Some Dealers Just Say No

As dealers try to figure out how to sell cars and finance customers in a tough economy, General Motors Corp. and Chrysler LLC are asking their retailers to take on more inventories.

The two auto makers are appealing to dealers to place more orders to help clear their own inventories and keep factories running. The auto makers stress such actions will help prove their long-term viability, a provision for getting additional federal rescue loans.

Many dealers, their lots already filled with unsold vehicles, are resisting the added-inventory push.

“Dealers have pushed back on this,” says Mark Schienberg, president of the Greater New York Automobile Dealers Assn. “Dealers are saying, ‘I can't do it; no one is giving me the floorplan financing to buy the cars.’”

“There's enormous pressure from manufacturers to take inventory we don't need,” says Greg Miller, head of the 40-store Larry Miller dealer group based in Utah.

“We only accept what we need,” he says. “They've all got creative ways to keep us buying. No way will we buy inventory we don't need. It just makes their problem our problem.”

In February, Miller's dealerships averaged more than a 230 days' supply of Chrysler, Jeep and Dodge brand vehicles and a 266 days' supply of GM products.

The economy has crashed down on all auto makers, even mighty Toyota Motor Corp., which until recently could do no wrong in the eyes of some people, says New York Dodge dealer Tony Strollo, a 32-year veteran. “It's not like Toyota got stupid awful fast.”

Strollo appreciates Chrysler President Jim Press' forthrightness in presenting the harsh facts to dealers. He is not loath to order stock. “I do have to buy what they make,” says Strollo, whose business was down 30% in 2008, compared with 2007.

But some Chrysler-brand dealers harbor lingering resentment over what appears to be a past practice of the auto maker financially favoring certain dealers at the expense of others.

The miffed dealers call it “pay to play,” a scheme in which some dealers were paid to take additional vehicles. Other dealers were not included, posing what critics call an unfair business advantage.

“It's completely illegal under state franchise laws,” Schienberg says. To his knowledge, the issue has not been fully resolved.

Some dealers are talking about potential litigation, although they say getting information on the program has been difficult. Some suspicious dealers are not entirely convinced the program really is over.

Chrysler contends it is an old issue and the current gripes are unwarranted.

“We've addressed the allegations and found them unwarranted and without merit,” says Mike Palisi, Chrysler spokesperson. “It behooves us to focus attention on the present and cars and trucks customers remain interested in.”

Many dealers say the so-called pay to play went above and beyond conventional dealer incentives, such as a current one for taking additional inventory and the stair-step plan of cash rewards for hitting sales objectives. These programs are open to all dealers.

“You can't offer (incentive) money to some dealers and not others,” says Mark Calisi, a Chrysler dealer in Riverhead, NY. “Whatever you offer to one dealer, you have to offer to others.”

The lingering ill-will generated by the pay-to-play scheme is “a headache (Chrysler) would like to get rid of,” Calisi says. “I checked into it. They got caught and admit they did it.” He claims sales and marketing representatives acknowledge it went on.

Chrysler thought it had put the issue to rest after Joe Eberhardt's 2006 departure as sales chief for the defunct DaimlerChrysler AG and by removing or reassigning key field personnel.

Under corporate sanctions, Chrysler field personnel apparently offered generous compensation for certain dealers to take specific vehicles. Some dealers say Chrysler offered $2,000-$3,000 per vehicle to select dealers.

Dealer sources say Chrysler used the same practice to reward certain dealers in its cooperative marketing activities. That practice gave favored dealers about a $1,500 advantage per vehicle, one dealer says.

Meanwhile, Press and Steve Landry, Chrysler's vice president-sales and marketing, say current incentive programs help dealers who take additional inventory.

“We're offering retail support for people who buy wholesale product,” Press tells a media roundtable. “It isn't to stuff dealers with cars they don't need. We want to balance out inventories.”

Landry says Chrysler is providing strong retail incentives to customers “and, internally, marketing funds for dealers” who order sufficient levels of inventory.

Augie DiFeo, who runs White Plains Chrysler Jeep Dodge in White Plains, NY, says dealers need to be more selective about incentives they accept.

“I don't choose to participate in all incentives heart-and-soul,” he says. “Manufacturers put incentives out there, and you decide if you want to be a player.

“But it is all player marketing and perception today,” he says. “I don't agree with every program that comes down the pike, but we are in an incentive-driven environment.”

Inclusive programs that reward dealers for taking excess inventory or meeting sales goals “are not plots or schemes,” says Donald L. Keithley, executive vice president of Bel Air Partners, an automotive consultancy.

Rather, they're part of the industry's survival game, he says. “Everyone has a chance to do it. But it puts pressure on individual dealers to try to take advantage of (incentives) — or a competing dealer in their area might.”
— With Steve Finlay