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May 26, 2009

Chrysler Dealership Closings: Why Certain Dealers Were Chosen Over Others

By Jim Brennan

UDMan

Over the past two weeks, both GM and Chrysler informed a number of their dealers that they would no longer be needed. Since part of my job deals with evaluating possible new dealers, as well as auditing existing dealers, I’m in the unique position to understand this process. Many of the dealers have asked why they were singled out for termination (or in the case of GM, why their dealership agreements will not be renewed in 2010). While the parameters seem complicated, it is actually quite simple, and there are five key points to look for.

Continue reading after the jump!

1) Financial Viability

Certain manufacturers require a financial statement filed by the dealer at a minimum of once a quarter. General Motors requires a financial statement once a month. This is to monitor the health of the dealership, so that the manufacturer can be proactive, in case the dealership defaults on their obligations. With these statements, the manufacturer looks for key points, including cash on hand, receivables (and how far they stretch out), inventory valuation, and hard assets including tooling and parts on hand. If the cash seems to be weak, or the receivables seem to be taking longer to collect, there is concern. However, one of the key indicators as to the financial viability of the dealership is the parts statement, in which the dealership has an open account with the manufacturer, and where they purchase most of the key components to maintain their customers vehicles. If the balance goes past due, a red flag is raised.

Another thing about financial viability is the dealership’s ability to source financing to keep sufficient inventory on the lot (and in the showroom). This is called a floor plan, and the dealership pays only interest (usually prime +1%) on certain vehicles for up to a year, and then has to pay a curtailment (in other words, pay it off, sometimes over the next 3 to 6 months). If the dealer’s source is either reduced, suspended, or under review, this is a very bad sign as to the dealership viability. If the dealer sold cars and trucks, and failed to “pay off” the floor plan source, they are usually found “out of trust,” with their ability to fund inventory suspended.

2) Dealership Upkeep and Appearance

Take a look at the difference between the average Chrysler or Chevrolet dealer, and the appearance of a Honda or a Toyota dealer. Because of some rather strong franchise laws in the Northeast, Mid Atlantic, and upper Mid West states, there was no way to terminate a dealership because of their appearance. There are several Chrysler, Dodge and Jeep dealerships that still use obsolete signage on their buildings. You walk into these stores, and it’s like stepping into 1964 all over again. For years, Chrysler has been trying to consolidate the Chrysler, Plymouth, and Jeep brands into single locations, to absolutely no avail. Along with the consolidation, they tried to get these dealerships to upgrade their appearance, furnishings, and to clean up their service facilities. Well, just take a look at this Jeep store that was handed their walking papers, and you tell me why they were terminated.

3) Competing Brands at the Same Location

The one thing that really irks manufacturers is the fact that the dealers refuse to have a separate location for the competing brand. Many of these dealers sold Chrysler, Dodge or Jeep in the same showroom as another franchise. Sell Jeep and Chevrolet? Sure, why not… Have Chryslers mixed in with Fords? Many of these dealers saw nothing wrong with that. And the worst offenders were the dealers that sold Chrysler, Dodge, or Jeep at the same location as some of the import brands. At the time, these dealers had the manufacturers by the short hairs, because of the strong state franchise laws. Well, Chrysler (and to a lesser extent, GM) didn’t forget. Time and time again, the dealer principals have been asked to at least separate the Sales facilities, with the dealers saying that they didn’t have to do any such thing, because of the local franchise laws. Unfortunately for these dealers, their time has just run out.

4) Number of Units Sold

This was very telling. There has been a figure going around the internet that stated that 50% of the Chrysler Dealers nationwide accounted for 90% of the sales. That means that these dealers (almost 800 of them) generated only a fraction of the remaining 10% of the sales, and that was quite a pitiful number. Many of these franchises sold more used cars than new cars, and these dealers bought their used cars at exclusive auctions, available only to franchised Chrysler, Dodge, and Jeep dealers. Remember, there is a quota that dealers have to meet, to qualify for further incentives. However, because of the strong franchise laws, you can’t cut these dealers for not reaching their targets. And many of the dealers could care less about targets because they were safe from losing their franchise. Many of these terminated dealers received a double dose of reality. With the cancellation of their franchise, they are also barred from participating in those closed Chrysler auctions.

5) Customer Satisfaction Scores

You would think that the small dealer would excel in this area, and generally, you would be right. However, many of the smaller market dealers tend to not have the necessary parts to cover a repair under warranty. Worse yet, some of these smaller dealers refuse to repair a vehicle that was not sold by them, and this is reflected in customer satisfaction surveys. Chrysler has also suffered under these dealers lately with their product line. The latest example is the Challenger, in which the smaller dealer will charge over list (yes, I know the larger ones do as well, but seem to fall in line weeks later) for months at a time. This is also reflected in the customer satisfaction surveys, and the manufacturer looks at that. On a percentage basis (number of surveys received by dealer vs. actual sales) the smaller dealer received a greater percentage of negative CSI scores. They may keep the same customers year after year, but these customers rarely fill out a CSI score sheet.

So, Mr. Small Chrysler Dealer, you got your cancellation notice. Why did they choose you? Well, you only have to answer 7 questions.
- Did you try and combine your store with a Dodge or Jeep dealer (or sell out to them)?
- Did you update your showroom and service facility to the franchise specific plan?
- Did you consistently exceed your quota, and strive to increase your market share, even at the expense of gross margins?
- Did you support the manufacturer, and exceed your stocking requirements by taking on extra inventory?
- Are you financially viable, and consistently profitable (while trying not to hide any excess profits)?
- If you have a competing brand, is it at least in a separate location / showroom / facility?
- And are you selling more used product than new?
If the answers above were N, N, N, N, N, N, and Y, then Mr. Small Chrysler dealer, now you know why you are no longer a Chrysler dealer.

Posted at 11:29 am in , , , , , ,

Comments

Noresize » Blog Archive » Chrysler Dealerships: Who Got Pushed Out Of The Lifeboat First? [Carpocalypse]
May 31, 2009 at 8:10 am

[...] According to UDMan, it all boiled down to five pretty simple elements, with “financial viability” being the obvious #1. UDMan puts some real skull sweat into his excellent analysis… and, of course, the very first reader comment starts with the profound statement “everyone that loves american cars will agree with me. F***** imports. go back to your S***** countries!!!” Such is the life of the automotive writer in our new century. [CarDomain Blog] [...]

Crazification Factor and Conspiracies, v. Chrysler Dealers
May 31, 2009 at 6:48 am

[...] Jalopnik contributor UDMan posts the five factors contributing to the closure decision: [...]

Chrysler Dealerships: Who Got Pushed Out Of The Lifeboat First? [Carpocalypse] | Car Advisory
May 31, 2009 at 2:13 am

[...] According to UDMan, it all boiled down to five pretty simple elements, with “financial viability” being the obvious #1. UDMan puts some real skull sweat into his excellent analysis… and, of course, the very first reader comment starts with the profound statement “everyone that loves american cars will agree with me. F***** imports. go back to your S***** countries!!!” Such is the life of the automotive writer in our new century. [CarDomain Blog] [...]

CarGuy053
May 30, 2009 at 5:08 pm

Some of these responses are hysterical. I’ll pose this question to everyone. What is a foreign car anymore? Honda, Toyota, Mercedes, BMW, VW ALL build cars here in the United States!

It is sad to see many of the dealers close, 5 close friends of mine all lost their Chrysler/Dodge/Jeep franchises. But they’re finding ways to survive. I myself worked for a Ford dealer when they consolidated their dealer network 3 years ago. Chrysler and GM just didn’t see the writing on the wall like Ford did.

NoKzV8
May 29, 2009 at 12:37 pm

In response to:

kuzster69
May 28, 2009 at 4:22 pm

everyone that loves american cars will agree with me. F***** imports. go back to your S***** countries!!! im a big fan of chevy but since all the american cars are going down hill ill support ford and the dodge.

Your Chevy’s are imports. They’re imported from Mexico where they are assembled. Here’s an idea for GM, bring jobs back to the U.S and stop outsourcing to other countries. Then and only then, can you call yourself and American vehicle.

ltcljerjr
May 29, 2009 at 4:37 am

The Ruining of the American Automoive industry have been in the works for over 30 years. and WE are to blame. We all junped on the wagon of excess; we all wanted SUV’s and Hummers and Suburbans. When Gas was cheap, we flocked for full size pick up trucks. The big three did what most businesses would do; they continued to supply what the market demanded. As a result they didnt foresee the eventual rise in gas prices and the turn of sentiment towards big trucks and SUV’s. Now, factor their mismangment, lack of planning, high overhead costs from the Union (a victim of their sucessful past) and the economic woes and it is a perfect storm. Now with that being said, is Obama to blame? No! He is a politician just as worthless as any and every other. are the import car companies to blame? No, they saw a chance to gain market share and profit and took it. We are to blame.
What should we do now? The bailout isnt working. so let free market captialism take its course. In the business world its survival of the fitest, provide a good product or service or fall. The big two will fall or they will come out of this in a better position with new models and better technology. DONT BE SURPRISED IF YOU SEE A HYBRID MUSCLE CAR IN THE NEXT DECADE. A hybrid challenger or Camaro perhaps?

Tundraman10
May 28, 2009 at 9:33 pm

Well thanks a lot Obastard and team for ruining Chrysler. This is not creating jobs in any way shape or form. This puts people out of work. Socialism at its best. I really hope you guys didn’t vote for this nut case.

leojmcca
May 28, 2009 at 8:01 pm

Would love to buy a new Challenger, but the dealers keep jacking the prices to MSRP. Heck, I live in SoCal and drive 35K a year for work around SoCal and have only seen about 5 challengers on the road.

Looks like the questionable dealers got what they deserved!

kuzster69
May 28, 2009 at 4:22 pm

everyone that loves american cars will agree with me. F***** imports. go back to your S***** countries!!! im a big fan of chevy but since all the american cars are going down hill ill support ford and the dodge.

Gabolge
May 28, 2009 at 11:40 am

finally there getting rid of crappy american cars

beefyboy242
May 27, 2009 at 4:26 pm

The worst part is, the dealerships that close down are still forced to sell those vehicles. I guess at least Chrysler doesn’t have to buy them back, though it makes it harder to get rid of vehicles that for the most part people don’t want anymore.

BoydZCustomZ
May 27, 2009 at 1:52 pm

I understand why Jeep, and Chrysler Dealerships will be closing down and going out of business, But Why are some Ford and Chevy Dealerships going out of business?

1968Rogue
May 27, 2009 at 5:22 am

In response to Dusty, Jim works in the auto industry, writes for this and other blogs as I do (including my own blog automotivetraveler.com) and has access to information that the typical poster doesn’t. This was was one of the best researched and most thoughtful post on the subject that I found anywhere. The use of the videos was especially effective. I wrote on the same subject (http://automotivetraveler.com/jump/752) immediately after the closing were announced — although not in the same detail as Jim did — and I know after talking with people within Chrysler management that Jim hit almost every point spot-on, especially the dealers selling few new units and using their Chrysler franchise to buy used program cars at auctions open only to Chrysler-Dodge-Jeep dealers. About the only thing Jim didn’t address specifically was that many of the Jeep-only dealers are the last remaining AMC dealers, which as an AMC fan, saddens me.

Jim is an excellent writer with strong analytical skills; he gave everyone here an insider’s look at the painful restructuring that is going on at Chrysler. Later this morning we will see if these dealers are successful in Bankruptcy Court in stopping the process. If they are successful and delay in any way Chrysler exiting Chapter 11, I fear that we won’t be talking about 789 dealers but rather all Chrysler dealers as it will be likely that Fiat will walk away from the deal and most likely Chrysler will be liquidated and sold off piecemeal. If you’re a Mopar fan, like I am, you’re hoping that won’t be the way this ultimately plays out.

Rich Truesdell
Contributor, CarDomain.com
Editorial Director, automotivetraveler.com
Contributing Editor, Mopar Enthusiast magazine

cbeech316
May 27, 2009 at 4:56 am

MalibuNut…..Your totally right! Why cant the US do things the smart way the 1st time around with this issue,,,,A Chrysler,Ford or GM dealer up here in Canada always carries another line, wouldnt this cut on costs in the US a little bit if they tried to do more of this. Oh well, you can lead a BEAVER to water, but ya cant make it swim “EH” LOL

I_Luv_Dusty
May 27, 2009 at 4:55 am

I mean no offense by this post at all, but inquiring minds wish to know: what are your qualifications to make these statements, Jim?

Oafman
May 26, 2009 at 6:29 pm

All 3 dealerships here in MAnsfield are closing. Anyone wanting a Chrysler product will have to drive to one of the neighboring towns. Even though Mansfield is the ‘BIG’ city in the area the dealers here in town rank low in sales and customer service. Not a big surprise. If your customer service scores are high then your sales numbers will also be higher. The one place here makes it look like they are always selling lots of cars because they keep moving them around the lot. They uselessly add extra miles to the cars by moving them daily to new spots in the lot. The other 2 lots fit the sales and mixed brand headings. One is Ford and Jeep (but not Dodge or Chrysler) and the other is Honda GM and Dodge/Chrysler but not Jeep. Seems silly to sell one but not the other.

MalibuNut
May 26, 2009 at 6:10 pm

I have noticed that everyone is talking about “CONSOLIDATING” the Dodge, Jeep and Chrysler dealers in the US into one dealership… Guess what people? IT’S BEEN THAT WAY IN CANADA FOR YEARS!!!! You can’t find (or it’s really hard to find) a Chrysler dealer that doesn’t sell all three. Same goes with GM and Ford. Its either a Chevy/Cadillac, Pontiac/Buick/GMC, or Chevy/Cadillac/Pontiac/Buick/GMC dealership… In most cases with GM only HUMMER is a stand alone GM dealer, but 99% of the time it’s Saturn/SAAB/HUMMER. Same with Ford, up here it’s Ford/Lincoln. Even if it only says FORD on the front door, they still sell Lincolns… I think it’s about time they got their acts together down there and consoledated the dealers…

JesusJr
May 26, 2009 at 6:07 pm

buickpimpin if you would have read this very detailed blog with 8 videos in it and not to mention with ‘Why Certain Dealers Were Chosen Over Others’ in the title and the numbers 1-5 to clearly identify each reason for this you would know that it isnt JUST sales. And if you did read it and see the sales is number 4 of the 1-5 youre probably wrong. I think Jim is a little more knowledgable than you about this… now that thats off my chest its sad to see that so many dealers are being cut off, but they had their fair chances to do what the manufacturer wanted….. they had it coming to them

GTwildfire
May 26, 2009 at 6:00 pm

Awesome insight into the dynamics involved in dealership closings.

buickpimpin101
May 26, 2009 at 5:38 pm

Pretty shure it goes by sales…

MYIROCDAYTONA
May 26, 2009 at 5:22 pm

He does and thank you, we have all been wondering! I thought it was because Mr. Cortese puts a lil somethin’ somethin’ in a lot of “BIG” peoples pockets.

Jim Brennan
May 26, 2009 at 4:12 pm

Ahhhh, he must work at Patrick Jeep in Rochester, NY. Yes, I can explain. Chrysler has been looking to consolidate all three brands at a single dealership. Obviously Patrick didn’t want to sell the franchise to the local Chrysler or Dodge franchises (either that, or he didn’t want to buy those franchises). Under the New York Franchise laws, there was nothing Chrysler could do about it, until now. Patrick’s facilities are exquisite, but it’s not to either GM’s or Chrysler’s current design specifications.

Here’s what the dealer should have done a few years ago. Move Jeep down the road to a separate sales and service facility, made a good faith effort to consolidate the other two brands, stocked more than his fair share of product, and updated the appearance of the location. Sounds like a lot of money to spend, but apparently Chrysler felt that being stuck on the side of a GM Palace was no place for Jeep.

Too bad he’s losing Pontiac as well.

MYIROCDAYTONA
May 26, 2009 at 2:45 pm

My uncle is the Jeep Manager at a local dealer loosing the Jeep franchise and they sell the most units in the area and have the satisfaction scores in the upper 90’s with a brand new dealership, the only thing is that they sell Buick, Pontiac and GMC under the same roof is that really all it takes, can you explain?

PureBusiness
May 26, 2009 at 2:20 pm

that does look like a “pyramid”!?

oldscoob
May 26, 2009 at 12:30 pm

have they ever found something of a pyramid scheme like moving cars to different dealers and then swapping with another dealer and claiming some kind of sale..back and forth one making money one pretending to lose and it see saws into bigger fake numbers? Locally my area is poathetically poor. My 87 subaru story from a muddly dealership parking lot with the wrong geared rear end in it has had me scratching my head to the lights and acreage and size of buildings for all dealers…workers cleaning dust off seems to be the most busy. I hope they get all of the thief crushing not just the pathetic new cars (I’d still rather a new 87 sube from a muddy dealer lot). I am native mortheast, these shady thoughts with laws to boot are called mafia.

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