How does Closing Dealerships Help Chrysler LLC

[SeaKaye12]

Hi,

Chrysler LLC is attempting to close nearly 8oo dealers.

I understand how this will help their remaining dealers: fewer dealers to split the sales with; hence hopefully stronger sales and increased profitability for those who remain.

But; what's in it for Chrysler as a manufacturer? Why would having fewer dealers help them?

Anyone in the industry that can shed some light on this? All the news reports seem to skip that side of the story.

Chuck

 

[Knot Waiting]

Re: How does Closing Dealerships Help Chrysler LLC

Chrysler needs to scale back their distributership to match production. They are no longer capeable of making enough vehicles to fill all of the lots. The cost of transportation and promotion are also cost factors the manufacturer carries with each vehicle. GM has slated 1200 dealerships for closure too.

Note: Over half of the dealerships that were chosen make most of their money from used car sales anyway. Chrysler also tried to axe dealers that sold competitive brands on the same lot as to avoid killing the dealer itself.

 

[Bigprairie1]

Re: How does Closing Dealerships Help Chrysler LLC

What confuses me is that I've always understood that the most profitable part of the Auto industry is the maintenance/repair & service side of things, not the sales side. Basically, my understanding was the dealers made very little money on most of the vehicles sold by comparison to their service business. When you go to a dealership the service areas are full of business...and I assume that means profit for them. So I can see closing down the manufacturing end for a while to save money...but not the money making end of things ie: the dealerships and particularly their service component.
Beats me?
BP

 

[Knot Waiting]

Re: How does Closing Dealerships Help Chrysler LLC

Dang it, cant we just have a normal talk about the cars without it goin all locked and political? I been working in the automotive field for nearly ten years and this is a historic time (historicaly bad but historic none the less.

Sure there are alot of political issues associated with the collapse of the industry but that comes with any change of this magnitude. However there are alot more "auto" related aspects affected and the inital question targets one of them.

 

[Knot Waiting]

Re: How does Closing Dealerships Help Chrysler LLC

What confuses me is that I've always understood that the most profitable part of the Auto industry is the maintenance/repair & service side of things, not the sales side. Basically, my understanding was the dealers made very little money on most of the vehicles sold by comparison to their service business. When you go to a dealership the service areas are full of business...and I assume that means profit for them. So I can see closing down the manufacturing end for a while to save money...but not the money making end of things ie: the dealerships and particularly their service component.
Beats me?
BP

Your right in the fact that service produces a large part of the profit for a dealership. However, many of the dealerships are not set up to survive as a service facility alone. Large lots, showrooms, offices, etc that cater to the sales side are non-functional to service. Since Chrysler is looking to reduce its output these obsolete areas would become financially impossible support on service sales.
A resuructuring may include the relocation of some service operations to new more profitable locations or a consolidation with local shops. But as it stands now its all just too much for too little.

 

[jay_merrill]

Re: How does Closing Dealerships Help Chrysler LLC

I think there is also logic in closing marginal dealerships because they tend to dilute the market in terms of sale price. One of the things that makes selling domestic brands at MSRP difficult, is that most cities of any size have numerous dealerships of the same brand within a 50 - 100 mile radius. This allows customers to shop many dealerships, looking for rock bottom pricing. The marginal dealerships will sell at those rock bottom prices just to move inventory, so everyone suffers.

As an aside, I think the consumer also suffers to a degree because MSRP tends to get jacked up to insane levels, just to allow for the dickering that dealers know will go on. The same is true of the now long used tactic of adding "bump stickers," which are those dealer stickers with all sorts of nonsense on them to raise the price even further.

I think the manufacturers, who now have a serious inventory problem, would rather reward the dealers who will move what units are likely to be sold, and will do so in a way that insures their viability.

Another aspect of the situation, is that manufacturers provide a lot of support to dealers and that costs money - lots of it. I think some of the guys who have been in the business for awhile could provide more info, but suffice it to say that there is cost involved in dealer support.

 

[kenmyfam]

Re: How does Closing Dealerships Help Chrysler LLC

Fed up with dealer travelling to get the "best deal"
I would much prefer to pay the sticker price on the windshield without the add on's and tweek the price up things that are added when you come to write a deal up.
Trouble is that everybody wants to get the "best deal" and several people barter from a grossly inflated price to begin with to end up paying more than they needed to but feel good because they got a "deal?"

 

[tashasdaddy]

Re: How does Closing Dealerships Help Chrysler LLC

if we were not such a "i want it now" society, we could go to the dealer, have a base price, then add the options we wanted. a "have it your way" car. order it and it shows up at the dealer 3 weeks later. you only pay for what you want, they no longer have to warehouse, cars that have all kinds of accessories.

i remember in the dark ages we bought cars this way.

 

[v1_0]

Re: How does Closing Dealerships Help Chrysler LLC

What confuses me is that I've always understood that the most profitable part of the Auto industry is the maintenance/repair & service side of things, not the sales side.

Understand that what you call the "Auto industry" is made up of various pieces.

Repairs at the dealership help the dealer, as you stated in the rest of your post (not quoted). I'm not sure that this helps Chrysler corporate as much. They would make money off parts sales, but not on any labor or non-OEM parts (oil, etc). So by closing down the dealer, they are not loosing out on the labor/repair costs. I think they are also projecting that enough of those move to the remaining dealers in the area, so that they won't loose enough to cancel out closing the dealer.

But there are also a couple of 'dealership models'. I know that Ford dealers are more franchised - the local dealer pays for it's own costs (rent, etc), and "pays" for the cars it gets from Ford corporate/manufacturing. The cars on the lot are owned by the local dealer. This is opposed to a non-franchised model of business where the local dealer's would be paid for by the corporate office. The cars on the lot are owned by corporate. In the first model - closing out the dealer gains the corporate office very little. One less shipping point, maybe. In the second, closing out the dealer removes all the day-to-day costs (rent, lights, pay of people, etc) of running the dealership. It also returns the inventory on the lot back to the corporate office - who can redistribute it now, and longer term it means less 'lot inventory'.

One side benefit - it puts fear... uh focus... in the hearts of the remaining dealers...

 

[Mike Robinson]

Re: How does Closing Dealerships Help Chrysler LLC

if we were not such a "i want it now" society, we could go to the dealer, have a base price, then add the options we wanted. a "have it your way" car. order it and it shows up at the dealer 3 weeks later. you only pay for what you want, they no longer have to warehouse, cars that have all kinds of accessories.

i remember in the dark ages we bought cars this way.

I remember that too, but up here in Canada at least, often it seemed that the vehicle that arrived was not what was ordered. For example I remember my dad ordering a station wagon when what arrived was a sedan. Due to time constraints he had to take it.

I also remember my friends dad ordering a truck with a certain transmission and rear end and a few other options that I can't remember. What arrived was not even close. I don't understand why he accepted it, he was never happy with it and ended up trading it in a couple of years later.

A few years ago we went to a dealership and decided on a car but wanted one with a manual transmission, well the dealership didn't have one in stock and you should of heard the sales person try to weasel out of getting us the car we wanted. We just about walked away.

 

[SeaKaye12]

Re: How does Closing Dealerships Help Chrysler LLC

This is opposed to a non-franchised model of business where the local dealer's would be paid for by the corporate office. The cars on the lot are owned by corporate.

Yes v1_0; In my area that type of dealer is referred to as a "Company Store". There is a Lexus dealer down the road from me that is a Company Store. It's Owned by Lexus. Lexus rents the building and hires the staff.

But; most of the Chrysler dealers that are mentioned in the news are family owned dealerships. Sure; they may not sell a lot of cars. But I still don't understand what benefit there will be to Chrysler LLC to close dealers like this.

Depending on who you listen to; it actually **costs** the manufacturer big bucks to close dealerships. That has to to do with franchise laws; so I'm told. But I don't know the specifics.

Anyways...the thread is moving along nicely. Lets see who else chimes in with more information.

Chuck

 

[jay_merrill]

Re: How does Closing Dealerships Help Chrysler LLC

I think you are right about the franchise laws and costs towards the dealership that is not being "renewed," but that is a one time expense.

I once sold cars but it was only for about a year, so I can't say that I am an expert on the matter. What I do remember, however, is that the manufacturer (Ford in my case) provided quite a bit of support to the dealership. For example, we had a computer link to Ford that was used by everyone, from the mechanics to the salesmen. It was a closed, proprietary system, but it operated basically like a web page. While I'm sure that the francisee that I worked for had to pay for certain things to have the system installed, I think Ford incurred alot of the cost too.

This is an interesting discussion, so I'm hoping that someone who has been in the business for awhile will join in. Personally, I really hope that the domestic automakers survive. I have owned a couple of foreign cars, but have mostly owned GMs. I like them just fine and haven't found them to be as bad from a quality standpoint as most people seem to. I also like the fact that the parts are usually a fraction of what a comparable part for a foreign car would be.

Now, if I could only get GM to start making Astros again!

 

[QC]

Re: How does Closing Dealerships Help Chrysler LLC

I have always liked the way Caterpillar handles this. They assign a "service" territory (sales territory is illegal) and encourage larger and fewer dealers. There is definitely a monopolistic piece to this, but in the end customers benefit from financially sound dealers and OEMs. Let the competition come from competitive brands, not from your own family . . . and in the Auto market that is much more widespread than with Heavy Machinery anyway.

 

[Bob_VT]

Re: How does Closing Dealerships Help Chrysler LLC

Well locally..... closing the Dodge contingent will have very little effect. The dealers that are closing are only closing that portion. They have other brands under the dealership's name and it will just give them more showroom floor space. We are goint to lose 2 Dodge dealers which are located near other Dodge dealers .......

 

[roscoe]

Re: How does Closing Dealerships Help Chrysler LLC

I think there is also logic in closing marginal dealerships because they tend to dilute the market in terms of sale price. One of the things that makes selling domestic brands at MSRP difficult, is that most cities of any size have numerous dealerships of the same brand within a 50 - 100 mile radius. This allows customers to shop many dealerships, looking for rock bottom pricing. The marginal dealerships will sell at those rock bottom prices just to move inventory, so everyone suffers.

As an aside, I think the consumer also suffers to a degree because MSRP tends to get jacked up to insane levels, just to allow for the dickering that dealers know will go on. The same is true of the now long used tactic of adding "bump stickers," which are those dealer stickers with all sorts of nonsense on them to raise the price even further.

I think the manufacturers, who now have a serious inventory problem, would rather reward the dealers who will move what units are likely to be sold, and will do so in a way that insures their viability.

Another aspect of the situation, is that manufacturers provide a lot of support to dealers and that costs money - lots of it. I think some of the guys who have been in the business for awhile could provide more info, but suffice it to say that there is cost involved in dealer support.

From my experience, it is the huge multi city mega dealerships that are the ones that cut prices to the frame and work on a turn marketing plan.

 

[roscoe]

Re: How does Closing Dealerships Help Chrysler LLC

I want a knowledgeable manufacturer authorized service/dealer within a reasonable drive from my home, say 30 mile. As a customer, I don't have time to drive 90 miles to drop off a car for service, arrange a ride back home, then do it all over again in a few days to pick it up.

For this reason, US auto manufacturers have kept a strong hold on the rural market. There are no import options where I live unless you are willing to drive from 1 to 3 hours.

Forcing them to only have the same number of dealerships as Toyota has to service the country leaves out one very important fact; Toyota doesn't service the entire country.

 

[Tail_Gunner]

Re: How does Closing Dealerships Help Chrysler LLC

I think you are right about the franchise laws and costs towards the dealership that is not being "renewed," but that is a one time expense.

I once sold cars but it was only for about a year, so I can't say that I am an expert on the matter. What I do remember, however, is that the manufacturer (Ford in my case) provided quite a bit of support to the dealership. For example, we had a computer link to Ford that was used by everyone, from the mechanics to the salesmen. It was a closed, proprietary system, but it operated basically like a web page. While I'm sure that the francisee that I worked for had to pay for certain things to have the system installed, I think Ford incurred alot of the cost too.

This is an interesting discussion, so I'm hoping that someone who has been in the business for awhile will join in. Personally, I really hope that the domestic automakers survive. I have owned a couple of foreign cars, but have mostly owned GMs. I like them just fine and haven't found them to be as bad from a quality standpoint as most people seem to. I also like the fact that the parts are usually a fraction of what a comparable part for a foreign car would be.

Now, if I could only get GM to start making Astros again!

You've pretty much summened it up....Think of it in these term's...9 million cars sold this year with a average rebate of 2700 dollars..Thats considerable money..Now in good years it 15 million cars sold..

No one has a magic looking glass here, but the deals will go and the quality will shoot up...Is this a bad thing only time will tell. But i cannot help feeling that something is being lost in America and only after it is gone will we know how truly good or bad we actually had it going on.

 

[JB]

Re: How does Closing Dealerships Help Chrysler LLC

Nothing happens for the first time anymore.

Remember Duesenberg, Cord, Packard, Hudson, Nash, Studebaker, Willys, Crosley, etc., etc??

The sky isn't falling this time either.

 

[wajajaja02]

Re: How does Closing Dealerships Help Chrysler LLC

I hope us auto industry survives, I love my 95 suburban, 22miles to the gallon, I wish Americans would move closer to work.
The VW I have has been a big lemon, it looks like one, and has cost me 5k in extraneous maintenance to keep it running.

 

[gstanton]

Re: How does Closing Dealerships Help Chrysler LLC

Interesting thread... but I keep wondering... What is the option ? We all now own a piece of the 2 big auto makers (so far) and whatever happens to them happens to all of us.