillac than it did pre-bankruptcy. In fairness, the next two products coming down Cadillac’s development pipe show that Cadillac’s schizophrenia is here to stay: a “true 3-series killer” known as the ATS isn’t going to set rural markets on fire, but an Epsilon II-based XTS “flagship” isn’t going to do much for Caddy’s Euro-appeal either.

In the case of Lincoln-Mercury, the problem is of not-so-benign neglect rather than disjointed leadership and vision. Ford’s luxury brands are, in many ways, sticking with the old-school Detroit formula for luxury even as the Ford brand emerges as a paragon of global brand-management. Ford has eschewed heavy investments in Lincoln-Mercury product lines of late, and as its “luxury” options have stagnated into the most obvious bunch of rebadges to come out of Detroit, it’s allowed its dealers to suffer along with them. Ford insists that there are no plans to consolidate rural dealers, but that it also wants to cut the number of standalone dealers.

With only one Mercury product rumored (a variant of the forthcoming Focus), Lincoln-Mercury dealers won’t have much choice but to consolidate into three-brand dealerships, as no dealer will survive much longer on the thin gruel of L-M’s current product portfolio. Once that transition is complete, expect Mercury to die, and Lincoln to begin slowly rebuilding some luxury credentials. If this is in fact Ford’s gameplan, it will be a long, slow strategy to implement, but at least it heads in a sustainable direction. With Cadillac bouncing back and forth between missions, visions and dealership strategies, Lincoln-Mercury’s product neglect and dealer starvation almost seems like the rational approach.

We reported yesterday that GM’s recent dealer cull flip-flop was motivated by Chariman/CEO Ed Whitacre’s desire for increased sales volume. Though that may have been the main reason GM took over 600 dealers back into the fold, there was clearly another, more sinister reason for the move: making an example of dissident, activist dealers. Automotive News [sub] reports that GM has contacted all 661 reinstated dealers, and believe it or not, none of the 7 dealer members of the Committee to Restore Dealer Rights have been contacted. Founding member Tammy Darvish tells AN [sub],

The only thing I’m confident of is that I’m sure it’s not a coincidence

GM and Chrysler were already culling dealers before their bankruptcies, which hastened the process. Many of those dealerships were profitable businesses, often family owned, whether or not they were ultimately an asset to the parent automakers. Dealers have established regional brand equity, being major advertisers in their markets. The dealers losing their franchises have explored what few options they have. There are lobbying efforts at the state and national levels to protect the affected dealers with some kind of legislation. Some have signed up with Hyundai & Kia, as the low priced Korean automakers thrive in the recession. Others, recognizing that new car sales are often a wash, and that repair service and used car sales are profit centers, have stayed in business as used car dealerships or automotive service centers.

Now Sears Roebuck & Co. has offered some of those culled dealers another lifeline. Banking on the reputation of its DieHard battery brand as well as being one of the country’s leader tire retailers, Sears is launching the Independent Sears Auto Center franchise program, starting with a former Chrysler dealer in New Jersey, the Coleman Auto Group. Participating stores will offer Sears’ full automotive product line of batteries, tire, accesories as well as repair services and replacement parts.

On paper this appears to be a win-win. Sears is a well established player in the replacement battery and tire market. Every Sears store has a large automotive department that sells those tires and batteries as well as a fairly extensive selection of car and truck accessories. The brand’s association with cars and car repair in consumers’ minds is solid – even if we’ve never bought a DieHard, we’ve all shopped at Sears at one time or another and have passed through their automotive department. The automotive franchising program is in line with Sears’ other efforts to expand their brand like the standalone Sears hardware stores and putting Craftsman products in Kmart stores. This will help sell more DieHards.

For the dealers, who have retail showrooms, parts departments, and extensively and expensively equipped service departments, becoming a Sears franchise allows them to try and recover that investments. For dealers who maintain their used-car sales department, the Sears brand will help restore some brand name cachet that they lost with their GM or Chrysler franchise. Put another way, it reduces the stigma attached to used-car dealers.

Bill Jackson, Senior Vice President of Sears Holdings Corp. and President of Sears Authorized Independent Auto Centers, LLC. said “For customers, Sears Auto Centers will be more convenient than ever, with more locations providing our full product and service offerings. This is also a great opportunity for dealers who are currently selling used cars to gain a brand that’s nationally recognized for quality and dependability, a resource for buying high-quality auto parts and supplies, and access to a proven business model that has been tailored to their needs.”

It’s intriguing that Sears specifically mentioned dealers who continue to sell cars. Sears in addition to being a general retailer has some valuable brand names like Kenmore and Craftsman but the company has rarely, if ever, manufactured its own products. Kenmore washing machines are made by Whirlpool in Benton Harbor, Michigan and now that a lot of manufacturing has moved to China, Sears has plenty of experience working with Chinese vendors. Downstream I can see a network of Sears automotive centers being an attractive sales venue for emerging foreign automakers.

Already there’s been speculation that Chinese or Indian automakers will entirely bypass the traditional dealer model and sell their cars in big box stores like Wallmart or Costco. That speculation was started by BYD’s claim at the recent NAIAS that they would be selling cars in the US by the end of this year, though they have no distribution or dealer channel in place. Honda VP John Mendel, who said that selling cars in “warehouse stores or electronic stores” could destroy the current auto dealer business model, gave that speculation some credence.

The major obstacle to abandoning the traditional car dealer model has been after sales service. As Ed Niedermeyer pointed out, a US spec Tata Nano might be cheap but a $5,000 car is not as disposable as a $300 tv set.

A network of name branded automotive service centers, already experienced with retail car sales would be a natural fit for a Chinese or Indian automaker trying to break into the US market.

Ironically, this would not be the first time Sears has tried to bypass the traditional auto dealer business model. In 1952, Sears Roebuck introduced the Sears Allstate, sold through their Allstate auto accessory stores and advertised in their catalog. Manufactured by Kaiser-Frazer, the Allstate was a badge engineered Henry J. After-sales service was supposed to be provided by K-F dealers. It came in two models, Standard for $1,395 and Deluxe for $1,796. One of a number of economy priced models introduced by small automakers in the early 1950s to less than enthusiastic consumer response, only 1,600 (one source says 2,300) Sears Allstates were sold and Sears left the new car business in 1953 after only two years. In the case of the Allstate, it was hamstrung by internal politics at Kaiser-Frazer. The company liked the idea of another retail channel, but its dealers didn’t want the competition, service revenue notwithstanding. Sales were also hampered by the fact that the car was too expensive a product to keep in inventory – customers had to order and wait. Also, the lack of dealers meant no trade-in opportunities.

Actually, the Allstate was not Sears’ first attempt to retail cars under its own brand without using the traditional dealer network, though back in 1908 car dealers were not old enough to be traditional. Nor were they in every town and hamlet. Much of America was still rural and people ordered just about everything in their house from the Sears Roebuck & Company catalog, including, sometimes, the house itself. Sears was a reputable business and every town had a railroad depot.

The 1909 Sears, Roebuck & Co. catalog advertised the Sears Motor Buggy for $395 plus shipping to the nearest train station, $370 without fenders and top. The car could also be delivered at the Chicago factory ready to drive.

Acetylene headlamps were an option ($2.95) as were speedometers, though with 10 HP (later models had 14 HP) and a 25 mph top speed, they were hardly necessary. Sears advertised the Motor Buggy as “so safe that a child could run it.” To save on shipping costs some assembly was required to drive the car home, but it did come with an instruction manual and a gallon of lubricating oil.

Alvaro S. Krotz, electric vehicle pioneer and the inventor of treaded tires, designed the Motor Buggy. He supervised assembly, using components made by suppliers to the then young automobile industry. Sears advertised that the Motor Buggy used an “angle steel frame built by experts that build 75 percent of the automobile frames used in the United States today”. Reeves supplied the 2 cylinder air cooled gasoline engine.

The Sears Motor Buggy’s slogan was ‘Lowest in Original Cost – Lowest in Upkeep Cost’ and considering that it was half the price of the then recently introduced Ford Model T and the Sears catalog’s ubiquity, it should have been a success.

Indeed, the Motor Buggy was more successful than the Allstate, at least in terms of sales, but both are pretty much trivial anecdotes of automotive history (though a useful angle for a story about Sears, culled dealers and Chinese and Indian car imports). Approximately 3,000 Motor Buggies were sold until Sears, which lost money on each, stopped selling them in 1912 and sold the tooling to the Lincoln Motor Car Works (unrelated to Ford’s Lincoln brand) one of their suppliers.

So while Sears has some experience selling cars outside the normal dealer networks, that experience has not been profitable or long lived. Even today among the biggest obstacles to establishing a car brand in the US are distribution and retail sales. After sales service (including warranty work) is just as important in 2010 as it was in 1952 and 1908. The Sears Motor Buggy had a huge price advantage over its competitors but no dealers to service the car. Even worse, most buyers had to finish assembly themselves, the world’s first kit car. Kaiser-Frazer dealers were reluctant to service Sears Allstates and you couldn’t go back to Sears and trade in your Allstate on a new model.

It’s not too hard to load cars onto a ship. Convincing entrepreneurs to plunk down hard cash for a franchise with an unproven brand is considerably more difficult. Analysts say that 150-200 is the minimum dealer count to introduce a new brand. By comparison, Subaru and Hyundai, two brands that are adding dealers, not culling them, each have 600-700 dealers, both after decades in North America. Should Sears franchise a few hundred Independent Sears Auto Centers that could be an enticing distribution channel for an automaker trying to enter the US market.

The Standard Of The World meets cold reality, as the prominent Detroit-area Cadillac dealer, Dalgleish Cadillac, calls it a night. The Detroit News, which eulogizes the dealership “with bitterness, hope and history bound together,” reports that the Dalgleish Cadillac building will become a high-tech business incubator run by Wayne State University’s Tech Town.

Grand news for owners of 1999 model year and later Pontiacs! Buick-GMC GM Brian Sweeney tells Automotive News [sub] that “one of our most important tasks is keeping [Pontiac owners] in the database and keeping them as service customers until such a time that the Buick portfolio has developed fully.” The plan: send owners of 1999 model-year and later Pontiacs coupons for free tire rotations and oil changes. GM sales boss Susan Docherty has spoken about the importance of these “free agents,” or GM buyers orphaned by the cutting of their brands. As well she should: it’s more cost effective for any business to keep existing buyers than win over new ones. But is it free oil change easy? If GM thinks it can make Buick believers out of the jilted Pontiac faithful, what does it say about the cynicism with which it approaches branding? Once again, GM’s need to build lost Pontiac volume for the Buick-GMC dealer net leads to the willful suspension of common sense.

We also recognize there is a market (for the Nano) not only in developing countries, but possibly in the developed countries. For the United States we need a car which has a larger engine and we need additional crash test modifications and we are in the process of doing it.

Ratan Tata at today’s India Auto Expo [via Automotive News [sub]], suggesting that the world’s cheapest car could eventually be sold in the US. Fiat is already partnering with Tata to jointly sell the Nano in Latin American markets, so there’s a chance that the Indian city car could eventually show up at Chrysler dealerships.

Speaking of possible US-bound developing-market-mobiles, an Automotive News [sub] reporter spoke to several Volvo dealers asking whether they’d consider selling Chinese vehicles once Ford sells the Swedish brand to Geely. The response was understandably less than effusive:

Until this deal goes down, I’m not even thinking about selling a Geely car. With these deals — look at what happened with Saab — it’s all pure speculation until it happens.

After all, Volvo has been sold on its Swedish premiumness for so long, few dealers would be enthused to overly associate their dealerships with Chinese brands (like lead©, melamine® and slave labor™). India, on the other hand, doesn’t have the knee-jerk negative connotations in this country that Chinese goods do. For now. The launch of the Mahindra brand (if it ever happens) will be crucial in paving the way for acceptance of Indian brand names in the US, but the Chinese don’t yet have a clear vanguard brand. Given its rolling punchlines like the GE, Geely would make a poor first Chinese brand in America.