Ask Dr. Z: Chrysler's Sales Bank

Andrew Dederer
by Andrew Dederer
ask dr z chryslers sales bank

Historically speaking, Chrysler’s desire to keep pace with Ford and GM has kept the company perched on the brink of disaster. In his magnificent Motown expose “The Reckoning,” author David Halberstam devotes a couple of chapters to the "Crisis Corporation's" perennial woes. Halberstam describes the corrosive effects of the automaker’s sales bank, where vehicles were built, registered as sold and held in vast lots– until reality caught up with book-keeping. The practice was eventually abandoned. As you’ve just read, it’s baaaaack.

The idea of the “sales bank” is logical– in theory. Instead of constantly slowing and speeding production to meet varying demand, factories work at full capacity year-round. Any unsold cars are “banked” in storage lots until demand picks up. This supposedly eliminates carmakers two largest headaches: the need to run near full capacity (to maintain low unit costs) and the cyclical market. What made the bank deadly in practice: overstated sales projections. “Banking” just made things worse.

The problem with “holding” the cars– beyond the storage cost and resulting deterioration– was the way the practice warped Chrysler’s relations with its dealers. With a huge pool of cars to choose from, there was little incentive for dealers to place ordinary orders from the factory. Instead, they’d simply pick up their sales inventory when the manufacturer’s lots got too full– at fire sale prices. Unfortunately, selling worn vehicles did little to increase demand for cars, which led to more “banking.”

Lee Iaccoca killed the Chrysler’s sales bank shortly after he assumed power, helping shape Chrysler’s comeback. The new sales bank has been going on for about a year, under the not-so-watchful eye of Chrysler Group Prez and CEO Dieter Zetsche. While both Ford and GM have bitten the bullet– making major production cuts and jettisoning workers to [try to] match production to the reduced demand– Chrysler has continued running their factories and “banking” the excess.

There is a reason for Chrysler’s sales bank “renaissance.” Under present contracts, United Auto Workers (UAW) members are paid virtually the same whether they are working or not. Back in the ‘70’, they would have simply collected unemployment. What hasn’t changed: all the reasons the bank was a bad idea. In fact, the problem's gotten worse.

This time, Chrysler dealers aren’t cherry-picking for bargains. Current dealer inventories for The Big Two Point Five have been stuck at almost 100 days for months– when half that amount is seen as dangerously excessive. DCX has been stuffing “money in the trunk” on old and new vehicles, and the dealers aren’t even sniffing the bait. There are now TWO bloated inventories that need reducing: Chrysler’s AND its dealers’.

Demand for these vehicles is unlikely to increase anytime soon. The natural market cap for the 300/Magnum/Charger seems to have been reached (the initial rush is over). The Sebring etc. are being replaced (as soon as they can get the dealers to take some). Minivans and trucks have been DCX’s profit centers for decades, but the minivans have been feeling new pressure from Hyundai/Kia in the economy market (Toyota and Honda have already skimmed most of the cream).

As for the trucks and SUVs, the future isn’t rosy. The Durango gets Suburban-level mileage with sub-Tahoe utility, and it just got a posh sibling that made an Aspen of itself. Being number three (and oldest) in the pickup market is like wearing a bulls-eye to a shootout. In short, DCX is likely to continue to lose market share in the near future.

If the sales bank is such a huge mistake– all the problems of fleet sales without any of the revenue– why does Chrysler persist? One theory making the rounds: Chrysler’s German masters are loathe to admit that their hand-picked team can out-screw-up the Americans– at least until the evidence becomes impossible to ignore (instead of merely visible from low Earth orbit). Another theory: the current regime believes their own hype. The sun will come out tomorrow, the sales bank will dry up, new products will erase the memory of the old, and all will be well.

The third and most intruiging suggestion is that the jobs bank is a not-so-secret stash of vehicles which allows Chrysler to play hardball with the United Auto Workers (UAW) in the run-up to '07 contract talks. This theory posits that when the UAW refused to grant the automaker the same [meager] health care givebacks it blessed upon Generous Motors– "pattern bargaining" up but not down– Chrysler began churning out product in preparation for a UAW strike.

If true, if The Dark Lords of DCX tell Big Ron's bluster boys to go sing, Chrysler would have half a year’s worth of product to keep dealers happy. Problem is, that’s not enough. Besides, when something looks like either a cunning conspiracy or simple stupidity, it’s usually stupidity. But wouldn't it be funny if a combination of stupidity and luck ended-up saving Chrysler's bacon?

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  • Sm92696 Sm92696 on Dec 13, 2006

    most of the public dont know that the uaw job bank was started 30 years ago and is funded by its members. it worked like this when ever raises were given out in the new contracts a portion of that went into that fund for the job bank,it was called the nickel fund then and has since grown.for many years it was not used and hit its cap of 250mil a few year ago before the s-- hit the fan. it works like this,if you get lets say 1.00hr raise 30cents goes into this fund from every hourly worker thats why it wont go and the uaw is going act like they fought hard to keep it to make them self look good,but its the workers own money for over building i think they hoped it would pick up with there new adds but it didnt they wanted to keep shareholder from a panic by shutting down and telling of slow sales.

  • on Mar 01, 2007

    qq i see the new jeep patriots are out and at what seem to be a mysteriously low low price. but as a purist of sorts i wouldnt want to buy one that wasn't trail rated and i dont know how to negotiate with dealers given my profound bilateral sensoneural hearing loss greater than 95% in both ears and as if my ASL (american sign language)gives them a licence to railroad me into purchasing their bitterest of lemons (trust me on this one if you could shadow me for an entire day you'd see the truth behind the extent of the deceit, decadence, debauchery, depravity, and degeneration de de de ad nauseum makes me wonder if i might not be better served by simply driving down to the assembly plant in belvedere il a 50 minute hop jump and skip across the border from my location in walworth county wisconsin or is this potential achievement even remotely impossible to accomplish? i mean theres no love lost with daimler chrysler and the dealerships so why wouldnt they have the means motive incentive and/or determination to let me buy the vehicle right off the assembly line and save us 560.00 delivery charges and any other rebate or incentive they could offer??? I mean to buy me a trail rated patriot without any of the fancy amenities or options such as air conditioning and sound systems (I'm DEAF for crying out loud) and any other fool thing i can think of that can do without. Of course im gonna be wanting skid plates to protect the soft underbelly but that's about it. pls advise. thanks. steve s.

  • Malcolm It's not that commenters attack Tesla, musk has brought it on the company. The delivery of the first semi was half loaded in 70 degree weather hauling potato chips for frito lay. No company underutilizes their loads like this. Musk shouted at the world "look at us". Freightliners e-cascads has been delivering loads for 6-8 months before Tesla delivered one semi. What commenters are asking "What's the actual usable range when in say Leadville when its blowing snow and -20F outside with a full trailer?
  • Funky D I despise Google for a whole host of reasons. So why on earth would I willing spend a large amount of $ on a car that will force Google spyware on me.The only connectivity to the world I will put up with is through my phone, which at least gives me the option of turning it off or disconnecting it from the car should I choose to.No CarPlay, no sale.
  • William I think it's important to understand the factors that made GM as big as it once was and would like to be today. Let's roll back to 1965, or even before that. GM was the biggest of the Big Three. It's main competition was Ford and Chrysler, as well as it's own 5 brands competing with themselves. The import competition was all but non existent. Volkswagen was the most popular imported cars at the time. So GM had its successful 5 brands, and very little competition compared to today's market. GM was big, huge in fact. It was diversified into many other lines of business, from trains to information data processing (EDS). Again GM was huge. But being huge didn't make it better. There are many examples of GM not building the best cars they could, it's no surprise that they were building cars to maximize their profits, not to be the best built cars on the road, the closest brand to achieve that status was Cadillac. Anyone who owned a Cadillac knew it could have been a much higher level of quality than it was. It had a higher level of engineering and design features compared to it's competition. But as my Godfather used to say "how good is good?" Being as good as your competitors, isn't being as good as you could be. So, today GM does not hold 50% of the automotive market as it once did, and because of a multitude of reasons it never will again. No matter how much it improves it's quality, market value and dealer network, based on competition alone it can't have a 50% market share again. It has only 3 of its original 5 brands, and there are too many strong competitors taking pieces of the market share. So that says it's playing in a different game, therfore there's a whole new normal to use as a baseline than before. GM has to continue downsizing to fit into today's market. It can still be big, but in a different game and scale. The new normal will never be the same scale it once was as compared to the now "worlds" automotive industry. Just like how the US railroad industry had to reinvent its self to meet the changing transportation industry, and IBM has had to reinvent its self to play in the ever changing Information Technology industry it finds it's self in. IBM was once the industry leader, now it has to scale it's self down to remain in the industry it created. GM is in the same place that the railroads, IBM and other big companies like AT&T and Standard Oil have found themselves in. It seems like being the industry leader is always followed by having to reinvent it's self to just remain viable. It's part of the business cycle. GM, it's time you accept your fate, not dead, but not huge either.
  • Tassos The Euro spec Taurus is the US spec Ford FUSION.Very few buyers care to see it here. FOrd has stopped making the Fusion long agoWake us when you have some interesting news to report.
  • Marvin Im a current owner of a 2012 Golf R 2 Door with 5 grand on the odometer . Fun car to drive ! It's my summer cruiser. 2006 GLI with 33,000 . The R can be money pit if service by the dealership. For both cars I deal with Foreign car specialist , non union shop but they know their stuff !!! From what I gather the newer R's 22,23' too many electronic controls on the screen, plus the 12 is the last of the of the trouble free ones and fun to drive no on screen electronics Maze !