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According to the latest bankruptcy court filings by Chrysler, the company plans to cut 789 dealerships (one quarter of the current dealer network) in an effort to emerge as a financially viable company.

The company sent out overnight letters to the dealerships that will be eliminated.

As expected in bankruptcy, Chrysler will not buy-back the vehicles, tools or parts, but it will put the dealerships in touch with surviving dealers who can then work out a purchase.

Chrysler also plans to push ahead with a plan to put all of its brands under one roof. Currently 68 percent of dealerships carry Dodge, Chrysler and Jeep products, but after the 789 are closed, that number will rise to 80 percent.

There appears to be even more strategy involved as well as 345 of the dealerships being shut down (or roughly 44 percent) also sell vehicles from a competing brand.

Steven Landry, Chrysler's VP of Sales, spoke optimistically about the future of the 789 dealerships, stating that 83 percent of the businesses sell more used cars than new and that half of them sell fewer than 100 cars per year. "The majority of these dealerships are going to continue on and prosper either selling used cars or other brands," he said.

The 789 dealerships will receive a 23 business day court review of their individual situation.

More: Chrysler to Close 789 Dealerships by June 9th on AutoGuide.com
 

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Dealer Math

Dealer Math in GM, Chrysler Cuts Is More Sales at Fewer Stores

May 18

-- General Motors Corp. and Chrysler LLC, borrowing from the playbook of Toyota Motor Corp., are betting they can sell more cars with fewer dealerships.

Plans announced last week to shed almost 2,000 retail outlets are designed to bolster the survivors, GM and Chrysler said. Reducing competition from stores with the same brands is supposed to allow the remainder to boost prices and profit, and to reinvest in their businesses to keep adding customers.

That echoes the strategy of Toyota, the world’s largest automaker, in growing to second behind GM in U.S. market share. U.S. stores for Toyota and Honda Motor Co. each averaged more than 1,100 sales in 2008, almost three times as many as GM’s and Chrysler’s, consulting firm Grant Thornton found.

“There’s the school of thought that if they want to emulate the success of brands like Toyota and Honda they should emulate their dealer structure,” said Jack Nerad, an analyst for car-pricing company Kelley Blue Book in Irvine, California. “That certainly seems to be the view of the automotive task force.”

Nerad was referring to President Barack Obama’s car task force, which steered Chrysler into bankruptcy on April 30 and set a June 1 deadline for GM to finish restructuring outside of court. The panel said it wasn’t involved in the dealer cuts.

GM, based in Detroit, is paring domestic dealers to a range of 3,600 to 4,000 from 5,969 by the end of 2010. On May 15, it notified about 1,130 retailers their franchise accords won’t be renewed, meaning they would stop selling cars in a year and won’t be able to order new inventory. A day earlier, Chrysler told 789 outlets they would stop selling cars by June 9.

Dumping Dealers

Dumping dealers isn’t part of the cuts in costs and debt at GM and Chrysler. Instead, “underperforming” stores, as GM put it, were targeted to ensure the automakers’ future retail networks will be stronger for when the companies reorganize.

GM’s U.S. dealers sold 2.9 million vehicles in 2008, while the total for Auburn Hills, Michigan-based Chrysler’s 3,188 stores was 1.5 million. Toyota City, Japan-based Toyota had 2.2 million sales at 1,459 U.S. dealers.

“The strategy at Toyota is pretty simple: keep the dealer count rational, don’t locate them too close to each other and maximize their units per outlet,” said Mike Michels, a company spokesman in Torrance, California. “A profitable dealer can invest in their dealership and personnel.”

Average new-auto revenue was $14.3 million for GM dealers and $12.8 million for Chrysler last year, compared with $40.9 million for Toyota, based on data from auto-research company Edmunds.com. Dealers also make money on used vehicles, parts and service.

Store Averages

Each GM store averaged 444 new-auto sales, while Chrysler had 405, according to consulting firm Grant Thornton. Ford Motor Co. was similar, at 483. Japan’s three biggest automakers dwarfed those totals, with 1,200 for Toyota, 1,150 for Honda and 764 for Nissan Motor Co., Grant Thornton found.

Shrinking GM’s dealer ranks to about 3,600 would push the automaker’s retailers to an annual average of 750 sales, said Paul Melville, a Grant Thornton auto-retailing analyst in Southfield, Michigan.

“It’s heading in the right direction, but it’s still only 65 percent of where Toyota is,” Melville said. “They’ll still have a lot of low-volume stores.”

Mark LaNeve, GM’s North American sales chief, said the dealer cuts are needed to match the shrinkage in the company and in the U.S. auto market. GM plans to dispose of Hummer, Saturn and Saab and will end the Pontiac brand to focus on Chevrolet, Cadillac, Buick and GMC vehicles.

‘Too Little Sales’

“Too many dealers, in actuality, is not the problem,” LaNeve said on a May 15 conference call. “We’ve got too little industry and too little sales we have to contend with.”

Chrysler President Jim Press said on a May 14 call that “a powerful new dealer body” would be a pivotal part of the automaker’s restructuring, which includes an alliance with Italy’s Fiat SpA.

GM and Chrysler may never match per-store sales with Toyota or Honda because the U.S. automakers have more dealers in rural areas, where profitable pickups are top sellers. Toyota’s dealer network is concentrated in urban and suburban areas.

That means the focus must be on cutting overlapping stores in urban areas, where dealers tend to compete with each other by cutting prices rather than winning business from other automakers, said Melville, the Grant Thornton analyst.

Among those stung by the practice is Gordon Stewart, who owns a Toyota store in Alabama and Chevrolet outlets in Georgia, Florida and Michigan. His Garden City, Michigan, Chevrolet store competes with 45 others for the brand in metropolitan Detroit.

Price wars drain much of GM dealers’ profits, leaving little money left to market autos to new buyers, said Stewart, who wasn’t on GM’s cuts list last week and backs the efforts to thin the dealers’ ranks.

“Imagine how much money we could spend advertising if we had the whole market area to ourselves,” Stewart said. “Right now, you’ve got so many weak dealers in the market area that nobody can afford to promote.”

LINK:Dealer Math in GM, Chrysler Cuts Is More Sales at Fewer Stores - Bloomberg.com
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Ford Rejects Big Cuts

May 19, 2009
Ford Rejects Big Cuts in Dealer Network

DEARBORN, Mich. — The Ford Motor Company says it will not match big dealer cuts made by General Motors and Chrysler, and expects to benefit from the elimination of nearly 2,000 competing showrooms.

The company’s director of North American sales, James D. Farley, said in an interview Monday that Ford had been pushing steadily to consolidate its dealers, rather than trying to end contracts or let them expire. Ford has reduced its dealer network by 700 since 2005, leaving it with 3,700 nationwide. Mr. Farley declined to specify Ford’s targets for additional reductions, but said they would be small compared with the cuts by G.M. and Chrysler.

Last week, Chrysler, which is in bankruptcy, said it would terminate nearly 800 dealers, or 25 percent of its total, by next month.

G.M. said it would cut 1,100 dealers next year in the first phase of a plan to reduce its dealers by 40 percent, to about 3,600 from 5,900.

Ford is not accepting any government bailout money, in contrast to its two crosstown rivals. It is taking every opportunity to highlight the difference, even as it searches for ways to match some of the cost-cutting structural changes at G.M. and Chrysler.

Mr. Farley was particularly critical of the Chrysler plan, noting how it would affect millions of consumers with little warning.

“It seems very abrupt and unplanned,” he said. “You don’t orphan four million customers overnight without some fallout.”

Some of those customers, primarily those in rural areas, will migrate to Ford dealerships, he said. “It really depends on how G.M. and Chrysler handle these orphan owners,” he said. “If they don’t give them a lot of attention, it will result in consumers going to other brands.”

Chrysler has asked its bankruptcy judge to approve the immediate closing of its dealerships at a hearing in early June.

The company said it would try to help affected dealers sell their inventories, an estimated 44,000 vehicles, to surviving Chrysler dealers.

Mr. Farley said the way that was handled could affect the overall market for new cars in the short term.

“We are very concerned how they are going to handle those 44,000 units,” he said. “It’s like a liquidation sale now, and the biggest issue is whether they will cut prices to move the inventory.”

He said Ford would not offer greater sales incentives to match any price reductions that may result from the sell-off of inventories at G.M. and Chrysler. G.M. and Chrysler have said that by reducing the number of dealerships, the surviving showrooms will sell more vehicles, make more money and be able to invest more in dealerships and service.

“We don’t think it’s productive to just get rid of rural dealers,” Mr. Farley said. The cuts at G.M. and Chrysler were partly focused on smaller and rural dealers. Chrysler dealers are expected to protest the closings in bankruptcy court. G.M. has not completed plans for dealer reductions. It said last week that it was simply informing 1,100 of its dealers that their franchise agreements would not be renewed next year, and that further decisions on the timing were several weeks away.

By then, G.M. could be following Chrysler into bankruptcy. The company is under a June 1 deadline set by President Obama to restructure its operations and reduce its debt, or be forced into a bankruptcy filing.

Article Link:http://www.nytimes.com/2009/05/19/business/19ford.html
 
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