Why Dealers Cry Liar, Liar

Many dealers are saying, “Show me the money” when it comes to General Motors Co.'s and Chrysler Group LLC's claims that dealerships slated for closure cost them billion of dollars to maintain.

GM brass testified to Congress it would save about $2.3 billion plus $415 million in support costs by closing 1,350 targeted dealerships.

GM went so far as to include in their figures money saved by not paying for gas fill-ups for these dealerships' customers — assuming those vehicles were sold.

According to Chrysler calculations, the auto maker will save more than $33 million annually, plus extra money in advertising support and other costs.

Chrysler Vice President Peter Grady, who heads dealer network development, said in a corporate blog that the company spends $150 million yearly in advertising and marketing costs to support these dealers.

Grady also said it costs the company $1.4 billion over four years “to develop and engineer overlapping sister vehicles” for the dealers representing different brands.

That's part of what many dealers call “the big lie,” says megadealer Jack Fitzgerald, who operates Fitzgerald operates Fitzgerald Auto Malls in Maryland, Pennsylvania and Florida.

He has five Chrysler and three GM stores affected by the closures unless arbitration hearings prove otherwise.

Fitzgerald, along with Ohio dealer Alan Spitzer and Maryland-based dealer Tammy Darvish, co-chair the advocacy group Committee to Restore Dealer Rights.

It was formed last year to challenge the way GM and Chrysler handled the more than 2,000 dealerships closures. The group helped get arbitration hearings ordered by Congress.

Dealers and others need to continue to expose the “big lie,” Fitzgerald says.

If the cuts stand, there will be more international-brand than domestic dealers and “Chrysler and GM may not rise again; they may fail,” he says.

So how will auto makers save potentially billions of dollars by closing several thousand dealerships?

“That's the bottom line, their data doesn't make sense,” says David Cole, chairman of the Center for Automotive Research.

Moreover, he says that by eliminating dealers, “the auto makers are cutting into their strengths, often in rural areas and medium-sized markets rather than large metro areas.”

Dealers are mystified by the auto makers' savings claims. They contend the car companies will save virtually nothing by closing stores.

“Our dealerships do not cost auto manufacturers a penny,” says Spitzer, who owns Spitzer Automotive Group, based in Elyria, OH.

He runs dealerships throughout Ohio, Pennsylvania and Florida, and had several of his dealerships on the GM and Chrysler chopping blocks.

“All products and services which Chrysler and GM provide to dealerships are charged back to the dealer at a profit to auto makers,” he says. “If we lose money it comes out of our pockets, period.

Spitzer concedes one cost to auto makers might be zone representatives. But that is not much, he says. “Their only legitimate cost is field personnel, but it's a minimal number. If you do a cost analysis, the OEs make money on dealers. The dealer is a profit center before the customer buys the first car.

“Auto makers say they're saving on field staff, but many of the dealers terminated are smaller dealers who are not contacted by a live human being.” Instead, auto makers use Web-based means to stay in touch with them.

As for Chrysler claim that it cost a small fortune to build sister vehicles, “it was the OE's decision to do it, not the dealers,” Spitzer says. “All OEs do the same because it's cheaper (to do vehicle derivations).”

Weighing in on the issue, too, is Darvish, who is appealing closure of two Chrysler stores and a GM outlet.

“GM and Chrysler will not save money by closing dealerships,” she says. “Auto makers make money selling cars and parts to dealers, who buy the cars before they even arrive to the dealerships and even pay the freight for delivery. Dealers do not cost manufacturers money.”

Dealers say they pay all other operating costs related to buildings, land, brand signs, tools, factory required training, advertising, payroll and health insurance.

They even rent the dealership front signage since GM and Chrysler don't sell them. “These are privately owned and privately capitalized businesses,” Darvish says of dealerships.