Cerberus Gives Chrysler Dealers Six Months to Increase Sales

cerberus gives chrysler dealers six months to increase sales

We've long argued that Cerberus Capital Management will do whatever it takes to stem Chrysler's cashflow cataclysm. The Wall Street Journal reports that the Chrysler Group's new management team is giving their poorer-performing dealerships six months to improve sales or face closure. Chrysler has already banned 450 or so so-so dealers from their used car auctions in an attempt to force them to sell more new cars. The warning signals the next step in their campaign to cull underachievers from the automaker's bloated ranks. Like GM and Ford, Cerberus wants to "encourage" smaller dealerships to merge with larger ones. That said, Cerberus better walk softly with that big stick. Car dealers are protected by state franchise laws; dealer groups wield a mighty checkbook at the state level.

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  • Sherman Lin Sherman Lin on Jul 26, 2007

    "Can they really do that?" I guess we'll soon find out. I am sure GM and Ford will be watching. From a standpoint of right and wrong this is yet another reason to brand the former big three as simply bad companies run by bad people. Screw everybody and anybody just like they do their suppliers and their customers and now their dealers.

  • Pch101 Pch101 on Jul 26, 2007
    I wasn’t aware that Chrysler had the option to simply selectively shut down dealers. Can they really do that? I'm guessing that it doesn't matter. The onus would be on the dealers to litigate against the mothership, and let's keep in mind that the ones who would be suing would be among the financially weakest in the network, and therefore the ones least likely to be able to afford it. My guess is that you'd see some sort of threat of a class action suit, followed by some sort of settlement. Screw everybody and anybody just like they do their suppliers and their customers and now their dealers. This is one of those circumstances in which no solution is optimal. Maintaining the status quo invariably hurts almost all of the dealers, because their new car sales business is not lucrative. On the other hand, if the plan is successful, this will help the dealers who remain, but at the expense of the little guys who get the guillotine. This is one of the benefits of private equity. Taking Chrysler private allows the operators to do what they want in the long-term interests of the business without worrying about quarterly forecasts or the reaction of the markets.

  • AGR AGR on Jul 26, 2007

    If the dealer does improve the sales performance in 180 days, they will then say we require a new facility. There goes another letter with time frames. All manufacturers can play these games, its not a question of private equity. Usually they do not have the “stomach” to do it, when careers can get jeopordised, different story. A franchised dealer is similar to a race horse, at some point and time the horse slows down, and it will be put to pasture. The “putting to pasture” process is full of grey areas. The easiest one is for the dealer to sell, and the new buyer to immediately make promises to the manufacturer. Often it becomes a “same s…t different box scenario”, but now the manufacturer has a new dealer and will be patient the outcome or situation does not change in smaller markets that function on personal relationships often the representation suffers. The constant and ongoing "churning" of sales people in the showroom is to create the image that the dealership is aggressive, open to change, and even if the numbers come up short we are proactive and doing something about it. Its not private equity, its just the way the game is played.

  • Sherman Lin Sherman Lin on Jul 26, 2007

    Pch101 "The onus would be on the dealers to litigate against the mothership, and let’s keep in mind that the ones who would be suing would be among the financially weakest in the network, and therefore the ones least likely to be able to afford it." They might be weak but we are not talking about some average joe who has no clue that their rights have been violated and who has no resources. Also some multi line dealers might welcome this as an opportunity to sue the pants off of Chrysler and deliberately miss their sales target. "if the plan is successful, this will help the dealers who remain, but at the expense of the little guys who get the guillotine." Oh I agree with you on that but it still stinks in the same manner that it might be legal to strong arm your suppliers into bankruptcy, screw your customers with sub par product but from a karma viewpoint Chrysler also deserves the same which is to be screwed over.

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