Chrysler Releases List of 2,392 Dealers Surviving – and 789 Who Won’t
Bankrupt automaker Chrysler LLC released two lists of dealers yesterday. One is a list of 2,392 dealers that it would like to retain as it reorganizes in Chapter 11, and the other is a list of 789 dealers who will not make the cut going forward, if the bankruptcy judge approves Chrysler’s motion to terminate their Sales and Service Dealer Agreements effective on or about June 9, 2009. The form letter that Chrysler sent to dealers showed that they didn’t bother to mail merge anything other than the name of the dealership at the top of the letter: “With regret, this letter is to inform you that on May 14th, 2009, we are filing a motion in bankruptcy court rejecting the Sales and Service Agreement(s) between Chrysler Motors LLC and the dealership listed above.”
In Chrysler’s own words, they explained why the decision was made. “It is with a deep sense of sadness that we must take steps to end some of our Sales and Service Dealer Agreements,” said Steven Landry, Executive Vice President, North American Sales and Marketing, Global Service and Parts. “The decision, though difficult, was based on a data-driven matrix that assessed a number of key metrics. In total, 789 dealers, which represents 14 percent of our sales volume, will be rejected and, subject to the court approval, they will discontinue selling Dodge, Chrysler or Jeep vehicles on or about June 9.
The 789 dealers represent just under 25% of Chrysler’s total current dealer population of 3,181 dealers. Obviously, the fact that losing 25% of the dealers only cuts 14% of the company’s sales volume, shows that those who didn’t make the cut weren’t performing as well in terms of sales volume relative to those that Chrysler would like to keep – at least on an average basis.
Chrysler didn’t publicize the methodology that they used to decide which dealers would go and which ones would stay, but according to a small (yet successful) dealer located in a fairly rural area that we spoke with, the decision was based on factors such as sales and customer satisfaction. His dealership seems to be successful on both of those fronts, as it regularly tops the volume of some seemingly-larger competitors and is a Chrysler Five-Star dealership. Also helping their case were the facts that it’s a combined Dodge-Chrysler-Jeep location (rather than just a Chrysler dealer alone, for example) and that his dealership is not in a location saturated with competing Chrysler LLC retailers.
For dealers whose agreements will be terminated, Chrysler will not repurchase parts and vehicles from them, but will assist with the disposition of those assets to remaining dealers. The company will also help single- or double-point dealerships (Dodge alone, or Chrysler-Jeep alone, for example) combine with surviving franchises. The end result is that 80% of the remaining dealers will sell all three Chrysler brands, up from 62% currently.
Dealers on the termination list may choose among several options. They can challenge the closure through a legal process (the list is technically just a recommendation from Chrysler, subject to bankruptcy court approval between now and June 9), they can continue selling other makes of new vehicles if they have a multi-line store, they can focus on selling used cars and providing service (according to Chrysler, 83% of the terminating dealers sell more used cars than new cars already anyway), or they can just close shop and go out of business.
We spoke with an independent used-car dealer as well, and he related that used-car prices are way up at auctions (with wholesale prices for nice cars above the “top of the book” by several thousand dollars in some instances. When I asked him if that meant that new cars have become a better value than used cars – or at least better relative to what they had historically been in light of huge discounts in the marketplace right now – he said that he believed that new cars were still overpriced. He gave an example of a new Buick Lucerne, which stickers for over $30,000 but can be had for, say, $26,000 after discounts. That same car with less than 10,000 miles might go for $16,000 a year later. I didn’t verify his numbers, but if his example holds true (even if the numbers were half as dramatic), they seem to point to something I’ve suspected for several months. It’s a buyer’s market out there of historic proportions.
I wish the best of luck to the owners and employees of the terminating Chrysler franchises. It’s a tough world out there, and we’re talking about real human beings losing their jobs and family businesses that have been held for generations.