Chrysler; The Other Side Of The Government's Intervention

[Balloon guy 158]

May 19, 2009 Letter from a Dodge dealerletter to the editorMy name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood. We are financially strong with great respect in the market place and community. We have strong local presence and stability.I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them. My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009. Without the Dodge franchise we can no longer sell a new Dodge as "new," nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.Our facility was recently totally renovated at Chrysler's insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank. HOW IN THE UNITED STATES OF AMERICA CAN THIS HAPPEN? THIS IS A PRIVATE BUSINESS NOT A GOVERNMENT ENTITYThis is beyond imagination! My business is being stolen from me through NO FAULT OF OUR OWN. We did NOTHING wrong.This atrocity will most likely force my family into bankruptcy. This will also cause our 50+ employees to be unemployed. How will they provide for their families? This is a total economic disaster.HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?I beseech your help, and look forward to your reply. Thank you.Sincerely,George C. JosephPresident & OwnerSunshine Dodge-Isuza

Heard this on Rush todayI checked snopes, so far seems legit.Did they really just give the dealership's right to sell cars to another dealership for no reimbursment?

[FCP Bob 1,312]

Heard this on Rush todayI checked snopes, so far seems legit.Did they really just give the dealership's right to sell cars to another dealership for no reimbursment?

Basically there are far far too many dealerships with the volume of business that they are doing.What is happening is that Chrysler and GM are deciding which dealerships they will stay with and which will be let go. I presume that he's saying the dealership nearest to him that isn't losing their franchise is being given "his" right to sell cars.Bankruptcy sucks and there are winners and losers and many dealerships will be losers but they all can't stay open.I'm not commenting in any way shape or form on if the way they are doing it is morally right or wrong but in bankruptcy they have the ability to cancel contracts and that's what is being done.

[LongLiveYorke 38]

So how would this be better if the government hadn't stepped in and Chrysler went under completely?

[Balloon guy 158]

So how would this be better if the government hadn't stepped in and Chrysler went under completely?

How does Chrysler save money when this guy closes shop?One less dealer means....less people selling the cars.The cost to run Chrysler isn't going to be reduced with this guy gone is it?Maybe they will have less 'credit' extended, but if they were over extended on credit for the market, then why not let natural market flows dictate the viability of each dealership?We had a Ford dealership near us close 3 months ago. I golf with a guy who owns 2 dealerships, and he's keeping them both open because they break even.

[Sheiky 0]

I'm confused, how does this have anything to do with the government?

[Pot Odds RAC 23]

How does Chrysler save money when this guy closes shop?One less dealer means....less people selling the cars.The cost to run Chrysler isn't going to be reduced with this guy gone is it?Maybe they will have less 'credit' extended, but if they were over extended on credit for the market, then why not let natural market flows dictate the viability of each dealership?We had a Ford dealership near us close 3 months ago. I golf with a guy who owns 2 dealerships, and he's keeping them both open because they break even.

There is internal support required within the Auto Company that results in higher costs - call centers, technical assistance, marketing support, other dealer systems, etc. However the real issue is too much "competition" within a given geographic footprint. With fewer dealerships competing for the same customers, they are no longer working against each other, thus increasing the cost of a car sold. This, in the long term, will raise the profits per car sold both to the Dealer and the Auto Manufacturer.

[Sheiky 0]

How does Chrysler save money when this guy closes shop?One less dealer means....less people selling the cars.The cost to run Chrysler isn't going to be reduced with this guy gone is it?Maybe they will have less 'credit' extended, but if they were over extended on credit for the market, then why not let natural market flows dictate the viability of each dealership?We had a Ford dealership near us close 3 months ago. I golf with a guy who owns 2 dealerships, and he's keeping them both open because they break even.

1) Because running the dealership costs money, I don't get why that's hard to understand?2) Yes, but when you're not making money by selling cars, and the cost of keeping the dealership exceeds the profit of selling cars (which in Chrsylers case is apparently negative), dealerships start to close. That's market forces for ya. 3) I imagine they're going to have considerably less costs after they've finished closing down this guy and 799 like him.

[Balloon guy 158]

1) Because running the dealership costs money, I don't get why that's hard to understand?2) Yes, but when you're not making money by selling cars, and the cost of keeping the dealership exceeds the profit of selling cars (which in Chrsylers case is apparently negative), dealerships start to close. That's market forces for ya. 3) I imagine they're going to have considerably less costs after they've finished closing down this guy and 799 like him.

You do know what a franchise is don't you?

[Pot Odds RAC 23]

1) Because running the dealership costs money, I don't get why that's hard to understand?2) Yes, but when you're not making money by selling cars, and the cost of keeping the dealership exceeds the profit of selling cars (which in Chrsylers case is apparently negative), dealerships start to close. That's market forces for ya. 3) I imagine they're going to have considerably less costs after they've finished closing down this guy and 799 like him.

Dude. The Dealerships are owned and operated by the Dealer, not Chrysler. Chrysler doesn't "run" the dealerships, that isn't where Chrylser is saving the money.

[Balloon guy 158]

There is internal support required within the Auto Company that results in higher costs - call centers, technical assistance, marketing support, other dealer systems, etc. However the real issue is too much "competition" within a given geographic footprint. With fewer dealerships competing for the same customers, they are no longer working against each other, thus increasing the cost of a car sold. This, in the long term, will raise the profits per car sold both to the Dealer and the Auto Manufacturer.

I would think the 'extra' cost passed through to the manufacturer would be offset by the selling of the cars.?I couldn't buy a Ford franchise around here because they have 2 nearby. Ford wouldn't sell me the franchise.But that's more to do with honoring the cost that the existing Ford franchises have invested for noncompetition, not because Ford doesn't want my $5 million for a franchise license ( guessing the number )And if your point is that with fewer dealerships, there are less PT cruisers available, which means the price goes up...who gains from the mark up? Not Chrsyler.

[Sheiky 0]

Basically there are far far too many dealerships with the volume of business that they are doing.What is happening is that Chrysler and GM are deciding which dealerships they will stay with and which will be let go. I presume that he's saying the dealership nearest to him that isn't losing their franchise is being given "his" right to sell cars.Bankruptcy sucks and there are winners and losers and many dealerships will be losers but they all can't stay open.I'm not commenting in any way shape or form on if the way they are doing it is morally right or wrong but in bankruptcy they have the ability to cancel contracts and that's what is being done.

Dude. The Dealerships are owned and operated by the Dealer, not Chrysler. Chrysler doesn't "run" the dealerships, that isn't where Chrylser is saving the money.

But in closing dealerships they don't have to fulfil there contracts to supply any more cars, which saves them money right?

[Balloon guy 158]

I remember years ago there was talk of the future of car sales to be a one stop for all makes and models dealership, Reducing mark ups to bare bones, letting manufacturers have better controls over pricing etc.Wonder if this is the backdoor way to make this happen.Good for consumers, bad for the 100,000 car salesmen that nobody likes

[Pot Odds RAC 23]

But in closing dealerships they don't have to fulfil there contracts to supply any more cars, which saves them money right?

No. The Dealers Finance their "Floorplan" themselves. They own the cars on the lot, not Chrysler.

[Balloon guy 158]

But in closing dealerships they don't have to fulfil there contracts to supply any more cars, which saves them money right?

When a dealer gets a new car from the manufacurer, he pays them. Either full price, or as is mostly done, he borrow the money from the manufacturer at a really low interest rate.So all the inventory that sits on a car lot, costs the dealer money every day.My buddy who owns a Ford dealership told me that if he wanted the Harley Davidson F-250 truck, he had to buy 75 Focuses to be allowed to buy one of the trucks from Ford.The GTs were offered via a lottery since they made fewer than there were dealerships. He paid $25,000 over sticker for 3 of them from dealers in towns that were never going to sell them, because our market he could get the $75K-$100K over sticker price he set. Ford made the exact same amount on each of those GTs.The dealerships otherwise would order 5,000 of everything and have the perfect selection instead of having to chase down the color and options you have when you buy a new car.

[Naked_Cowboy 0]

But in closing dealerships they don't have to fulfil there contracts to supply any more cars, which saves them money right?

Wow. You have about as much idea how a franchise business works as do the people who are actually on the task force for the auto industry. Consider applying for a job?Supplying a car to a dealership is, as far as chrysler goes - the sale of a car. As long as you are selling the car for more than it cost you to make the car (in terms of direct, inventoriable costs), this is a good thing for Chrysler. You can always improve your processes of making cars or re-evaluate the price you charge dealerships for the cars (which is passed on to the customers) if you want to improve your contribution margin. If Chrysler cannot sell enough cars to the dealerships to cover their remaining fixed costs, then they need to do some combination of lowering their fixed costs and producing a number of cars that is more in line with how many the market demands at the price point they want to / have to sell the cars. Reducing their number of customers is a terrrible, terrible idea. The customers that cannot sustain themselves will close down due to natural market forces. The dealer in the OP (presuming he's real) does not sound like someone who would be in this position. The additional fixed costs from the minor support provided to individual dealerships (which is offset by things like franchise and service fees as BG hinted at earlier) absolutely cannot be material compared to the real cost problems the car dealerships face from the horrific setup of the UAW that is both costing them too much in pensions and comp and giving the big manufacturers a disincentive to have a variable production cycle that can actually adapt to market demand.

[Pot Odds RAC 23]

And if your point is that with fewer dealerships, there are less PT cruisers available, which means the price goes up...who gains from the mark up? Not Chrsyler.

They will in the future as they raise MSRP (and Dealer Invoice Cost) which they can do and still keep the Dealers in business as final price to the customer goes up.

[vbnautilus 48]

And if your point is that with fewer dealerships, there are less PT cruisers available, which means the price goes up...who gains from the mark up? Not Chrsyler.

If there are fewer PT Cruisers around thats a gain for all of us.

[strategy 4]

Bankruptcy sucks and there are winners and losers and many dealerships will be losers but they all can't stay open.

This. BG, you are apparently blessed to have never experienced bankruptcy.

[Balloon guy 158]

They will in the future as they raise MSRP (and Dealer Invoice Cost) which they can do and still keep the Dealers in business as final price to the customer goes up.

As soon as we bar all imports, than yes, I can see overinflating the price of cars. Until then..not so much

If there are fewer PT Cruisers around thats a gain for all of us.

I used a really bad example didn't I?

This. BG, you are apparently blessed to have never experienced bankruptcy.

Especially blessed that I haven't yet had to experience forced bankruptcy brought about because of a governmental decision to do something that they have no constitutional right to do, which will not accomplish anything positive at the same time.I have experienced the other side. The side where a guy owed me $10K, and declares BK, keeps his 2 brand new cars, and then gets to cherry pick $20K worth of inventory from his shop, then an auction guy decides that he can't sell the rest of the stuff for enough money to make him any profit, so the judge tells they guy he gets to keep all his inventory, and he files a new DBA and opens shop under a new name, calling me 4 years later to ask if I want to buy some new LED ligths from him.California Bankruptcy laws are fun.

[Naked_Cowboy 0]

I realize there are winners and losers in every bankruptcy, but there is a very specific set of laws that govern the priority of claims. Obama is completely ignoring them.

[FCP Bob 1,312]

Especially blessed that I haven't yet had to experience forced bankruptcy brought about because of a governmental decision to do something that they have no constitutional right to do, which will not accomplish anything positive at the same time.

Kinda silly over the top statement there BG.Basically every analyst of the Auto Industry has said that it's crucial that GM and Chrysler reduce the number of dealerships that they have by a lot. The bankruptcy process gives them the ability to cancel Franchise Agreements and it's the same whether the government is involved or not. The exact same thing is happening here in Canada. Production workers are losing their jobs and dealers are going out of business. A pretty silly thing for people to be complaining about who aren't directly involved unless they're just trying to make a political point since it's a business necessity.

[weishan14 0]

Wow. You have about as much idea how a franchise business works as do the people who are actually on the task force for the auto industry. Consider applying for a job?The dealer in the OP (presuming he's real) does not sound like someone who would be in this position.

This same kind of letter was received by many dealerships here in W Michigan. And often it seemed, the dealerships were among the top 2 or 3 in their area. It looks like they want to keep the smaller dealerships open and close the larger ones. Again, many of there were family owned and had been in business for 20+ years. The fact that they are stuck with all their inventory is really sick. Around here, it looks like a lose-lose situation.

[strategy 4]

I realize there are winners and losers in every bankruptcy, but there is a very specific set of laws that govern the priority of claims. Obama is completely ignoring them.

even if Obama had left that industry alone entirely, it wasn't going to magically become a good idea to own a chrysler dealership. I mean, life sucks for those people, but that's the system we have...I posted my thought's on chrysler's debt, and in general I'm really not a fan of what's going on. but this appears to be a dealership attempting to drum up attention to avoid what seems (to me, anyway) to have been an inevitability.

[Balloon guy 158]

I emailed my friend who owns two auto dealerships.Here was his repsonse:

I agree this is horse s**t. All of the manufacturers, especially the domestic have too many dealers. But, they should handle it the way Ford is handling,they have other dealers who will benefit from the closing buy them out or they don't replace dealers who do close for financial reasons.I think if a dealer is profitable they should be left alone.There is some savings, probably in communication costs and vehicle transport to small volume dealers but its not much. The biggest reason for cutting dealers is for other dealers. Fewer dealers means more sales per outlet which means these dealers should be stronger financially. Strong dealers treat their customers better as they don't have to pinch every penny.Our local dealer in LQ is in the same position and again its a rally bad deal. I cant believe GM and Chrysler made the decision not to take back the vehicles and parts. All that means is these dealers will have to sell them way below cost and this will hurt other dealers as their inventory will be worth less. It will also drive down the value of theses manufacturers used vehicles thus making it harder to trade. It would be in everyone's best interest to have the manufacturers take these vehicles back and jam them down the throat of the surviving dealers.

[CaneBrain 95]

I realize there are winners and losers in every bankruptcy, but there is a very specific set of laws that govern the priority of claims. Obama is completely ignoring them.

In fairness, most bankruptcy courts ignore the laws that govern bankruptcy all the time. It is the most unpredictable area of the law and the decision you get usually depends on the judge you get.I feel bad for the guy in the letter......but there were going to be losers in this situation. If you want to be mad at someone, be mad at Chrysler with sticking these guys with the parts and inventory. I dont think there has been any evidence that that was Obama's idea. If it was, it was a bad idea by him.....but I have not read that anywhere.