It's No Tea Party; Boston Sees Dealer Cuts

In the first major test of the Chrysler LLC dealer retrenchment program, the Boston market has seen 23 dealerships pared to 14 since last October.

But Chrysler Executive Vice President, Steven Landry says more work lies ahead in attempting to boost the number of combined Chrysler-Dodge-Jeep stores in the Boston market.

“Only four of the 14 dealerships sell all three brands,” Landry says in an interview. “The national number of three-brand stores is 57% or 2,007, so Boston is far below where they should be.”

To consolidate more dealerships into three-brand stores, Chrysler is intensifying negotiations among single-brand and double-brand dealerships, particularly in metro markets. This program, called Project Genesis, is a successor to the slow-motion Project Alpha that was initiated in 2001 with the same aim.

In the last four years, Chrysler has put together 250 dealerships with three brands, with 110 remaining single-brand dealers, Landry says.

About 100 sets of negotiations are underway in pursuit of triple-brand stores, he says. The success pace has increased with the purchase of control of Chrysler by Cerberus Capital Management LP, whose CEO, Stephen Feinberg, has urged consolidation of dealerships as necessary to increase sales and profits per retailer.

When Project Genesis was launched in February, the average Boston-area dealer sold about 450 new vehicles per year, says Landry. “Considering that Boston is a metro market, the average per store should exceed 1,000 a year and would do so if each store handled all three brands.”

One factor hampering the progress of three-branding under Project Genesis is the reluctance of the auto maker to help finance purchases of single-brand Jeep or Dodge stores by Chrysler stores that already have Jeep or Dodge franchises.

Chrysler, prior to the inception of Project Genesis, counted 1,011 solo-brand outlets — 609 Dodge, 276 Jeep and 126 Chrysler stores. Those are being targeted for buyouts, but dual-brand stores have to find financing for the purchases, since Chrysler President and Vice Chairman Jim Press has declared that the auto maker lacks funds to underwrite the buyouts itself.

In a typical scenario, Dodge dealer John Santilli, located 30 miles south of Boston in Brockton, MA, says he's been unable to consolidate with a Chrysler-Jeep dealer 5.5 miles away because of the auto maker's refusal to help finance the purchase.

A successful consolidation came between two 30-year dealers in the Boston suburb of Methuen, MA, when Tom Barenboim's Chrysler-Jeep store purchased the neighboring Dodge store. The deal took five years to finalize, Barenboim says.

John Hassan's 50-year Jeep dealership in Quincy, MA, a Boston suburb, closed its doors in January after failing to meet Chrysler's minimum sales goals of 341 to 376 new units a year in 2005, 2006 and 2007. Hassan's maximum annual sales in those years were 260, but he said the dealership remained profitable throughout.

Chrysler's dealership goal for Boston is 10 stores selling all three brands, according to factory data supplied to the original 23 dealerships.

Says Landry: “The dominos are beginning to fall in Boston, but it will take a while, maybe a few more years. But Genesis will succeed in metro markets everywhere.”