Chrysler / GM to close dealerships.

One of the main reasons I chose the dealer I did for my PT Cruiser was
for convenience of service.
If they're closed, the reason is moot.
Why can't they can turn themselves into service centers?

http://www.latimes.com/business/la-fi-gm-dealers8-2009may08,0,1180804.story

 

dealers8-2009may08,0,1180804.story

They can become independent service centers they just can't call
themselves Chrysler dealers. They also won't be able to do warranty work
but they are free to do after warranty or third party service just like
any other independent repair shop.

GM and Chrysler have way to many dealers and they don't appear to be
cutting nearly as many as they should. Toyota has 1100 dealers, GM has
7000 and Chrysler has 3200. The huge dealer networks are a vestige of the
time when people did their shopping at the little stores on main street.
There is no such thing as a corner Radio/TV shop anymore, if you want a
TV you go to a huge Best Buy or Costco warehouse store. The only reason
that all of those car dealerships weren't replaced by superstores years
ago is because of state franchise laws which gave a unique protection to
car dealers.

Frankly I don't see why Chrysler doesn't take advantage of bankruptcy to
completely reorganize the way they sell cars. If I were in charge I would
eliminate dealers altogether and sell the cars through Costco or directly
online. I'd create a few hundred company owned test drive centers by
buying out some of the larger dealers. I'd also allow the dealer
franchises to become authorized warranty repair centers although I'd
structure things so that nothing would interfere with a consolidation in
the service industry.

 

You forgot the very successful bottom end seller: Wal-Mart.

 

Please explain how the number of dealerships impacts the financial
health or bottom line of a car manufacturer.

Dealerships do not suck money, time, or resources from the
manufacturer. Any dealership that can't operate in the black will not
operate for long and will go out of business just like any other retail
operation.

It could be argued that like shelf space at your grocery store, the more
dealerships you have the more impact or visibility your brands have
compared to others.

The only argument for reducing the number of dealerships could be that
by having fewer of them, that they can (or presumably will) reduce the
profit margin per-car, but will make it up with more volume. Whether or
not this would shift higher the total sales numbers for Chrysler is not
clear. There is no benefit for Chrysler if in the end the same number
of cars gets sold by fewer dealers.

Then there is the up-front costs of terminating franchise agreements,
which under bankruptcy protection might not be too high. But then
again, don't you have to make the case to a judge that any given
franchisee is a liability to you in order to terminate the agreement?

 

Having large numbers of small dealerships depresses the demand for their
product in a number of ways. I'll give some examples. I live near Nashua
NH, most of the car dealers are clustered together on Marmon Dr (Marmon
went out of business in 1933 which gives you an idea how long they have
been there). There is a Chrysler dealer next store to a Dodge dealer,
there is a Chevy dealer, a Cadillac dealer and a Buick dealer. In nearby
Lowell there is also a Dodge and a Chrysler Dealer, and there were also
dealers in nearby small towns. There is only one Toyota and one Honda
dealer in the area. The American dealers are small and have tiny
inventories, the Japanese dealers are much larger and as a result have
much larger inventories. If you buy a Japanese car you have your pick
right off of the lot, if you buy an American car you either have to buy
the one that's stripped to the bones, the one that's loaded to the gills
with features that you don't want, or wait 8 weeks for one that you order
from the factory. When you walk into the American dealers they are empty,
when you walk into the Japanese dealers they are full, this gives you the
impression that absolutely nobody wants the American cars and everyone
wants the Japanese cars. The effect gets exaggerated by the desperation
of the salesmen who are living on the edge of starvation. At the Japanese
dealer they are polite and helpful, at the American dealers they descend
on you like beggars in a 3rd world country. On those rare occasions when
they have a hit like the 300C was several years ago their attitude turns
to arrogance which is even more obnoxious then their attitude of
desperation. Meanwhile the Toyota and Honda salesman remain
professional. So even though you might have to wait a few minutes in the
Japanese dealer you'll have a much better experience than you do at an
American dealer. To combat the perceived lack of demand the American
companies have had to rely on huge discounts to get people to consider
their products, that comes directly from their bottom lines. Before the
crash GM and Toyota had the same volume, but Toyota with 1/7th the number
of dealers was able to sell at full price where as GM had to sell at a
discount. If GM had the same number of dealers as Toyota their showrooms
would have been just as full and they wouldn't have had to resort to
constant incentives.

BTW both the Dodge dealer and the next door Chrysler Jeep dealer survived
the cuts as did the Lowell dealers, the cuts came from the ranks of the
small town dealers. Why didn't they pick the more successful dealer and
cut the other one. It would have had zero effect on consumer convenience,
they are latterly right next door to each other, but it would have left
one healthier and more efficient dealer instead of two marginal dealers.

 

I don't think you addressed this specific point, but I think it relates
to and ties together a couple of points that you did make:
If you have several dealers for the same brand within driving distance
of each other, that allows the consumer to go back and forth
between/among them and get them down on price just from the direct
competition standpoint - and it may be over the identical vehicle - two
Chryslers - not Chrysler vs. Toyota.

Though Chrysler doesn't feel the lower resulting retail price the way
the dealer did, anything that results in a lower retail price is huge
pressure back to Chrysler (from the dealers) to lower their price to the
dealer.

My wife was telling me that she heard an interview on Fox and Friends
yesterday morning with the owner of a dealership (I think she said in
Milwaukee) that is among the top 2% volume Chrysler dealers in the
country - his dealer is on the closure list. That seems strange.

 

The manufacture cost will be reduce by having to deal with less dealerships
in terms of support. Less factory reps wil be needed, less support as far
as schools that salesman have to attend, Less tech support will be needed.

 

This was even worse when the were putting two badges on the same car.
When I bought my Concord in 94 I was able to get the deal I wanted by
threatening to walk next door and get an Intrepid, it wasn't an idle
threat because I only had to walk 50 feet to the Dodge dealer. I wasn't
able to do the same thing with the 300C AWD in 2005 because they were in
very short supply, I called lots of dealers and even tried the Costco
program but no one was willing to budge on price on the 300C back then.
Chrysler made a real profit on those and so did their dealers. That's
what you can do when you have a hot product and a shortage (probably
artificially created). However to succeed long term with that strategy
you need to have a new hit every year, Apple knows how to do that but
there is no auto company that has ever been able to do it, their product
cycles are way to long. BTW if I feel the way I feel about Chrysler
dealers why did I buy a 300C? Well I'm a middle aged baby boomer, the
salesman didn't sell me that car, Big Daddy Don Garlits did. I only buy
one car per decade so this was my last chance to own a Hemi, I suspect
most of the buyers for the 300C were 50 something guys who were in high
school in the 60s and think Swamp Rat when they hear the word Hemi. After
this one I'm only going to have two more cars in my life, the sensible
car that I buy for my 60s and early 70s, and the car that I'm going to
own at the time when they take my license away from me in my 80s.

 

Curious. In Europe we don't get new models every year. That's only what
American car companies do, but we know that. Change the fins, maybe fiddle
with the lights and call the Next Year's Model in late summer of the
previous year....

DAS

To send an e-mail directly replace "spam" with "schmetterling"
---
[...]

[...]

 

Fins!!??

--
Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

If there is going to be a problem with 5% of cars that require
involvement by the manufacturer, then it doesn't matter how those cars
are spread around between X number of dealerships. The cost is going to
be the same.

Perhaps you know something about the "secret life of car dealerships"
and you can tell us just exactly what or who the factory reps are, what
they do, and how often they do it.

If you build a school, create teaching material, and hire teachers, then
to some extent it doesn't matter how many students you have as far as
your costs as an educator are concerned.

Again, this is another aspect of the "secret life of car dealerships"
that perhaps you can tell us about. Just how long is "car salesman
school", and is it given free by the auto maker, or do the students pay
something for it?

 

Perhaps you know something about the "secret life of car dealerships" and
you can tell us just exactly what or who the factory reps are, what they do,
and how often they do it.

Factory representatives handle a territory. This territory is made up of x
amount of dealers. If you cut down the number of dealers, you can reduce
the numbe rof factory reps you have.

Factory rep work with customers and the dealers. They verify the dealership
is not short changing the manufacture by taking inventory and auditing
paperwork. They assist customers that have service problems with their
vehicles.
..
"If you build a school, create teaching material, and hire teachers, then to
some extent it doesn't matter how many students you have as far as your
costs as an educator are concerned.

Again, this is another aspect of the "secret life of car dealerships" that
perhaps you can tell us about. Just how long is "car salesman school", and
is it given free by the auto maker, or do the students pay something for
it?"

I only knowledgeable because my wife is a salesperson for a dealership. The
factory puts on schools that are usually taught by the factory reps. The
dealerships pay the tuition. I would bet by counting the number of students
I have seen at some of theses schools the tuition does not cover the entire
cost of putting theses schools on.

 

Is it really necessary for you guys to full-quote in your replies?


(many dealers clustered in the same area are under huge
competitive pressure with each other, the result being
that the make, model, and option variety of their cars
are limited)

Chrysler can change that by designing their options in a more logical,
coherent or practical way. I understand that by and large, Korean cars
come equipped with a lot of stuff by default because logistically it
take more time and effort to custom-order those options vs just making
them standard.

When I look at my 300m that I bought back in the fall of 1999, other
than the color I had basically 2 options: (a) sun roof, (b) full size
spare. Now that was simple, and it runs counter to your argument above.

And besides, dealers frequently swap cars with each other. If you walk
into a dealer and want a specific mix of options and he doesn't have it,
he'll check to see if others have it and will get it from them. Only if
a near-by dealer doesn't have it will it be ordered from the factory.
And by near-by, I mean within 50 miles.

That's because the parking lots where the transport ships off-load
foreign cars in the USA are full and they have no other place left to
park those cars. Meanwhile the D-3 have been turning down their factory
output to better match the demand.

Sales of all brands (foreign and domestic) are down at least 30%, and in
some cases 50% compared to a year or two ago. When I see a lot of
product sitting on the shelf, I don't usually get the impression that
the product is moving.

Great. The consumer who goes through that effort obviously wants to end
up owning a Chrysler, and feels he has some advantage as a buyer in that
situation. The guy who's looking at the jap car won't have that
advantage.

Wrong.

The two Chrysler dealers would naturally like it if their wholesale
price was reduced. But it's not what they give Chrysler grief over.
What they complain to Chrysler about is lack of product variety. New
models.

Yes, and if true, then it runs counter to the logic (as we see it) that
Chrysler would, or should, cut the low-volume dealerships (if they cut
any of them).

 

It's a joke -- minor, cosmetic change.

DAS

To send an e-mail directly replace "spam" with "schmetterling"
---

 

Either that or "the 60's were good to you" (or was it the 50's?). LOL!

--
Bill Putney
(To reply by e-mail, replace the last letter of the alphabet in my
address with the letter 'x')

 

Only when pressed for time. How's this?

A lot of the things you are discussing are incremental savings, i.e., no
one line in Chrysler's budget necessarily being cut 50%, but a little
here and there contributes to overall efficiency and reduced overhead of
dealing with fewer dealers. That's business 101.

For example, you are reluctant to recognize savings in the load on reps.
by having fewer dealers, the cost of the manufacturer-run schools, etc.,
and similarly when you discussed the pricing pressures back to the
manufacturer over intense local competition among the higher number of
dealers, you seem to consider that possibly an insignificant factor.

Certainly you can see that anything that lowers the final price that the
consumer pays for his new vehicle affects the whole pricing structure at
the manufacturer?

Here's another factor that I don't recall seeing discussed: If
individual dealer margins are low due to too many dealers concentrated
in one area for the same amount of business, if that squeeze is relaxed
a little, maybe the dealers that feel they have to commit fraud on
unwary customers in the service department to stay in business will
start acting a little bit more like human beings with genuine win-win
concern for the customer.

When's the last time you had a good service experience at a dealership?
If you're like me, you can't answer that because you haven't darkened
the door of a dealer service department in decades, but I sure read
enough forums to get an idea that it's no better than when I tried using
them when I was a lot younger and learned some serious life-lessons.

 

Actually I've been very happy with the quality of service I've gotten
from dealers, a lot less happy with the price. The service departments at
the two Chrysler dealers that I've dealt with over the past 25 years have
been very professional, they've done quality work, been informative about
want they've done, and generally been very professional. I've been much
less happy with the quality of service that I've gotten from independent
shops which is why I go to the dealer for anything other than a trivial
problem. The service departments have a much greater incentive to satisfy
their customers than the sales departments. The service people expect to
see you every 15 or 30 thousand miles, the sales people don't expect to
see you again for ten years and 999 out of a 1000 times the same salesman
won't be at the same dealer by the time you come back. I see the same
service manager year after year which gives you some confidence.

 

Much better.

That's not the point. We don't really know how many reps Chrysler and
GM have, nor how many they will actually let go after they cut all these
dealerships. We don't know how much these "schools" cost them.

Like I said, when they prepare all the sales and service related support
materials and equipment (and there is a LOT of specialized equipment and
tools) the cost savings at having to replicate 30 or 40% less of that
stuff is insignificant compared to developing and designing it in the
first place.

Like I said, once you design the course material, build a classroom and
hire a teacher, your cost if you have 1 student or 30 students is
practically the same. You are reluctant to consider that basic fact.
And if your students are paying you (even if it's some token amount)
then your argument holds even less water.

We are only speculating about that "price pressure" exerted on Chrysler
and GM by the dealerships. We have no idea that it actually occurs.
And even if it does, Chrysler and GM are not obligated to capitulate.
That "price pressure" doesn't constitute a real cost to Chrysler and GM
unless they capitulate.

On the other hand, we know that dealers (specifically, Dodge dealers)
have in the recent past voiced their extreme displeasure at dealer
meetings and conventions over the lack of new product offerings.

As a manufacturer, the last thing you want is a local monopoly caused by
having a single dealership in a given area. That dealer will be less
likely to negotiate prices with the purchaser, and in the end that
dealer can live fatter on fewer sales.

If you were Chrysler, would you want to have a given area with two
dealerships that on average sell 2 units each per day, or a single
dealership that sells 3 units per day?

And when the dealerships that are cut are in areas of low population
density (rural dealerships) where there really isin't any local
competition (and perhaps not even any foreign dealership competition)
then again your argument breaks down.

Complete bull shit. Anything that lowers the final price that the
consumer pays means the factory will be building more of those
products. We know that most of that price reduction will come from the
dealer's pocket, and likely all of it.

Your argument desperately requires that when two local dealerships
compete with each other for sales, to the extent that they seriously
erode their profit margin, that they will put constant pressure on
Chrysler or GM to reduce their wholesale price, and that Chrysler and GM
have no option but to capitulate. I don't buy that argument. I think
there's more collusion in those cases between dealerships that prevents
profit margins from eroding to dangerous levels. I think local
dealerships work out arrangements where they minimize their competition
with each other.

For one thing, I don't know if we know how many dealerships are being
closed on the basis of being too close to another dealership, vs being
located in a rural area. Clearly your argument above doesn't hold if in
the case of a rural dealership being closed and there is no other nearby
dealership that would "relax" their fraud level as a result.

Second, there would have to be some level of increased fraud to be
happening currently in order for there to be a reduction after excess
dealerships are closed. Are there any metrics to support this?

How would you know good service from bad service?

Is it good or bad service when you have something fixed and it gets
fixed perfectly and quickly but it costs a small fortune? Is it good or
bad service when you choose the least expensive service option for which
they tell you to expect problems later, and you indeed do have problems
later?

I take my '00 300m and '01 Ram to a Chrysler dealership for oil changes
and emissions tests. So far, the 300 has had differential and power
steering oil changed (once I think) and serpentine belt / idler pully
changed once, also by the dealer. I changed a bad coil pack, and put in
new spark plugs while I was at it. The 300m will probably soon need
it's first timing belt change (and with it, probably water pump and it's
first prestone change). I've also changed the rear door power
lock/latch units (once by the dealer, the second I did myself).

The Ram sees very little road use so no issues with it beyond oil
changes. I did tear the dashboard apart and the engine wiring harness
last year to fix a problem with the instrument cluster going dead.

I do my own brake work. Ram still has original pads and rotors.

The only major work my 300m has needed that I couldn't do myself was an
exhaust leak last year caused by a bad front flex joint. What Chrysler
wanted for the parts was absurd. I took it to a custom shop that
specialized in stainless steel.

My 300m and Ram have been excellent vehicles from an operational and
durability pov, so I haven't required any real dealer service for them
beyond oil changes and emissions tests.

 

"We don't know how much these "schools" cost them. Like I said, once you
design the course material, build a classroom and hire a teacher, your cost
if you have 1 student or 30 students is practically the same. You are
reluctant to consider that basic fact. "

Your wrong. The schools the dealerships send there sales people to are
brought to one dealership or area and other local sales persons attend. It
cost money to travel (food, gas, hotel), to print the material and other
incidental for giving the class.

From what I seen picking my wife up after attending on of theses classes
there is usually no more then 7 or 8 sales people at a class. When they
have to hold the same class for 3 or 4 days to accommodate the dealers so
they can send their sales people without leaving the showroom floor empty of
sales people.

If they cut this down to a two day class and possible squeeze one or two
more students in per class, they can reduce cost by 50%. This is not
possible when they have 15 to 25 dealers send sales people to theses class.
If you reduce the number of dealers to 5 to 15. the class could be held in
that time period thus saving money.

And you are reluctant to consider that basic fact.

No one is even saying this is the only cut that will save money but as
someone else stated little cuts here and there add up to big savings.

And you are reluctant to consider that basic fact.

 

On 05/18/09 05:51 am Bill Putney wrote:

As I posted here quite a while ago, I was disappointed to find that the
regular 3,000-mile service did not include checking brake pads and
rotors -- but perhaps Fred's Auto Service wouldn't have done it either.

OTOH, when I had automatic transmission problems after the warranty had
expired, I took our 300M to the dealer anyway rather than to "Fred" or
to "Specialty Transmission Service" and they fixed it free anyway,
either because the warranty had been extended without my knowledge or
because the particular fault was the subject of a TSB. If I'd taken it
somewhere else I'd probably have had to paid for the repair -- which,
judging by the time it took them, would not have been cheap.

Perce