How Is Chrysler Closing Dealerships? Not Nicely, And Maybe Not Well, Either

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Readers are probably well aware that Chrysler and GM have started the process of closing dealerships. Chrysler is shedding 789 of its 3200 dealers, and GM is excising 2600 of its 6246, with 1100 notified last week. UBS estimates that the total job losses could reach 160,000, although some dealers may be able to operate at a lower level of activity as service operations and/or used car dealers, and may be able sign up with another brand.

GM is trying to make the best of a bad situation for the ditched dealers:

GM Chief Executive Fritz Henderson said Monday that GM would work with the dealerships being cut to ensure an orderly wind down.

“As I look at it, it is work that will take place through ’09, and then we would wind down and handle the distribution of cars and make sure the customers are taken care of … make sure that dealers are reimbursed for warranties and that sort of thing,” Henderson said. “This is not a several week process.”

While many of the dealerships identified for closure could exit the business this year, [GM Spokeswoman] Garontakos said they can also stay active through September 2010.

By contrast, Chrysler is shutting the dealers abruptly, leaving them stranded with inventory bur no right to perform warranty work on the unsold cars. And while most dealers presumably believe they should have survived the cut, the story forwarded by reader Milton L also raises doubts about the quality of thinking behind the selection process.

Chrysler was heavily over-represented in some areas. Milton reports that he determined that there were 15 dealers in a 25 mile radius of his home. The message from his friend Rob E, a soon-to-be former Chrysler dealer (which we have been authorized to reproduce), suggests an unnecessarily destructive and ill-thought out process:

Thanks for your concern. Things are really tough right now. Chrysler cancelled both our dealerships. Our 2 dealerships were in first and second place in the northeast zone for customer retention, out of a total 350 dealers. We are the largest parts dealer in the tri-state area, and exceed our sales and service targets as well. It is a huge financial blow to us. All my savings is tied up in the business, as well as my mother’s. (87 years old) They are not allowing us to even return vehicles or parts. My brother and I are running around trying to find legal representation in bankruptcy court, as well as join a class action suit.

The value of the properties is far below what we owe on the mortgage. At Chrysler’s request, we had improved both dealerships by putting up new buildings. At their request, we also leased a separate warehouse for 3 years for parts storage.

To come out of bankruptcy successfully, they will need a strong distribution network. Cancelling dealers will not help them. For those dealers that were very much underperforming, they should cancel them in a humane way by
giving them a year to sell their property, sell down their inventory and allow the employees time to find another job. Instead, they gave us until June 9th!

I will be sending all my customers a letter with some talking points, telling them that we intend to stay in business to service their vehicles, and sell used vehicles. Without being able to perform warranty work, this won’t be easy. I will send you a copy of the letter when it is done.

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  1. Richard Kline

    Question to Bo Prez: “This was the point of _bankruptcy rather than nationalization_, wasn’t it?” Of course, no reporter is going to ask him that. BK means you don’t have to say you’re sorry. Don’t call us—just drop dead? Fair, schmair; just hot air: take a number and tell it to the judge. The country is waiting; why are you holding up The Show?

    Bo Prez likes neat solutions which leave little blood, and that on others’ hands. Fairness is for people who care, not people who hope and hop on the bus.

  2. B. Mull

    I found a similar horror story when I was reading up on MatlinPatterson’s acquisition of Flagstar Bankcorp:

    “My retail branch was yet another to be added to the list of shut downs. I was contacted by my receptionist that 2 Flagstar reps were here to see me. When I arrived the rep said, ‘We are here to close the office, remove all Flagstar files, and terminate your employment effective immediately.’

    “When asked what was the reason the response was: ‘We are an AT WILL employer and need give no reason for termination or office closure.’ Virtually every question I had, I was given the same pat answer. 90 minutes later, they were GONE along with all files. They had hired a moving company to come in and remove all the files.”

    Someone could make a nice living teaching companies how to wind down in a sensible way…

  3. Johan

    How is surprising to anyone? With the heavy influence of Cerberus and other investment banking goons on Chrysler, how could it end any other way?

    By closing some its biggest and best dealers, Chrysler is killing what little is left its brand.

    The phoenix will not rise again. RIP.

  4. art-eclectic

    More of that vaunted Nardelli management style that has made him so beloved to so many who have worked for and/or with him.

  5. biofuel

    What the fuss is all about? That the way things have been working around here for a very long time. Would any of these franchise owners complain if Chrysler summarily fired all the workforce and started selling Cherries? Doubt it. So suck it up and get on with the program.

  6. Andrew

    I’m perplexed about the rationale for closing 30% of the dealers. If the problem is dealers undercutting each other, isn’t that the dealers problem? Why not let the dealers fight it out and drop their margins as low as possible? It should only sell more Chryslers.

    Ultimately Chrysler has to compete with the Japanese, Korean and European brands. I don’t see how reduced dealer presence helps on this front. And given the weak position in the market for Chrysler, I can’t see them gaining pricing power even if they cut the dealer count by 90%. Anyone have a thought on this?

  7. Thomas

    I don’t quite understand why it’s so urgent and important to close lots of dealerships.

    In what way are the dealers costing Chrysler lots of money? Isn’t it good to have lots of dealers, as long as you don’t have to pay them anything?

  8. Slug

    “3 year of parts storage? Huh? I can’t wrap my mind around that.”


    As a total outsider, my guess isn’t worth much, but here it is: pushing forward demand by forcing every dealer to hold far more parts than they need? It sure would look good on the books in the quarter the policy was introduced, even if it made no long term sense.

  9. attempter

    “Three years of parts storage” does seem to run counter to the general just-in-time insanity. Maybe there was some kind of kickback mechanism – you force your franchisee to buy from a favored supplier, who kicks back some of the revenue to you.

    As for why they need to close dealerships, I don’t know how the financial flows run. I imagine Chrysler strives to have a feudal tribute relationship with franchisees, but perhaps in hard times (like these) it has to subsidize them.

    If that’s the contractual relationship, then it follows that in a bankruptcy that would be a tie you’d cut.

  10. profnickd

    Class action lawsuitAh, those dealership termination laws — all 50 states have protected the dealerships from closing with these archaic, 1950s era protectionist laws and now the dealers stupidly think that these state laws can trump bankruptcy.

    The thing is, they probably will protect GM’s dealers, until such time as GM actually does file for bankruptcy.

  11. bb

    As per the parts warehouse, the dealer stated he signed a three year lease on a place for parts storage, not three years worth of parts. He may have only had a 30 day supply of parts in the warehouse, but the space was leased for three years.

  12. Anonymous Jones

    I have already read a number of these “my dealership is the best but they’re still closing it” stories. I’m sorry, but incompetence does not seem to me to be an adequate explanation for this. Either those crying foul are not the best judges of their own dealerships or there is some systematic reason for closing dealerships even when they are top performers (like political power of the survivors). If anyone has any actual insight into why Chrysler would favor some dealers over others that are better performing (other than some wildly implausible “they’re all incompetent” meme), please post it.

  13. "DoctoRx"


    Twice when I have clicked on the COMMENTS “button” to leave a comment, I have been directed to Twitter rather than to COMMENTS.

    I think the placement of the Twitter etc. links should be farther from the COMMENTS button.

  14. Sivaram Velauthapillai

    ANDREW: “I’m perplexed about the rationale for closing 30% of the dealers. If the problem is dealers undercutting each other, isn’t that the dealers problem? Why not let the dealers fight it out and drop their margins as low as possible? It should only sell more Chryslers. “

    The reason for the cuts at GM and Chrysler is that they are shrinking their brands. All the American auto manufacturers (including possibly Ford, in the future) are attempting to re-structure into smaller companies–with less brands.

    It’s really sad for anyone who loses their dealership, and their way of living. But, I hate to say it but it was inevitable. I don’t really know how else it could have been done. The American autos aren’t as dominant as they were in the 60’s and 70’s, yet they run their companies as if little has changed over the decades.

    This, especially if GM goes into bankruptcy and starts shutting down portions, is going to hurt the economy. I wish it occurred when times were good but usually humans don’t do anything until facing serious threats, which only seem to happen during recessions/stock market crashes/wars/etc.

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