Dealers can be fired, but unionized workers must be bought out.
I saw a Chrysler dealer on CNBC the other day. He said the move makes no sense because they basically cost Chrysler nothing, they are buyers of the Chrysler product...so why tell them they can’t sell Chrysler’s anymore. I wondered if it was just “his side” of the story, but I don’t see how it profits Chrysler to close dealerships, if they are independently owned and their affiliation with Chrysler if contractual.
Please read so you have some understanding of the situation...dealers cost manufacturerers money and the companies must cut dealerships as a condition of the auto loans.
Dealer franchises dragging down GM, Chrysler recovery
By Ken Bensinger
Los Angeles Times
Posted: 04/13/2009 08:38:07 PM PDT
Updated: 04/14/2009 06:53:17 AM PDT
Car dealers — sponsors of Little League, fixtures of Main Street, vibrant symbols of the American entrepreneurial dream — could now prove the biggest threat to the future of the very industry they built.
For much of the past century, in exchange for selling Detroit’s new models and providing a public face to distant industrial giants, dealers were richly rewarded with a steady, lucrative business and received an honored seat in society.
Now, with the industry in crisis, the car dealer poses a major obstacle to the rehabilitation plans of the nation’s two most desperate carmakers, General Motors and Chrysler.
Economists, industry analysts and the automakers themselves agree that there are too many outlets for GM and Chrysler vehicles. Thinning dealer ranks — now nearly 10,000 combined for the two companies — is key to cutting the two automakers’ costs, ensuring that those dealers that do survive are more profitable and provide better service.
But while even some dealers concede there are too many car lots, few are willing to give up their franchises. Contracts with dealers, meanwhile, make it nearly impossible for automakers to simply put these independent business owners out of commission, the way they can lay off employees.
“We think the marketplace should determine which dealers stay in business,” said John McEleney, chairman of the national dealers association and owner of several GM, Toyota and
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Hyundai dealerships in Iowa.
The market is forcing some contraction. The National Automobile Dealers Association said 271 closed in the first quarter alone, victims of the brutal slump in car sales. But experts say attrition isn’t happening fast enough.
The possibility of bankruptcy looms for GM and Chrysler after President Barack Obama rejected their latest financing requests and sent them back to the negotiating table. Reducing billions of dollars in obligations to debt-holders and unions was singled out as the most immediate goal, and the administration has been working intensively with the automakers.
State franchise laws make it difficult and expensive for a carmaker to shut down dealers unless they fold on their own — or the carmaker goes into bankruptcy. With little leverage and the clock ticking, GM and Chrysler must find a way to navigate the complicated economics of the American car dealer.
“GM and Chrysler have this mandate to get rid of dealers, but the costs and complexity involved are mind-boggling,” said Randy Berlin, practice director at Urban Science, which tracks auto dealers. “Bankruptcy might be the only way.”
Automakers don’t own their dealerships. Instead, they grant franchises to businesses that buy vehicles at wholesale prices and mark them up for sale to the public, keeping the difference.
Manufacturers contribute more than cars. They provide financing for consumers to buy vehicles and for dealers to fill their lots. They also pay dealers to perform warranty service. Throw in sales of extended warranties, undercoat, used cars and parts, and being a car dealer can be profitable (excerpted).