OT: Chrysler Dealer Inventory Fire Sale?

They are closing an 80 year old dealer ship in Portland Oregon. (Timberline Dodge) I think the number of people that will be out of work is 79. It was on the 6:00 news.

I don't see how closing down dealer ships saves Chrysler any money. All that I see that's going to happen is a spike in new unemployment claims across the country. This is happening when we need more good paying jobs.

Richard W.

It doesn't and that isn't the purpose. The portland area had ten Chrysler dealerships. Hannah sells both Chrysler and Honda.

There are also ten Honda and ten Toyota dealreships. Honda and Toyota combined sell three times as many cars each as the Chrysler dealers do. By that measure - market share - the Greater Portland area should have, and won't support, nore than three or four Chrysler dealers.

JC

How do you get to be a dealer? Pay the manufacturer for the right to sell his car? Who owns the cars on the lot? And the building?

"How do you get to be a dealer? Pay the manufacturer for the right to sell his car? "

Yes. Those renew anually.

"Who owns the cars on the lot?"

The dealers do.

" And the building?"

The dealers either own or rent their facilities. Depends on the car company but that is true for Chrysler dealers..

JC

Depends. MOST dealership properties are owned by the dealer principal or franchisee. The cars are owned by the dealer principal in most cases, but quite often by a finance company - like GMAC. And yes, you pay for the franchise to sell their vehicles.

In the case of Ford/Mercury in Canada I think there was some redress to Mercury dealers that were closed down when Ford dropped the Mercury line here in Canada. Dealership franchises are NOT cheap!!

There are/were a few company owned dealerships - not sure if Chrysler had/has any.

But if the dealerships are privately owned, why is Chrysler killing certain ones? I would think lack of profit would cause a dealer ship to exit the market or sell an additional line of product.

What is the mechanism to determine who lives, who dies? Is it sales volume, profitablility, who the dealer contributed to politically?

Wes

So there's no obligation from the manufacturer other than allow the dealer to purchas cars for resale? I don't think I'd enter into a relationship without some guarantee that I would be able to stay in business as long as I could pay the francious fee. No doubt a dealler pays millions to be able to sell cars and has millions more invested in his dealership site

Because they'd like to improve their market share.

Chrysler is going to concentrate sales among the dealers that are best able to use the additional sales to increase Chrysler's share of the market.

JC

I do believe in free markets.

In some parts of the country, that is the model. How far apart will be dealerships in say, Wyoming?

Was that an improvement? Going from real hardware stores to places that sold only the fast movers?

I'd buy from Howard Cunningham. I doubt Howard would try to sell me some China produced car, undermining his fellow citizens trying to earn a living.

I would think most dealers would be interested in building their business.

I'm looking at this as in a world of decreasing sales, GM and Chrysler are using this to punish dealers that might actually have tried to honor the customer and pass on warranty costs back to the producers.

I pay my credit bill off each week and am known as a dead beat in the industry.

Wes

-- "Additionally as a security officer, I carry a gun to protect government officials but my life isn't worth protecting at home in their eyes." Dick Anthony Heller

Business is a gamble. The automotive buisiness is a BIG gamble. Over the last 30 some years it, like many other things, has paid off well. The gravy train has run off the rails. A GM or Chrysler franchise right now isn't worth a plug nickel. A Ford franchise might still get a few bids from an optimist. Even Toyota, Mazda, Mitsubishi, Kia and Hyundai dealerships are a very hard sell.

ANd the manufacturer has other obligations than just allowing the dealer to buy vehicles to resell. There is advertising support, training support, and other related support services/programs that are very costly.

Probably about as far apart as they are now. The Great State of Wyoming has a single Chrysler dealer. White's Energy Motors in Gillette.

It was for Home Depot and the rest. They now own the market, sort of like the Big Three used to.

He wouldn't be selling you a Javelin either. AMC finally had so little market share that they couldn't sell a Gremlin for less than $50 grand without losing money and they dissapeared. This is part of what has happened to GM.

Well they aren't, not beyond the point where they have a decent home, a Shalet at Boyne and a cottage on Houghton Lake. Thier ambition typically ends there and they stop investing in efforts to grow their franchises.

No they aren't. Dealers that do stuff like that are't dealers for long. Automakers also don't just run around punishing dealers beyond a certain point, at least it's very rare. You ought to see a dealer agreement some time. The inside politics are also pretty intense.

Automakers don't reward the employees that run their dealer channel unless that channel grows. Having a significant proportion of dealers that have stagnant sales means you get a bunch of guys running the dealer channel for an automaker that can't get jobs anywhere else. They would if they could. Pretty soon you have a car company losing market share even though sales remain the same and nobody cares. That's what happened to GM, Chrysler, Ford, Nash and Studebaker. Ford was the only one to actually take action and that's because they have been through this before. They recognized the actual situation.

That's right and Chrysler feels the same way about dealers, even reputable well behaved ones, that stagnate. Neither of you are worth the investment of resources so they invest where it will produce the best return. Double a Howard Cunningham's sales and he'll go out and buy another rental property. Gene Merrolis, on the other hand, built an automotive empire. So did Penske. Bill Fox? Not so much. In fact, you've probably never even heard of Fox Cheverolet unless Connie, his daughter, made something of the place. She might have and brother, she was hot. Smart too.

You seem a little confused about all of this Wes. That isn't a bad thing and you have a lot of company.

You'll really be conflicted by health care reform. Medicare and Medicaid costs could be cut in half tomorrow. As a practical matter it would be easy. 50 percent of every health care dollar spent in America is focussed on the last year of peoples lives and for extremely expensive procedures that don't extend those lives on minute. They frequently shorten them. Why would I, as a taxpayer, want to pay for a terminal womans hip transplant knowing that the six months she had left to live would be cut in half if she didn't die on the operating table, especially when her family had the resources to fund such a surgery? I wouldn't, of course. What I'd also not want to do is have to stand before anyone and tell him or her their Grandmother would just have to do without because she would be dead in less than six months and the surgery wasn't going to be covered under those circumstances.

Can you do that Wes? I could, even though I wouldn't like it at all. This is the health care debate American's are going to have to have at some point so gear up and get your game face on.

Medicare paid for the old womans hip surgery Wes so don't feel to bad. She died three months later right before the fellow she'd raised was elected to be our President last November.

JC

That's a big part of it. I'd only add that these dealers really need to compete with all of their competitors at once and a mom and pop dealer can't afford to do that.

JC

On a side note...it may be interesting for tool purchasers to drop off their cards at dealerships. There are going to be a LOT of hoists, cleaners, etc etc etc up for sale in the near future.

Gunner, with his eye on above ground vehicle hoists.

"Somewhere a True Believer is training to kill you. He is training with minimum food or water,in austere conditions, day and night. The only thing clean on him is his weapon. He doesn't worry about what workout to do--- his rucksack weighs what it weighs, and he runs until the enemy stops chasing him. The True Believer doesn't care 'how hard it is'; he knows he either wins or he dies. He doesn't go home at 1700; he is home. He knows only the 'Cause.' Now, who wants to quit?"

NCOIC of the Special Forces Assessment and Selection Course in a welcome speech to new SF candidates

First you go to the company you're interested in selling. They will look at the area and decide if another dealer is needed. If there is already a high volume dealer in the area you can forget it.

If you get a franchise you will need to pony up a chunk of money. That will cover the franchise minimum vehicle purchase and the base set of required dealership service equipment and tools.

You and your finance company will own the inventory on the lot. If you're doing it OOP then you will own the inventory. Building is either yours or leased.

Then you need to meet a minimum sales level to remain a dealer, that gets reviewed yearly and you can lose your franchise if your sales are poor.

In reality if you want to sell cars it is almost better to start a used lot. The catch there is that you have to buy GOOD vehicles or you will lose your shirt in warranty repairs and complaints.

"John R. Carroll" wrote in reply to, "Who owns the cars on the lot?" ^^^^^^^^^^^^^^^^ The dealers do. ^^^^^^^^^^^^^^^

There is more to it than that. Normally, a dealer "floors" his inventory, which means that the bank has loaned him the money to stock his showroom. The dealer pays interest on each car until it sells, pays off the loan with the proceeds of the sale, and keeps the difference. I don't know how the bank/dealer contract usually reads, but it is inconceivable that they would provide such loans without repo protection. So they're going to wind up with "foreclosed" new cars that will affect the market just the way foreclosed houses do.

Floor planned inventory is typically financed by the manufacturers lending division when it's shipped.as full recourse financing. Dealers can "take out" that financing if they have arranged better rates or terms from a bank.That was the way it worked 30 years ago for GM dealers anyway.

The real problem with floor planned inventory at that time was that the dealers couldn't stop vehicles from coming in because, ultimately, they are contractually obligated to take anythnig the manufacturer ships. Starting Monday, that lender will be ALLY. That's GMAC's new name. I'd bet you dollars to doughnuts Chrysler dealers have a better chance of contracting AIDS from a door knob or toilet seat than they do getting bank financing for ploor planned inventory today. I mean really, think about it.

Chrysler really jammed their dealers when the K car came out in exactly this way and it backfired on them.

JC

Damn, picked a real bad example. ;)

Oh so they only want mega dealers now. Sorta how they only wanted mega suppliers when they thinned out the smaller suppliers years ago.

I'll keep that in mind.

I don't doubt I have company.

Terminal? A hip replacement for someone that is terminal is nuts. The concern is if they say, you are 75, statistically only this much time left and deny treatment. Some people live longer than others.

Doctors can't seem to do it. That isn't what they are about. Could I do it? Not without great risk to my heart, mind, and soul.

I never read or heard in the press that she was terminal before the hip replacement. Google finds reference to it though. She made it to 86, a pretty good run.

The debate will be interesting. The population has a lot of older people in it that will expect to get health care that they paid into all their lives and the ones coming up behind them will have an interest in how the debate goes.

Like social security, Medicare has been a ticking time bomb ready to explode. I think the contacts are about ready to close.

I think this national heath care thing is Congress's way of reshuffling the deck so they don't get tagged with a failure of Medicare.

I can't remember what union leader I was listening to yesterday but he was all for national health care. I wonder if that is because the union was responsible for health care for retires or if they wanted to get heath care and divert their health care investments to pay for pensions.

Lots of interests in this game.

Wes

Wes

The dealer ship has been profitable for 80 years.