Rejected car dealers will affect you and your city!

I was watching CNBC today and they gave some interesting figures for the nation concerning automobiles:

The average sales per dealer is $334 million
Total sales for new cars is $693.3 billion
The auto sales percentage of total retail sales is 18 percent.
There are 20,770 new car dealers in the nation
According to the Alliance of Automobile Manufacturers the auto industry supports one in 10 U.S. jobs.

The National Auto Dealer Association gave me some other figures:

There were 53 people per average working at car dealerships in 2008. That number will be closer to 48 for 2009 as layoffs take place in this economic freefall.
There were 13.2 million new cars sold by about 20,500 dealers during 2008
(there were 20,770 dealers on Jan.1 2008 and 20,010 at the end of the year)
That yields average sales of 644 per dealership.
A dealership (rooftop) has 2 franchises on average.

Dealership closures are more severe in California, and will be so in all of the
20 states where residential real estate prices are still in correction mode.

Dealership closures were 270 in the first quarter, so the monthly rate was 90 net closures per month.
Howe’ver, for April, after very modest sales improvement, net closures were 470 year to date,
for an average of about 118 per month. Or an average of 90 dealers closed in the first quarter, and 200 closed in April 2009.

You need to know all this information to realize how much will be lost by closing over 3,100 car dealerships by October, 2010. 3,100? Yep, 3,100.

In Chrysler’s media call they said 789 car dealers are being rejected. In the General Motor’s media call they said that 1,124 car dealers got reject notices this week. 500 Hummer, Saturn and Saabs will get an update about their viability next week.With all that, GM said they will still need another ten percent, or 400 car dealers, gone before October, 2010.

According to CNBC Chrysler currently has:

100,000 employees in 50 states
115,000 retirees
3,188 retail outlets (includes the 789 dealers to be cut)
6,000 supplier locations

In a media briefing Jim Press, Chrysler’s Vice Chairman and President, said that reducing Chrysler’s dealership numbers by 25 percent is the right number. “There is not enough industry for that many dealerships”.

On the media call Chrysler said that the decision to get rid of the 789 dealerships was a non-financial strategy. It was not based on profitability or working capital of the dealership. What happens if the dealership that was supposed to stay in business isn’t profitable or doesn’t have the working capital to sustain it through this economic downfall? Does Chrysler bring another car dealer in, or open a company dealership?

I dug a little deeper with the Chrysler folks after the media briefing and was told that while finances were not the first issue, they were heavily considered. It was a data base decision, based on Consumer Satisfaction Index (CSI), location, and whether the franchise was tri-branded or not. Fifty percent of Chrysler’s car dealers that were rejected sold less than 100 vehicles per year.

Chrysler instituted Project Genesis, a project to consolidate dealers in the name of brand equity. After the reduction, Press says, there will not be a stand-alone Jeep dealership.

Can Fiat still make adjustments to the list or is this final?

Chrysler said that during the process, Fiat was made aware of the criteria used to evaluate the dealer body and Fiat offered it’s opinion on markets in which they felt it was important to maintain a presence but did not request the assignment or rejection of any individual dealer or groups of dealers. They didn’t give a definite answer as to whether Fiat would reject more dealers.


What happens to the rejected Chrysler dealers on June 9th?

On or about June 9 is when the dealers on the rejected list (if the court approves Chrysler’s motion) will have to stop selling new Chrysler, Jeep and Dodge vehicles and performing warranty work. It is up to the dealer what they do after that. 44% of the dealers on the list also sell other manufacturers vehicles and Chrysler expects them to continue to do so. 89% sell more used vehicles than new, so several have said they are going continue to sell and service used vehicles.

The big rub is that many of these new car dealerships still own new cars, and Chrysler is not buying them back. On or about June 9 they will not be able to sell new Chrysler, Dodge and Jeep vehicles. Once their contract is rejected, and the termination date passes, they cannot sell new Chrysler LLC products or perform warranty work.

A dealer’s dilemma:

Warren Brown from the Washington Post interviewed L.T. “Tom” Younger, Columbus Motor Co., Columbus, Miss. and talked to me about Younger’s dilemma:

“Mr. Younger’s Columbus Motor Co. Chrysler store is a single-point dealership in Columbus, Miss., opened in 1978. It currently employs 15 people and pays $180,000 annually in state sales taxes, 1 (one) percent of which goes to the town of Columbus.

In good years, Younger’s Chrysler store sells 100-125 new vehicles. He sells twice as many used cars annually from that store. Thus, the profit centers were used vehicles and auto repair/service. He says he has been routinely profitable, even in the current economic downturn, largely thanks to used car sales and auto service.

To put it mildly, Younger is pissed. “I’ve been a Chrysler dealer, a profitable Chrysler dealer” almost since the time his store opened. It’s a classic mom-and-pop shop, run by Younger (68 years old) and his wife and their two sons, Tim and Tom (in their 40s).

The termination letter, delivered in a flat UPS parcel “felt like a kick in the ass when I opened it in the morning. It sort of hit me between the eyes,” Younger said (although, he being a Christian man, probably wouldn’t want to be quoted as saying “ass.”)

Younger outright owns the property on which his dealership stands literally on the town’s Main Street. He says he’s not going out of business. “I’ll still be a dealer,” he said. “I’m not closing. It’s Chrysler that’s pulling out.”

Five years ago, Younger’s little dealership developed a sideline buying used work trucks…and servicing them as well. Until recently, it was a good business. In the current economic environment, it’s gotten tough” doing business, Younger said. “But I’m blessed, because I don’t owe anybody any money.”

There isn’t another Chrysler dealership within 30 miles of Younger’s place on Main Street in Columbus. But he said there is a Dodge dealership nearby and a store that sells Jeeps. He doesn’t know their profitability.

Younger said Chrysler has left him holding the bag on inventory. In bankruptcy, Chrysler does not have to buy back unsold new cars and trucks. “I’ve got two weeks (before June 9) to liquidate inventory, or lose 50 cents on a dollar at auction,” he said. But he said he will try to sell as much inventory as possible retail, using an aggressive local/regional advertising campaign. “I’m still going to be a dealer,” he said.”

If you are a customer that purchased an extended warranty from a rejected dealer you need to look at your contract. If the extended warranty wasn’t through Chrysler and this dealership goes out of business your warranty maybe null and void.

General Motors:

“Based on our review and your dealership’s historical performance, we do not see that GM can have a productive business relationship over the long term.”

General Motors termination letter to 1,124 car dealers or “notification of future plans to let franchise agreement expire at the end of agreement”

Mark LaNeve, GM North America vice president of vehicle sales, held a media conference and said that in June, another letter will go out telling them to please “wind down their business”

1,124 dealerships = 7 percent of sales in 2008, and 8% of on-ground inventory, or about 65,000 vehicles. The companies that are receiving this letter are getting it because they are below state average on sales. A very high percentage of these companies are very much at risk of attrition. GM is willing to give them a help in winding down their business.

Because of the relationship/contract with GMAC, GM gets to buy back the inventory at the end of the franchises termination.

400-500 of these dealerships sold less than 35 cars a year. Some are being let go because of Consumer Satisfaction Index (CSI) or profitability.

In addition 500 Hummer, Saturn and Saab will receive an update to their viability in the General Motors business strategy within the next week or so.

At the end of this process General Motors should have 3,600 car dealerships. GM is expecting another 400 or so to drop out from attrition by end of 2010.

That means another 440 will not be in business in about a year. As GM goes forward LaNeve says that part of the decision will be whether the dealership is a single-based GM dealership or if it is dualled with a non-GM franchise. “We need dealers that will concentrate on GM brands”.

Right now 62% of GM’s car dealerships are consolidated under one roof. Getting rid of the aforementioned car dealerships will bring the consolidation number up to 84 percent.

Some GM dealerships still have 2008 models. General Motors will buy back the new cars from the rejected list.

About the Author:

Lou Ann Hammond is the CEO of Carlist and Driving the Nation. She is the co-host of Real Wheels Washington Post carchat every Friday morning and is the Automotive, energy correspondent for The John Batchelor Show and a Contributor to Automotive Electronics magazine headquartered in Korea. Hammond is a member of the North American Car and Truck of the Year (NACTOY), Women's World Car of the Year (WWCOTY), and the Concept Car of the Year.