Special Coverage

NADA Convention & Exposition

SAN FRANCISCO – Discussions are under way to determine how much money to earmark for reducing Chrysler LLC’s dealer count, Cerberus Management LP Chairman John Snow tells members of the American Financial Services Assn. here.

Calling Chrysler’s efforts to pare its dealer body a “major restructuring going on now,” Snow says it is “absolutely essential to the new Chrysler to have stronger and healthier dealers.

“Dealers are your first line in having a successful auto maker,” he says.

An industry insider suggests a Chrysler dealer consolidation will cost the auto maker more than the $1 billion General Motors Corp. paid out to kill its Oldsmobile brand.

When Cerberus first acquired the troubled car manufacturer in mid-2007, Chrysler’s relationship with its dealer body was “frayed,” Snow says. “There were too many dealers making too little money.”

Fixing that means fewer, stronger, more profitable retailers, he says.

Chrysler Co-President Jim Press is leading the charge, Snow says. “We’re putting the dealers in the lead,” he says. “They are our customers.”

Under the newly announced Project Genesis program, which will cull some models from the lineup in reapportioning the auto maker’s vehicles among its three brands, dealers will have “input into what Chrysler builds,” he says.

Snow declines to provide an estimate of what the dealer restructuring might cost but says there will have to be some “sharing of the pain. But that will have to be done as harmoniously as possible.”

Trimming the vehicle lineup likely will force many dealers selling only one or two of the three brands out of business. Under its Alpha Project, Chrysler has been encouraging dealers to consolidate into single stores housing all three of its brands, Dodge, Chrysler and Jeep.

“When we look at our product portfolio and we find out that traditionally we had two stores (Chrysler-Jeep and Dodge) and now we have one, it’s crazy to have competing products in the same room,” Chrysler CEO Robert Nardelli told Ward’s in a November interview. “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.”

Industry analyst John Casesa, managing partner of Casesa Shapiro LLC, is encouraged by Chrysler’s aggressive strategy, adding time is of the essence.

“The longer it takes, the more difficult it will be,” he tells Ward’s. “How fast it gets accomplished is a function of how much money they’re willing to put up, and the overall economic environment. If things continue to be rough or get worse, I think you’ll have more interest on the part of dealers to tell.”

Sagging real estate prices might also be an incentive for dealers to get out of the business, Casesa adds.

Snow also says Cerberus could consolidate General Motors Acceptance Corp. and Chrysler Financial, two finance firms it acquired last year.

“Everything in due time, I guess,” he says. “There may be a case for that, if you’re talking about some of the back operations. But we have plenty to do right now.”

Calling the current credit crunch “a correction,” Snow says it is important Chrysler Financial and GMAC “take the opportunity to work on their balance sheets and fix them.”

– with Eric Mayne