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January 25, 2009

Chrysler eases push to shed dealerships

Consolidation plan on hold to focus on sales

NEW ORLEANS -- Chrysler LLC is not actively pushing its dealer consolidation program and is instead focusing on maintaining whatever retail sales volume it can as the industry struggles with crippling sales declines, a top company executive said Saturday.

On the eve of last year's National Automobile Dealers Association annual convention, Chrysler officially announced Project Genesis, a plan to encourage greater dealer consolidation among the company's Chrysler, Dodge and Jeep stores and renew emphasis on getting the automaker's three brands sold at single locations.

But troubles in the economy at large have encouraged Chrysler -- which ended 2008 with 3,300 dealers -- to take a step back from that effort.

"We're not actively pushing Project Genesis in terms of consolidating because right now, we have to do whatever we can to have our dealers be profitable, regardless of where they are," Steven Landry, Chrysler executive vice president for North American sales, said Saturday -- the first day of NADA's 2009 convention.

Landry said Chrysler's ultimate "goal is to still have our consolidated dealers with all three brands under one roof."

However, Chrysler, which is operating with a $4-billion federal loan, doesn't want to risk losing incremental sales volume or a high performing store at this delicate time.

"We're trying to maintain our retail volume and serve our customer base," said Jim Press, a Chrysler president and vice chairman.

Last year, Chrysler's sales dropped 30% compared with 2007. They were hit especially hard in the final months of the year, when sales plummeted 53% in December alone compared with the same month the year before.

As a result, the Auburn Hills automaker decided to halt production at its manufacturing facilities in December, meaning the company has not generated revenue since, Press said Friday.

"The answer ... is to sell our way out of this, not to save our way out of this," Press said.

More of the company's assembly plants were slated to be back up and running by Monday.

Given its tight financial situation, Chrysler is trying to put as little money as possible into Project Genesis and buy out dealerships.

Instead, the automaker has been relying on dealers to reach agreements with one another, a process that has been tested by frozen credit markets, which have put a chill on everything from car loans to dealer acquisitions.

"The banks are very reluctant to lend money on anything that is perceived as being risky," Landry said in a separate interview earlier this month.

On Saturday, Chrysler executives also announced plans to reduce dealer training costs by 30% and improve efficiencies in dealership service departments with new technologies. Chrysler also is launching a new system to survey customer opinions about the company and experiences at its dealerships.

Chrysler ended 2008 with 3,300 dealers. It lost 287 dealers in 2008, shedding 60 more than in 2007, Landry said Saturday.

The closures came from a mixture of reasons. Some were because dealers can't make it financially; others were from consolidations in which one dealer is buying out another.

Landry said 92 of the lost dealers in 2008 were because of consolidations that fell under the umbrella of Project Genesis.

Chrysler's previous consolidation effort, called Project Alpha, resulted in 250 consolidations during a four-year period, company officials have previously said.

While General Motors Corp. has told Congress that it plans to eliminate 1,750 dealers, about 27% of its U.S. dealer body, by 2012, Chrysler has not stated a total reduction goal for Project Genesis.

One dealer told the Free Press that the effort has "virtually stopped" because of the current condition of the company.

It's a sentiment reinforced by Paul Melville, a dealer consolidation expert at Grant Thornton who helps dealers negotiate such deals.

"We're dealing with a couple Chrysler" dealership "liquidations ... and it's pretty clear to us that Chrysler is sitting on its hands and letting the market take effect," he said. "Frankly, why wouldn't you do that? You can just sit and hide behind economic conditions which you didn't create."

One thing going in Chrysler's favor in 2008 was falling property values, pushing some dealers, who in the past hung on to their dealerships for the property, to sell.

"In 2008, the value of property for the first time in a long time either remained flat or actually lost value," Landry said.

"There are more dealers than we anticipated right now that actually wouldn't mind sitting down and doing a deal," he added.

LINK:Chrysler eases push to shed dealerships | | Detroit Free Press
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