Chrysler Tries To Eat Its Own
Chrysler has been putting the squeeze on dealers it thinks aren’t selling enough cars, threatening to terminate their franchises (a hollow threat, in light of legal restrictions in all states designed to protect dealers) and cutting of the access of some dealers to the Chrysler sponsored used car auctions.
But, now it turns out that it is Chrysler that is making it harder for some dealers to improve sales. Automotive News reports that Chrysler’s website favors its larger dealers. If you use the website to find the dealer closest to you, it doesn’t give you the closest dealer.
It gives you the closest “Five Star” dealer. Ditto if you want the dealer with the model you’re seeking. Moreover, the website provides a direct link to “Five Star” dealers, while others merit only a listing by name, location, and contact information.
Chrysler gives the “Five Star” rating to the dealers according to a ranking system it has devised. Ostensibly, it is a quality ranking. But, clearly, one of the big factors in getting the rating is selling the most cars.
The non-“Five Star” dealers are complaining, but it isn’t likely to change the way Chrysler is operating. It is plain that Chrysler is trying to drive a number of their dealers out of business.
Ford is also reducing the number of its dealerships. For example, within the past two weeks, Ford announced that it was closing a company-owned dealership in Beloit, Wisconsin, one of three Ford dealers in the area. (The other two are franchisees).
It also announced the closing of a Lincoln Mercury dealership in Amherst, New York. That dealership was a franchise. The company bought the franchise from its owner. Indications are that Ford offered a fair price to the owner, without pressure.
As the owner pointed out, the dealership had consistently sold half the Lincolns and Mercury’s in the area, “but 50% of the market today is different than it was ten years ago.”
But, Chrysler - under new ownership and management – apparently intends to play hardball to reduce its dealer ranks, and the process is already ugly.
In every state in the nation, strict laws exist to protect automobile dealers against the manufacturers. These laws were enacted because manufacturers, in decades past, frequently revoked franchises arbitrarily, despite the substantial investment in the dealership by its owners. As a result, it is virtually impossible for a manufacturer to revoke a dealer’s franchise, except in very limited circumstances (such as defrauding the company).
So it seems that Chrysler plans to cull smaller dealers by simply making doing business so difficult and so unprofitable that smaller dealers will elect to sell out cheap, caught between a rock and a hard place – with both the rock and the hard place created by Chrysler.
Even before Robert Nardelli, whose reputation for aggressive and abrasive management was sealed during his tenure as CEO of Home Depot, became the new Chrysler president, the company was already attacking its dealers.
As soon as Cerberus Financial, who bought the company from Daimler gained control the company started abusing smaller dealers, both with threats of franchise revocation and by denying some dealers access to the best used cars. Think of Nardelli as merely another in a series of consistent and nasty moves by Cerberus Financial – the money people whose company is named after a three-headed beast.
Chrysler sponsors used car wholesale auctions open only to its dealers. The cars sold are usually new car trades, which makes them the cream of the used cars. When a dealer is excluded from these auctions, the dealer is deprived of access to the best used cars in the Chrysler system. That is particularly damaging to smaller dealers because many cannot survive on new car sales.
Chrysler products have been such dogs for the past many years that smaller dealers have been forced to rely on used car sales to keep the doors open. Profit margins on used cars are usually higher than on new cars. So, in essence, the used car sales have supported the new car franchise.
But having that new car franchise brings in used car business by giving the dealer an aura of solidity and respectability which a mere used car dealer lacks. Cutting these dealers out of company sponsored auctions in which dealers sell among themselves used vehicles is a body blow, one that goes to the core of its business.
It’s anyone’s guess what Chrysler will try to inflict on the smaller dealer next but, if history is any guide, it will play games with access to new cars.
Over the years, one of the favorite techniques used by all auto companies, including foreign nameplates (Honda comes immediately to mind) to pressure dealers has been making a dealer’s access to popular models contingent on the dealer accepting a certain number of unpopular models. Larger dealers can survive that, but smaller ones cannot. Often situated in smaller communities, they can’t move that many unpopular cars.
It is nasty, but effective, way of squeezing the smaller dealer. Denied access to popular models, the dealer loses sales to those who do have access.
The importance of a dealer’s access to popular new car models was underscored a few years ago when investigators discovered that high officials at Honda’s American branch had been refusing dealers the most popular models in the Honda line unless the dealers paid bribes to the executives.
These people gained a level of control over Honda’s best selling cars that even Rick Hendrick, then and now one of the largest auto dealers in America, succumbed and paid bribes. Of course, when the Honda executives got busted, they all ratted on Hendrick, and Hendrick ended up with a federal felony conviction, but that’s a story for another day.
The point is that access to popular models is critical to all new car dealers, even dealers as large as Hendrick. If it matters that much to the big dealer, image the effect on the small dealer if, in effect, that dealer can’t get the latest hot seller.
Chrysler already was abusing its dealers under prior management. In 2006, it stuffed dealer lots with cars the dealers hadn’t ordered in order to book the cars as sold and claim the company was profitable when it certainly wasn’t. The scheme eventually blew up in their face and Chrysler had to acknowledge that it had on hand more cars than it could sell in a year.
Chrysler’s management was lucky: they were neither investigated nor indicted. What they did amounted to criminal fraud. In other districts, executives have been sent to prison for using mere accounting tricks to inflate profits.
Chrysler didn’t just lie on the books. They forced dealers to take cars they didn’t want and couldn’t sell. It turned out that they’d actually built more cars than they could sell in a year: last month, Chrysler authorized dealers to sell the remaining left-over’s as used cars.
So, if it’s going to get worse under Cerberus and Nardelli, one could understand why a dealer would decide that it just isn’t worth it and accept an offer from Chrysler to buy him or her out. Of course, the offer won’t be that large, but then the dealership isn’t doing that well, is it?
Such appears to be the current Chrysler dealer relations strategy – at least for the dealer’s it doesn’t like.
In the movie Ocean’s Thirteen, two partners in a new Las Vegas casino meet on one of the higher floors of the building, which is still under construction and has no walls. One of the partners, portrayed by Al Pacino, informs the other partner, that the other partner is “out,” selling out for a nominal sum.
“But, that’s not our deal,” replies the soon to be expelled partner. At which point two goons approach him. “You wouldn’t throw me off the edge!” “I wouldn’t want to,” comes the reply. Whereupon the other partner signs the papers and sells out.
If they ever make a movie about the new Chrysler, they should consider casting Al Pacino as the CEO.
He already knows the lines.