We've long argued that Cerberus Capital Management will do whatever it takes to stem Chrysler's cashflow cataclysm. The Wall Street Journal reports that the Chrysler Group's new management team is giving their poorer-performing dealerships six months to improve sales or face closure. Chrysler has already banned 450 or so so-so dealers from their used car auctions in an attempt to force them to sell more new cars. The warning signals the next step in their campaign to cull underachievers from the automaker's bloated ranks. Like GM and Ford, Cerberus wants to "encourage" smaller dealerships to merge with larger ones. That said, Cerberus better walk softly with that big stick. Car dealers are protected by state franchise laws; dealer groups wield a mighty checkbook at the state level.
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I am not surprised at Chrysler’s edict to it’s dealers. The Chrysler dealer near me would look just like a used car dealer if it didn’t have dealer signage. They have a small showroom, or row of new cars in front of that, and a huge parking lot full of used vehicles of all makes. Of course, Chrysler should keep in mind if they produced more vehicles their dealers could sell at a profit, the dealers would be happy to sell them.
As pointed out, dealers have a staggering amount of political influence in each state legislature, influence way out of proportion to their economic significance to each state.
Cerberus can review what happened when GM shut down Oldsmobile to see just what sort of trouble could be brewing as they try to thin their dealer ranks.
B Moore – Autosavant.net
Remember a long time ago when Porsche tried to do the right thing?
Like going after John Gotti with a BB gun, but maybe the Dawgs have Moscow on speed dial. LOL.
Remember a long time ago when Porsche tried to do the right thing?
I’m not familiar with whatever you’re alluding to. Care to enlighten me?
Also, I wonder how Cerberus is defining “poorly performing” dealerships? Number of units moved? Revenue numbers? What if a dealer is in a small market? Surely they shouldn’t be held to the same standards as a big-market dealer.
I mean, a poor big-market dealer could still sell more cars than a great small market dealer.
Lots of questions here.
From the dealer’s standpoint, they don’t have anything good to sell. Build the cars that people want and you’ll have no trouble selling them. That said, the domestics’ dealer networks are pretty bloated, especially compared to the likes of Toyota.
Improve sales? Or profits?
Ah, writing on the wall time, apparently.
And given Chrysler’s imaginative inventory exercises pre-Cerberus there’s a lot of weirdness to be straightened out. As Drew says above there’s also this:
From the dealer’s standpoint, they don’t have anything good to sell. Build the cars that people want and you’ll have no trouble selling them.
The majors are going to have to start over, and they are going to have to leap-frog a generation of automotive technology if they want to stand a chance against the brands that didn’t mess up the merchandise. That’s not achieved in two Wall Street Quarters …
Good thing Cerberus has three heads because one bit off more than it can chew and one is up it’s butt.
Good thing Cerberus has three heads because one bit off more than it can chew and one is up it’s butt.
I can’t stop laughing, thanks for a good ending to a crap day.
Wow, imagine how much worse the high pressure sales tactics are going to get at these dealers while they are under the gun. Chrysler should be focused on radical improvements in the customer/dealer relationship and this strategy isn’t going to get it done at all.
Another side effect is that some guys are going to take down the Chrysler-Dodge-Jeep signs and put up China Motors signs just as soon as they get a chance.
This one is going to backfire.
Drew, someone here that does this for a living surely remembers the details much better.
It was a plan where Porsche would operate factory owned dealers either in competition with existing dealers or exclusively, there were lawsuits and the dealers won.
All the owners pulled for Porsche as they were tired of the substandard service.
I’m sure there is a lot more to it but I suffer from CRS.
Chrysler should be focused on radical improvements in the customer/dealer relationship and this strategy isn’t going to get it done at all.
That’s not the goal. The new owners of Chrysler want a smaller dealer network, comprised of larger stores with higher per-store sales. This is the second volley (refer to the TTAC article about cutting off dealers from the used car auction to learn about the first volley) in a battle to make the company leaner and meaner.
Here’s the basic goal — Chrysler wants its dealerships to be more profitable for the dealers, so that they are motivated to own and invest in them. The dirty almost-a-secret for the Big Two Point Whatever is that their dealers end up spending most of their time in the used car business, because low per-store volumes force the dealers to the used lot in order to make the profits. The dealers cannibalize each other on the new car side, which makes a dealership rather unappealing and not very profitable to own, which just does more harm to the brand.
If Chrysler agencies are more profitable to own, they may then attract a better level of superstore operator who can push product out the door, which should reduce average inventories and increase cash flows. This, in turn, should increase the value of Chrysler Group so that when it comes to sell, it will have appreciated in value. (Higher earnings = higher valuation.)
But Stein X Leikanger above hit the nail on the head — expecting revenue improvements without having the vehicles to match could be a problem. Perhaps they’ll figure out how to fix the product side later; meanwhile, the dealer side of the equation will take awhile to mend, and needs to occur, regardless, so the time to begin is now.
Six months ago Chrysler was shoving unwanted units down every dealer’s throat. Last week Group 1 initiated legal action against DCX for coersive practices. Group 1 changed from DCX financial to JP Morgan to floor plan their inventory, and allege that DCX became coersive.
The sale of Crysler from DCX to Cerberus is scheduled to close next week, and some dealers receive a letter giving them 180 days. Is it a move to cull dealers, or to save / prolong careers at the new Chrysler under Cerberus.
Chrysler has tolerated average dealer representation in the market for many years. The priority was not to improve dealers, it was to move the metal.
I wasn’t aware that Chrysler had the option to simply selectively shut down dealers. Can they really do that?
“Can they really do that?”
I guess we’ll soon find out. I am sure GM and Ford will be watching. From a standpoint of right and wrong this is yet another reason to brand the former big three as simply bad companies run by bad people.
Screw everybody and anybody just like they do their suppliers and their customers and now their dealers.
I wasn’t aware that Chrysler had the option to simply selectively shut down dealers. Can they really do that?
I’m guessing that it doesn’t matter. The onus would be on the dealers to litigate against the mothership, and let’s keep in mind that the ones who would be suing would be among the financially weakest in the network, and therefore the ones least likely to be able to afford it. My guess is that you’d see some sort of threat of a class action suit, followed by some sort of settlement.
Screw everybody and anybody just like they do their suppliers and their customers and now their dealers.
This is one of those circumstances in which no solution is optimal. Maintaining the status quo invariably hurts almost all of the dealers, because their new car sales business is not lucrative. On the other hand, if the plan is successful, this will help the dealers who remain, but at the expense of the little guys who get the guillotine.
This is one of the benefits of private equity. Taking Chrysler private allows the operators to do what they want in the long-term interests of the business without worrying about quarterly forecasts or the reaction of the markets.
If the dealer does improve the sales performance in 180 days, they will then say we require a new facility. There goes another letter with time frames.
All manufacturers can play these games, its not a question of private equity. Usually they do not have the “stomach” to do it, when careers can get jeopordised, different story.
A franchised dealer is similar to a race horse, at some point and time the horse slows down, and it will be put to pasture. The “putting to pasture” process is full of grey areas. The easiest one is for the dealer to sell, and the new buyer to immediately make promises to the manufacturer. Often it becomes a “same s…t different box scenario”, but now the manufacturer has a new dealer and will be patient the outcome or situation does not change in smaller markets that function on personal relationships often the representation suffers.
The constant and ongoing “churning” of sales people in the showroom is to create the image that the dealership is aggressive, open to change, and even if the numbers come up short we are proactive and doing something about it.
Its not private equity, its just the way the game is played.
Pch101 “The onus would be on the dealers to litigate against the mothership, and let’s keep in mind that the ones who would be suing would be among the financially weakest in the network, and therefore the ones least likely to be able to afford it.”
They might be weak but we are not talking about some average joe who has no clue that their rights have been violated and who has no resources. Also some multi line dealers might welcome this as an opportunity to sue the pants off of Chrysler and deliberately miss their sales target.
“if the plan is successful, this will help the dealers who remain, but at the expense of the little guys who get the guillotine.”
Oh I agree with you on that but it still stinks in the same manner that it might be legal to strong arm your suppliers into bankruptcy, screw your customers with sub par product but from a karma viewpoint Chrysler also deserves the same which is to be screwed over.