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Thursday, 04 June 2009 08:29

Dealership Closings Justified say GM, Chrysler

The top executives of GM and Chrysler have said that dealership closings are justified, as they try to overcome bankruptcy and survive. The executives acknowledged that cutting dealerships was causing pain around the country in front of the Senate Commerce committee on June 3.

"This is our last chance to get it right," GM president Fritz Henderson told the Senate Commerce Committee, adding these were "tough times for everyone in the GM family."  Committee Chairman Jay Rockefeller suggested that both companies were abandoning customers and dealers, some of whose families had been in the business for decades. He then asked Henderson to supply GM's list of dealerships targeted for closing, as well as analysis of cost savings that would result from the closings. Henderson protested that GM is not making the names public because dealers don't want to be identified.

"We're giving them a 12-to-15-month window to decide what to do with their business," he said.

"I don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves," Rockefeller said. Eventually Henderson said "Yes, sir," when asked by Rockefeller to provide the information.

Chrysler president Jim Press told the panel that his company was "working hard to achieve a soft landing" for dealers. But if underperforming dealers are not selling cars, the company cannot return to profitability, he said.

Chrysler has announced the the franchises closings of 789 of its 3,200 Chrysler, Dodge, and Jeep dealers nationwide. GM announced plans to end its franchise agreements by next year with about 1,100 of its 6,200 dealerships, but it did not publicly identify them.

Both GM and Chrysler are arguing that there are too many dealers, with many representing the same manufacturer competing with one another for sales. After hemorrhaging customers for decades and losing market share to foreign competitors, the two automakers said their companies needed to scale back all their operations to become leaner and to return to profitability.

The 25% of dealers being dropped accounted for 14% of Chrysler’s overall sales; but sales are not the entire story, because many of the dealers are competing directly with other Chrysler dealers (e.g. a Dodge dealer literally across the street from a Chrysler dealer). Much of this is a legacy of the days when Chrysler-Plymouth, Dodge, and, in particular, AMC/Jeep sold largely unique product lines.

Jim Press said that American dealers, on average, sold 525 vehicles in 2008, with a profit of $279,000. Chrysler dealers sold just 405 vehicles and lost $3,431. Toyota and Honda dealers tend to sell more than twice as many cars and have much higher profits, allowing them to invest more in training and equipment, and to be less aggressive in sales.

The dealers whose franchises are being dropped sold, on average, 163 vehicles last year, losing an average of $73,000. The group staying open sold an average of 640 vehicles.

According to Chrysler, 83% of the dealers losing their franchise sell more used cars than new cars. In addition, 44% hold other companies’ franchises (e.g. Kia), so the dealerships may be converted to competing brands. 80% of the remaining dealerships will sell all three brands; and in some cases owners are having one franchise revoked and another retained.

"It's not our place to change your decision," Sen. Kay Bailey Hutchison (R., Texas) told the auto executives. "But it is our place . . . to make sure that everyone is treated as well as can be in these circumstances."

 

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