The AP (via Yahoo!) reports that Chrysler will ask Judge Gonzalez to cancel “at least” 800 dealer franchise agreements on Thursday. The news comes from lawyers of Cincinati firm Squire, Sanders & Dempsey, who are organizing opposition to the move. Automotive News [sub] has more on the effort, reporting that the National Automobile Dealers Association is soliciting $4,000 contributions from members to create a legal defense fund. Also, just because a dealer doesn’t get the axe on Thursday doesn’t mean they’re out of the woods yet. Mother Fiat is sees dealer cuts as business item number one for its new Chrysler division, and Thursday’s cuts are being called “preliminary.” Dealer cuts “won’t be a huge catastrophic number,” Jim “It’s Always Sunny In Auburn Hills” Press tells Bloomberg. After all, about 50 percent of Chrysler’s 3,188 dealers generate 90 percent of its retail sales.
So the total number of cuts is likely to be around 1,594.
I must say, I am deeply disturbed by that advertisement (top of thread). Wow.
As for the dealer shutdowns, weren’t we already pretty much expecting this sometime this week or next anyway? I find it amazing that only 50% of their dealer network makes up 90% of their sales. Seems like they should have thinned out the dealership herd some time ago.
superbadd75: It’s ugly out there.
Just think – the socialists in the Obama administration is using the tax dollars of people such as these dealers and their employees to destroy multigenerational businesses.
Yet another group being sacrificed so the UAW and the bureacrats in Washington get to keep their gluttoneous piece of the pork.
3188 Dealers? Is that counting each Jeep, Dodge, and Chrysler franchise as separate, even though they often operate under the same roof, and indistinguishable to the consumer?
Because 64ish Pentastar stores per state seems absurd.
On average, 50 people work at an American car dealership.
Consequently, 40k jobs are basically going to be slashed on Friday.
can someone explain to me what dealers will be cut and how this will profitably help the company? Edward you are right it is ugly!
“Yet another group being sacrificed so the UAW and the bureacrats in Washington get to keep their gluttoneous piece of the pork.”
The funny thing is, the actions being taken under the auspices of the PTFOA are pretty much what a buyout fund specializing in turnarounds we would doing in this situation.
Cincinnati.
The funny thing is, the actions being taken under the auspices of the PTFOA are pretty much what a buyout fund specializing in turnarounds we would doing in this situation.
Yes, but we cannot allow this fact to get in the way of a good argument, now can we?
Consequently, 40k jobs are basically going to be slashed on Friday.
If they can’t sell cars, anyway, then isn’t it a matter of time before they go out of business, regardless? You don’t need nor can you make payroll if you don’t have any customers.
“Consequently, 40k jobs are basically going to be slashed on Friday.”
It doesn’t seem these dealers were relying much on new car sales. If half of the dealers (1,600) accounted for 10% of sales (145k) that is fewer than 2 new cars sold per week.
Small towns will lose out the most. 800 less dealers to do warranty work, or to supply factory parts for the DIY crowd. Some towns will feel the loss of jobs and the support those workers gave to other businesses. They will be missed.
You don’t know how many of these dealerships are stand-alone or part of a group of dealerships of mixed brands, owned by one entity.
If I was a Chrysler dealer, I think I’d have been on the phone to Hyundai quite some time ago.
“It doesn’t seem these dealers were relying much on new car sales. If half of the dealers (1,600) accounted for 10% of sales (145k) that is fewer than 2 new cars sold per week.”
I fully agree that these dealers need to close; it’s just interesting to see the implications of Chrysler’s unfolding bankruptcy in terms of job losses.
The more interesting part is the chain reaction.
Many dealers have multiple franchises and combine the business operations. Losing the Chrysler dealership, may mean the bank pulls the lines of credit that also support a Ford and a Hyundai dealer owned by the same guy…
It will take 6-9 months and LOTS of lawyers to sort this out.
And remember this is the easy round.. GM is 10X more complicated.
It will take 6-9 months and LOTS of lawyers to sort this out.
It shouldn’t. In bankruptcy, severing contracts is a basic reorganization tool. The dealers have no valid argument.
If anything, a GM bankruptcy is at this point a certainty because of the franchise agreements. Even if the bondholders and secured lenders agree, these contracts can’t be terminated easily outside of BK. In BK, it’s a cinch.
The dealer in the ad, Ernie Boch Jr., has a backup job if the dealership bites the dust.
Pch101:
I didn’t make my point then… Chrysler’s part is easy. Judge makes a ruling and it’s over…
That will start a chain reaction that will take months to sort out.
Losing a Chrysler dealer will be an opening for a bank to change terms of loans, pull financing and generally do what they feel.
This will force many dealers into bankruptcy to protect themselves, that will force many suppliers to dealers and so on and so on…..
This round of the meltdown is just warming up….
Do you cut a small town dealer who is well liked, doesn’t cause you problems, earns a small steady income, and doesn’t have another dealer within 50 miles or do you cut a big operator who is hated, causes you a lot of grief, sells a lot of cars, and has 2 like branded dealers withing 10 miles?
This is an incredible story. Thank you TTAC for keeping us informed.
Seth L:
“3188 Dealers? Is that counting each Jeep, Dodge, and Chrysler franchise as separate, even though they often operate under the same roof, and indistinguishable to the consumer?”
Yes. And it’s the same way with GM’s 6000 dealers. Many of them are Buick/Pontiac/GMC dealers under one roof. In my small town there is a Chevy/Pontiac/Buick dealer. And before that he had Oldsmobile too.
We also have a Ford/Lincoln/Mercury and a Chrysler/Jeep/Dodge franchise. They are the only ones for 30 miles so I expect that none of them will be cut.
folkdancer:
“Do you cut a small town dealer who is well liked, doesn’t cause you problems, earns a small steady income, and doesn’t have another dealer within 50 miles or do you cut a big operator who is hated, causes you a lot of grief, sells a lot of cars, and has 2 like branded dealers withing 10 miles?”
According to an article on Yahoo, it’s the metro dealers who will be most effected. They end up competing with each other as well as other makes.
The question is not so much about Chrysler sales.. It’s where Fiat thinks they can sell Fiats.
Name a Chrysler product that could outclass a Ford, Toyota, Honda, etc if Fiat made a billion dollar investment….
http://www.bloomberg.com/apps/news?pid=206…=transportation
QUOTE
Trimming Chrysler’s 3,188 retail outlets would be among the first management actions by Turin, Italy-based Fiat affecting the U.S. automaker. Chrysler wants fewer dealers so those remaining will be more profitable. It had a plan last year to trim the number in major metro areas by as much as 50 percent.
Chrysler gets 90 percent of its sales from 50 percent of its dealers, according to bankruptcy documents. The automaker hasn’t said which outlets it will cut, and President Jim Press told dealers on a May 8 call that the list was evolving.
The reductions “won’t be a huge catastrophic number,” Press said on a call with reporters two weeks ago.
—
So the article states most of the cuts will be in major metro areas. The 90/50 ratio is actually quite good I think. Remember the 80/20 rule? I bet GM and Ford dealers are closer to that ratio. They are a dime a dozen in rural towns.
1 million small businesses just lost a credit card today….
Wonder how many dealers this impacts….
“Advanta Corp., the issuer of credit cards for small businesses, will halt new lending for its 1 million customers next month as the recession causes a surge in loan defaults. … Advanta said … charge-offs, or uncollectible debt, reached 20 percent on some cards as of March 31. “
“Name a Chrysler product that could outclass a Ford, Toyota, Honda, etc if Fiat made a billion dollar investment….”
200C. Next generation minivans. Next generation Ram (the current one is just as good or better depending on your wants and needs in a full size pickup). Looks like the new Grand Cherokee will be very competitive.
What Chrysler needs more than $ from FIAT are platforms to replace it’s smaller cars (Caliber/Compass) and to make even small B or A class cars. The know-how they had in the 90’s is gone due to Daimler gutting the small car platform team. Daimler thought they could just tweak Mitsu platforms and all would be well. They were out of their league and too arrogant to listen to Chrysler.
Windswords:
Next generation minivan? What are they going to do? Have 11% more cup holders than Honda?
The RAM? So it’s going to pull a house down the road while getting 49 MPG?
A new SUV in the Grand Cherokee? Newsflash: SUV sales peaked a few years ago and are spiraling down the toilet for the foreseeable future.
This is an organized liquidation… Fiat is buying the dealer network, some plants to make Fiats in and the Jeep brand. Everything else will dissolve.
Ford is way ahead of Chrysler on product for those that want to buy American and Honda/Toyota are way ahead for those that want the security of those brands.
That will start a chain reaction that will take months to sort out.
OK, I see your point. Undoubtedly, there will be some victims here, no doubt. Some of these dealers will rely upon other marques, get into the used car and independent repair business, or otherwise find something else to do, but many will die nasty deaths, to be sure.
The question is not so much about Chrysler sales.. It’s where Fiat thinks they can sell Fiats.
The lineup may end up being a mixture, and with fewer nameplates overall.
If they’re smart, they’ll figure out how to make a profit from a lower level of sales. If they can figure out how to turn a profit at 1-1.5 million units per year, that’s a target that shouldn’t be that difficult to hit. That might mean having no more than 8-10 models total, including perhaps a truck, minivan, Jeep or two, and half a dozen cars, give or take.
Sorry for arriving late for the party but IF that disturbing advertisement at the top of the thread is real….Boch Automotive huh? That’s interesting because assuming it’s the same Boch family, Boch Rambler was the world’s largest Rambler dealer in the 1950’s and 1960’s. I suppose that’s how they wound up with a Chrysler franchise.
Stu, the June ’09 issue of Hemmings Classic Car magazine has an article on Boch Rambler. It began as a very small Nash dealership after WW II. As the business grew, Andy Boch was joined by his son Richard and in 1947, his brother Ernie. “In 1963, it sold over 2,200 cars, thus making Boch the largest volume American Motors dealer in the country.”
“In the mid-1960s, Boch added the Dodge line, becoming Boch Dodge & Rambler, and in 1975, Richard and Ernie decided to give up the AMC franchise.”
Richard’s sons “own Expressway Toyota in Dorchester, Massachusetts.”
“Ernie’s son, Ernie Jr., runs the Boch dealerships in Norwwod, selling Toyota, Honda, Ferrari and Maserati and is the distributor for Subaru New England. … Boch Honda is the largest-selling Honda dealer in the world.”
Even if Boch loses the Dodge franchise, I think they’ll be able to survive.
“Even if Boch loses the Dodge franchise, I think they’ll be able to survive.”
He can do adverts for Coppertone… (bleh)
Boch has an enormous presence down there in Norwood. And Ernie Boch Jr is easily one of the most annoying people on the planet. Their dealerships have a bad reputation due to bait-and-switch tactics and their ubiquitous commercials are extremely annoying.
lw:
“Next generation minivan? What are they going to do? Have 11% more cup holders than Honda?”
Maybe they will give it more style (see Routan for example). Maybe they will give it better NVH and driving characteristics like the Sienna and Odyesey that everyone seems to think is so great (I have driven them and there is not much difference, except for the interior fit and finish). How about a better interior?
“The RAM? So it’s going to pull a house down the road while getting 49 MPG?”
No, but if you know ANYTHING about the truck market it’s highly competive (just ask Toyota, he, he) and you CANNOT rest on your laurels. That’s why after introducing the new 1500 Dodge turned right around and redesigned their 2500 – 5500 heavy and super heavy duty trucks (which have gained share on Ford and GM in the HD market).
“A new SUV in the Grand Cherokee? Newsflash: SUV sales peaked a few years ago and are spiraling down the toilet for the foreseeable future.”
Newsflash: if you don’t keep your products current you will lose out on sales period. The GC was due for a redesign, just like the Ram. Should Toyota not have redesigned the 4Runner because SUV sales peaked? By the way SUV sales have stabilised as per capita share of overall auto sales. Maybe, I don’t know, lower gas prices have something to due with that. Here’s a tip: next time your see the words “sales peaked a few years ago and are spiraling down the toilet for the foreseeable future”, picture a Toyota Prius.
“This is an organized liquidation… Fiat is buying the dealer network, some plants to make Fiats in and the Jeep brand. Everything else will dissolve.”
That’s your opinion and your are entitled to it but I have a question for you: If “SUV sales peaked a few years ago and are spiraling down the toilet for the foreseeable future”, why does Fiat want to disolve everything and sell Jeeps? Which is it? Are Jeeps yesterdays news or does FIAT fancy themselves some Jeeps? You can’t have it both ways.
“Ford is way ahead of Chrysler on product for those that want to buy American and Honda/Toyota are way ahead for those that want the security of those brands.”
You asked the question what a billion dollar investment would do and I answered it. I can make anything better with a billion bucks (well if I’m not the US government which can’t make things better with $100 billion). And so can you. But for Chrysler it’s the new platforms and for FIAT it’s the new markets that is at the heart of this.
@windswords: It’s going to take a good chunk of change to bring the minivans up to snuff, money that Fiatsco doesn’t have. The Stow’N’Go floorplan minivan design was carried over from the prior van as it cost about a billion bucks to develop, and has some compromises: the 3rd row is really narrow, can’t fit 2 car seats and a small person as in a Sienna. Cargo room is smaller than the competition due to the underfloor compartments. Also, the 3.3L V6 was gutless in the prior design, haven’t driven the latest van yet but I can’t see it as being much better as the current van weighs more.
Right now, Chrysler and VW are offering $5-$8K off MSRP on their vans, so the changes can’t come soon enough.
Richard Chen:
The 3.3L V6 is history. The new Pentastars (nee Phoenix) will be put in the minivans. If Fiat can adapt their DCT and they improve the interior/exterior (6 billion in Obama bucks will help), then you might not care that the back seat is narrow.
I recently drove a rental T&C with the old V6 and 6 speed auto and it never felt underpowered, but hey I always like more power (insert Tim Taylor grunt here).
I’m sticking to my prediction of “The Great Car Shortage of 2011”. Fewer cars being made, fewer dealerships and lots of folks driving around in clunkers that have to be replaced eventually.
It’s a basic fact of life: People need a car to get to the job, to school and the supermarket. This is true, no matter how bad the economy is. Where are all of these new cars coming from?
I’m sticking to my prediction of “The Great Car Shortage of 2011″.
I’d bet against that. There is already an abundance of overcapacity in the system. An increase in demand will just absorb existing capacity.
The problem isn’t with creating supply, it’s with the carrying costs of the larger automakers while they ride out the recession. Honda should outperform the market while the economy is sluggish, but Toyota and Daimler should beat the pants off of them once the market comes back.
What is going to change is the cost of US car rental. That is probably going to be rising, because the domestics dominated that market. The more retail sales that the Koreans can score, the more that car rental rates will raise, because Hyundai and Kia will reduce their fleet sales as their consumer sales improve.
I thought one of the “good” things about bankruptcy is it would allow mfrs to re-organize existing contracts with dealers and labor orgs?
Yet the bulk of the responses here seem to be “oh, crap, look at all the jobs lost!” Jobs are being lost anyway (due to low sales), this just seems to push up the timetable a bit.
As an aside, the local Saturn dealer closed as part of GM’s restructuring / cost saving efforts. The owner reports that GM offered to buy every car on the lot. Which is something they were not about to get from their customers; selling a handful of cars every couple weeks it would take years to sell the hundreds they had.
Public reaction: “We had a Saturn Dealer?”
Almost all employees (much fewer than 50 worked there) were moved to another GM dealer across the highway owned by the same folks.
That Boch advert kinda jilts the gaydar, doesn’t it?