A Coming Storm?

Is there a storm front brewing in the area of dealer-manufacturer relations?

One of the more pressing questions the next six months is how far — if at all — will Chrysler go in trying to reduce its dealership count. Ford Motor Co. and General Motors Corp. actively have been reducing their numbers. So far, there have been few complaints on their process.

Chrysler's strategy the last several years has been to align Dodge, Jeep and Chrysler brands together in markets where it makes sense.

But now, with the sale to Cerberus Capital Management LP and the naming of Robert Nardelli as CEO and chairman, it's anybody's guess as to how the auto maker will manage its dealers.

There are some storm clouds on the horizon. Several dealers tell Ward's they expect Chrysler to turn up the heat on their dealers whose performance is not at mandated levels. Chrysler's recent actions such as closing its auctions to almost 500 dealers who were not meeting 50% of their sales goals, or the letter it sent to 173 dealers threatening closure of their franchises if they did not meet their “minimum sales responsibility” within 180 days, are just the beginning, some dealers believe.

Another round of letters likely will go out soon, this time to dealers who are below 70% of their MSR.

Chrysler is using some tough language, but the truth is that officials have to recognize there is little chance the auto maker can yank franchises. Franchise laws in place today are effective and limit how much an OEM can act.

Realistically, Chrysler probably wants those dealers to develop a plan of action to increase their sales. At least, we hope that is the case.

But with the sales bank fiasco still fresh in many dealers minds, a dose of vigilance and skepticism would serve dealers well.

Wes Lutz, a Dodge dealer in Jackson, MI, believes Chrysler dealers would be smart to get out in front of the issue instead of waiting for the manufacturer to come up with a termination plan.

“Dealers need to be part of the process from the beginning,” Lutz argues. “We need to step up and be engaged.”

One way would be for Chrysler dealers in each market to come up with a viable formula and a buyout number that they can live with. Dealers would determine how many rooftops should exist in their market and then devise a realistic dollar amount that would encourage some of the poor performing stores to sell their franchises.

Another idea many dealers have pushed for is for Cerberus to include a dealer on its board of directors. Immediately, names such as Sid DeBoer of Lithia Motors or Mike Jackson of AutoNation come to mind.

The fact is, such dealers probably will have access to Nardelli — if he is smart. But a smarter move would be placing on the board a mid-size dealer with a great reputation and customer satisfaction numbers who consistently exceeds the MSR requirements.

Such a dealer likely would be able to provide board members and the executive team with an accurate picture of what's happening in the showroom and help avert any dumb moves that could result in a revolt by its dealers.

The real question is, is Chrysler's new management smart enough to listen to its dealers?
Cliff Banks
Editorial Director
248-799-2649
[email protected]