LLC dealers are aggressively lobbying the auto maker with plans to reduce their own numbers, Ward’s learns.
The activity is in line with reports that claimis seeking to chop as many as 1,000 under-performing dealers from its network in a bid to align its sales organization with market demand.
It also follows the auto maker’s recent move to trim its product lineup. And if more changes are implemented, as expected, a revised product program threatens to starve single-point dealers – the prime targets of the auto maker’s dealership downsizing.
“We absolutely have to be part of the solution,” says Wes Lutz, owner of Extreme Dodge in Jackson, MI.
One scenario calls for Chrysler to create committees comprised of dealers in each of its eight regional business centers. With a view to consolidation within the dealer network, each committee would develop a formula on which to base a dealership’s value in its specific market area.
Possibly, the formula could factor in a dollar figure based on an average of vehicles sold the past three or four years, insiders say.
Then Cerberus Capital Management LP, which acquired Chrysler in August, would be prevailed upon to finance 50% of each acquisition. Buyers would pay the other half.
|as of March 2007|
|Chrysler/Dodge (Truck only)||5|
|Chrysler/Jeep/Dodge (Truck only)||1|
|Dodge (Truck only)||1|
To sweeten the deal further, buyers could tap into pre-approved lines of credit supplied by Chrysler Financial.
Lutz believes Cerberus should place a time limit on its offer – anywhere from 90 to 120 days. Dealers who fail to sign letters of intent during this window would then be compelled to broker sales on their own, or stay in business with potentially limited product portfolios.
“Putting a timeframe on it will push dealers to move quickly,” Lutz says.
Several dealers privately tell Ward’s they find the plan intriguing.
A Chrysler spokesman calls dealer initiatives “novel,” but downplays recent reports on the state of the auto maker’s dealer network.
“None of this is new,” he says. “We’ve been very successful the last several years reducing our dealership count.”
Responding to the 1,000-dealer elimination target reported in The Wall Street Journal, the spokesman is skeptical.
“Get rid of 1,000 dealers in two years? There’s no way we could do it with current franchise laws. That number was pulled out of the air.”
In an interview last month with Ward’s, Chrysler CEO Robert Nardelli denies the auto maker has set its sights on a specific number.
“I don’t come after this with a target that says, ‘I must reduce 300 dealers,’” he says. “I think the right solution is what’s right for the customer base.”
Nardelli believes the number of dealers will be “determined by the dealer’s profitability. And as we continue to advance the Alpha concept, there will be a natural migration to the Alpha stores.”
Alpha stores sell all three Chrysler brands – Chrysler, Dodge and Jeep.
“When we look at our product portfolio, and we find out that traditionally we had two stores, and now we have one, it’s crazy to have competing products in the same room,” Nardelli says. “So I think with the combination of the economics and dynamics of the market, you’ll have a little bit of a shakeout. And some of that will be driven by the product portfolio that we offer.”
Chrysler’s single-point stores total approximately 1,000.
For about five years, Chrysler, as part of its Alpha project, has been consolidating its three brands at single sites where the move made sense, usually in metro markets. Of Chrysler’s 3,740 dealerships, 1,934 feature all three brands.
According to one source, when then-CEO Tom LaSorda first met with the Cerberus management team, he indicated Chrysler needed to pare its dealership numbers by as many as 750.
Whatever the number, Chrysler dealers want to play an active role in deciding their fate, rather than watching from the sidelines.
Any initiative to reduce Chrysler’s dealer count will be predicated on a revamped product strategy that could be in place by the end of the year, insiders say.
The Wall Street Journal story suggests cars would be sold under the Chrysler name, pickups and commercial trucks under the Dodge name, and SUVs under the Jeep brand.
Such a plan would eliminate overlap. The auto maker has several vehicles – such as the Chrysler Sebring and Dodge Avenger midsize sedans – that share platforms, body styles and components, but not badging.
In this scenario, dealers selling a single brand would be affected most because they would have fewer models to sell. But trimming models from its brands only to watch single-point dealerships slowly die is “inhumane,” says one dealer.
Another consolidation plan calls for Chrysler to put a $100 surcharge on each vehicle, with the money going toward buying out other dealerships.
Dealers also have proposed scenarios in which they would have an equity stake in Chrysler.
This notion was first pitched last summer, when the national dealer council met with Cerberus officials.
According to a dealer familiar with the exchange, Cerberus CEO Steven Feinberg agreed to look into the possibility.
Another idea calls for dealers to fund buyouts themselves, according to a Chrysler source. In exchange, they would get equity in Chrysler, giving them a stake in the business.
However the reductions happen, dealers tell Ward’s they expect the pieces to fall into place quickly. And they are excited by the prospects.
“What other manufacturer has this opportunity?” asks Lutz. “Cerberus can create a whole new playing field and shift the paradigm of the dealer/OEM relationship.”