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Chrysler hacking 1/4 of dealerships
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NEW YORK - Chrysler LLC wants to eliminate roughly a quarter of its 3,200 U.S. dealerships by early next month, saying in a bankruptcy court filing Thursday that the network is antiquated and has too many stores competing with each other.
The company, in a motion filed with the U.S. Bankruptcy Court in New York, said it wants to eliminate 789 dealerships by June 9. Many of the dealers' sales are too low, the automaker said. Just over 50 percent of dealers account for about 90 percent of the company's U.S. sales, the motion said.
Dealers were told Thursday morning through United Parcel Service letters if they would remain or be eliminated. The move, which the dealers can appeal, is likely to cause devastating effects in cities and towns across the country as thousands of jobs are lost and taxes are not paid.
Chrysler spokeswoman Kathy Graham would not comment other than to say the company will notify dealers before speaking publicly. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York to determine whether to approve Chrysler's motion.
Judges often rely on companies in bankruptcy to help determine what is in their best business interest, such as the closure of dealerships or cancellation of contracts.
Don Burk, co-owner of Heritage Chrysler Jeep in Ozark, Mo., said he found out that Chrysler plans to get rid of his dealership when he opened his UPS letter Thursday morning.
"Right now I'm processing the information," he said shortly after reading the letter. "I'm sure I'm going to get with my partner and we'll decide what to do from here."
The dealership, in a city of about 10,000 near Springfield, Mo., is involved in the community, sponsoring sports teams and even buying championship rings for the Ozark High School girls basketball team when it won the state championship several years ago, Burk said.
"If you're a good-sized business, kind of by default you're involved a lot," he said.
Chrysler dealerships aren't the only ones scheduled to get bad news this week. General Motors Corp. says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September of 2010.
In its motion, Chrysler said it has many dealerships that sell one or two of its brands, with Chrysler-Jeep dealerships competing against Dodge dealers as well as other automakers' stores across the country.
"In addition, as suburbs grew and the modern interstate system continued to evolve, longstanding dealerships no longer were in the best or growing locations," the company said in its filing. "Many rural locations also served a diminishing population of potential consumers. Some dealership facilities became outdated. Other locations faced declining traffic count and declining populations."
Chrysler said in its filing that dealers are not competitive enough with foreign brands. Chrysler sold an average of 303 vehicles per dealer in 2008, according to its filing. By contrast, Honda Motor Co. sold about 1,200 vehicles per dealer, while Toyota Motor Corp. sold nearly 1,300 per dealer.
Chrysler said its dealer network "needs to be reduced and reconfigured in a targeted manner to strengthen the network and dealer profitability and to achieve optimal results for the dealers and consumers."
Chrysler has received $4 billion in federal loans and has been operating in bankruptcy protection since April 30. Its sales this year are down 46 percent compared with the first four months of last year and it reported a $16.8 billion net loss for 2008.
The company, in a motion filed with the U.S. Bankruptcy Court in New York, said it wants to eliminate 789 dealerships by June 9. Many of the dealers' sales are too low, the automaker said. Just over 50 percent of dealers account for about 90 percent of the company's U.S. sales, the motion said.
Dealers were told Thursday morning through United Parcel Service letters if they would remain or be eliminated. The move, which the dealers can appeal, is likely to cause devastating effects in cities and towns across the country as thousands of jobs are lost and taxes are not paid.
Chrysler spokeswoman Kathy Graham would not comment other than to say the company will notify dealers before speaking publicly. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York to determine whether to approve Chrysler's motion.
Judges often rely on companies in bankruptcy to help determine what is in their best business interest, such as the closure of dealerships or cancellation of contracts.
Don Burk, co-owner of Heritage Chrysler Jeep in Ozark, Mo., said he found out that Chrysler plans to get rid of his dealership when he opened his UPS letter Thursday morning.
"Right now I'm processing the information," he said shortly after reading the letter. "I'm sure I'm going to get with my partner and we'll decide what to do from here."
The dealership, in a city of about 10,000 near Springfield, Mo., is involved in the community, sponsoring sports teams and even buying championship rings for the Ozark High School girls basketball team when it won the state championship several years ago, Burk said.
"If you're a good-sized business, kind of by default you're involved a lot," he said.
Chrysler dealerships aren't the only ones scheduled to get bad news this week. General Motors Corp. says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September of 2010.
In its motion, Chrysler said it has many dealerships that sell one or two of its brands, with Chrysler-Jeep dealerships competing against Dodge dealers as well as other automakers' stores across the country.
"In addition, as suburbs grew and the modern interstate system continued to evolve, longstanding dealerships no longer were in the best or growing locations," the company said in its filing. "Many rural locations also served a diminishing population of potential consumers. Some dealership facilities became outdated. Other locations faced declining traffic count and declining populations."
Chrysler said in its filing that dealers are not competitive enough with foreign brands. Chrysler sold an average of 303 vehicles per dealer in 2008, according to its filing. By contrast, Honda Motor Co. sold about 1,200 vehicles per dealer, while Toyota Motor Corp. sold nearly 1,300 per dealer.
Chrysler said its dealer network "needs to be reduced and reconfigured in a targeted manner to strengthen the network and dealer profitability and to achieve optimal results for the dealers and consumers."
Chrysler has received $4 billion in federal loans and has been operating in bankruptcy protection since April 30. Its sales this year are down 46 percent compared with the first four months of last year and it reported a $16.8 billion net loss for 2008.
Comments
It would seem to me that the car maker would want as many dealerships out there as they could get, since it does not cost them anything.
But I guess this is not the case.
I always thought that the dealerships were privately owned and that they just held a contract with a car maker.
It would seem to me that the car maker would want as many dealerships out there as they could get, since it does not cost them anything.
But I guess this is not the case.
Well, that's true in a sense. However, the dealer will no longer be able to represent the product, buy factory parts or perform warranty work. They will also have to settle up their "parts account" which can run into hundreds of thousands of dollars. This account is a "catch all" used for ordered parts as well as dealer holdback on vehicles, warranty payments, dealer incentives, rebates, etc. In some cases, the manufacturer also holds the mortgage on their business property and personal property as collateral for capital loans made to the dealership.
When I was a Chrysler rep, I had to close 12 dealerships in one year due to poor performance. Some of those stores had been in business for 50 years or more and were important to the local economy, especially in small towns. It wasn't pleasant telling 50-100 people not to come into work the next day or having a locksmith change the locks on the building.
here, we have one dealer. chrysler, ford and chevy.
the service dept will work on any domestic make.
the dealership pays some of the highest taxes in the town/county.
It's 3rd generation family owned and a big deal here, but likely small fish nationwide.
So let it be written, so let it be done.
The messiah has spoken. [xx(]
I took a Chrysler to them with an engine vibration problem, including vibrations when in Park and Neutral, and they told me it was running rough because I needed a brake job (no kidding). Then they quoted me a price for the brake job of just under $1,000. I disappeared in a hurry. It turned out to be a broken harmonic balancer, diagnosed by an independent mechanic. He called the same dealership for the part, and they told him it would be $296. Then they called him back and said they had made a mistake, the part would actually be $389. The mechanic then got one from a Chrysler parts warehouse in Chicago for $115. Two years later, when the car actually needed brakes, this was done for a shade under a hundred bucks by a local mechanic who also used OEM parts.
Maybe it's time a few chickens came home to roost.
Excuse me but what concessions is the UAW making?
NOTHING!!
The model is still broken and the company is still unprofitable.
I happen to know one of the dealers closed here in Dallas was a multi year top sales in Tx dealer. How do you get rid of a top selling dealer, even if they havent been #1 in the past few years?
I am confused. Joe Blow purchases land, erects building, invest capital in inventory, training and everythnig else, including franchise fees and all of the sudden, Chrysler can up and say, bye bye? We don't want or need you any more?
I happen to know one of the dealers closed here in Dallas was a multi year top sales in Tx dealer. How do you get rid of a top selling dealer, even if they havent been #1 in the past few years?
There are no franchise fees but there are minimum working capital requirements based on projected sales volume (vehicles, parts and service). Those requirements can run into hundreds of thousands of dollars and many times are in the form of a "working capital loan" extended by the manufacturer. As collateral, the dealer and all stockholders pledge all furniture, fixtures, equipment, personal guarantees, stock, account receivables and sometimes the land and building. Although repayment is made through monthly installments, it is an "on demand" note. If the franchise is terminated, the loan is due and payable in full. If the dealer can pay that note, offset by any credits in their factory account, they will simply lose their franchise rights. If they can't, the manufacturer owns everything right down to the last bottle of "white out" and holds a public auction.
Although there are state franchise laws protecting the dealer from infringement of their franchise rights, Federal Bankruptcy laws supercede state laws and render them null and void.