It's Official: Chrysler To Close 789 Dealers

Posted by: David Kiley on May 14, 2009

Nearly 800 Chrysler dealers across the country got pink-slips today, unceremoniously delivered by United Parcel Service. In almost every state in the union, cities, small towns and remote hamlets, the auto company told 789 dealers, a number of whom have had dealerships in their families for generations, that they are out of the Chrysler business.

Usually, it is very difficult to terminate a dealer franchise agreement. But because Chrysler is operating in Chapter 11 bankruptcy proceedings, it is much easier—legally if not emotionally.

The cut adds up to 25% of Chrysler’s dealer network. Four million customers who have bought and serviced their cars at those dealerships are affected and are being contacted by mail.

The number of dealers Chrysler is cutting is more than Saturn or Lexus has in total. The automaker, which is in process of merging with Italian automaker Fiat, had a high of about 6,500 dealers in the mid 1960s. Before this cut, it had 3181.

Chrysler is trimming its dealer network to lower its own distribution costs, as well as make the remaining dealers more profitable. Perusing the list of dealers, a large number sell only Dodge Trucks, or have Jeep-only franchises that have been acquired and stuck on to showrooms that carry brands that compete against Chrysler on the whole.

Indeed, many dealers, especially in rural areas, have out-of-date facilities and a hodgepodge of brands, such as a Jeep showroom stuck in with Ford-Lincoln-Mercury, or GMC-Buick-Pontiac. Steven Landry, Chrysler’s executive vice president of sales, said that 345 of the targeted dealers, or 44 percent, are paired with a “competitive franchise that’s stronger than ours.”

Other cuts have been made in economically beleaguered areas like Las Vegas, Detroit, and Ft. Lauderdale, sapped by falling house prices and foreclosures. Dealerships being cut in Troy and Birmingham, Michigan, barely 15-minute drives from Chrysler’s headquarters in Auburn Hills, MI.

The reason for culling the dealer list is obvious—there’s a lot of inefficiency in the current system. Chrysler has said that 25 percent of its U.S. dealers account for half of the company’s sales.

AutoNation, the world’s largest auto retailer, is shutting seven Chrysler dealerships. Commenting on the consolidation plan, Mike Jackson, Chairman and Chief Executive Officer, said, “We believe Chrysler’s consolidation plan is a difficult but positive step forward for Chrysler and the automotive retail industry. Dealer consolidation is a necessary measure in today’s automotive industry and will strengthen America’s dealer network and improve dealer profitability over the long term.”

A total of 658 of the rejected dealers, or 83 percent, already sell more used vehicles than new. But a dealer that loses its new-car business can get starved of new customers, as well as energy in the community. “You don’t make as much profit on new cars as you do on used or in the service department, but it’s kind of the blood flow through an operation,” says Earl Hesterberg, CEO of Group 1 Automotive, a company that owns numerous dealerships including some that sell Chryslers.

Local communities who are losing dealerships will clearly see a rise in unemployment. Sales tax is often cited as another area of loss, but this is actually not an overall risk. “Dealerships may be going away, but customers are not. In other words, when a dealership closes, its customer may buy a competitive product, or buy from another Chrysler dealership. The sales tax is still being paid. The risk for communities is that the tax may shift to a different town,” explained Edmunds.com CEO Jeremy Anwyl.

Another mistaken belief is that car companies will somehow save a significant amount of money by having fewer dealerships. In truth, there are only minor savings gained by cutting the regional staff required to serve a smaller dealer body.

The real motivation in cutting dealerships is to improve the profitability of the dealer. Stronger dealers can invest in better facilities and be generally more effective in their marketing. Indeed, Sageworks Inc. reports that profit per employee in privately owned dealerships has plummeted. As sales decreased so rapidly last year, profits decreased at an even faster rate. That’s due to the high fixed-cost environment that dealers operate in. Dealership profits fell from $4,985.57 per employee in 2007 to a scant $133.02 per employee in 2008. As a result, unprofitable dealerships began closing over the last year on their own. But Chrysler’s bankruptcy, and the possible bankruptcy of General Motors, is speeding that process.

GM is facing a May 30 deadline to square away a reorganization plan that will meet White House demands. If it cannot get bond holders to accept much less than they are owed, and union workers to accept big concessions, it also will reorganize under Chapter 11 and cut more than 2,000 dealers.

Reader Comments

Hugo van Randwyck

May 14, 2009 1:47 PM

It looks like a large number of Chrysler dealers, were in fact another 'jobs bank', that was draining Chrysler. It will be tough for another group of people to switch their skills elsewhere. However, maybe the dealers that remain, could get more business and hire people from the other dealers. This pruning, may be exactly what is needed, for the new growth to come. It looks like Chrysler is starting to run itself more like a business.

Pat Snyderman

May 14, 2009 2:14 PM

I want the name of the dealerships in Orange County, New York which must close, and the location

Jon denzin

May 14, 2009 3:04 PM

Looks like Ford had a better idea....

Rich

May 14, 2009 3:06 PM

So what happens to these dealers' inventory?

ralph tyler

May 14, 2009 3:06 PM

I have bought nothing but Japanese vehicles for 25 years.

It's simple: they are made better.

Boy Wonder

May 14, 2009 3:14 PM

I doubt that consolidating Chrysler, will make it any more profitable for the remaining dealers.

mark Bista

May 14, 2009 3:27 PM

I have recently tried to purchase a jeep for cash.
When my wife and I visited jeep dealership, we have experienced such bad attitude, lack of any type of professionalism and help from the staff, I am not surprised to see dealerships closing. They do not know how to operate and handle clients!
Instead of retaining clients, they scare them off with the way they operate, terrible times we live in right now!

PK

May 14, 2009 3:29 PM

I dont get this. The govt is funding Chrysler so it can save Chrysler employees. But now it will do nothing to the millions of jobs lost at the 789 dealer locations. Is it that the guys at Detroit (no offense to them) are more loved by nation than those at the various dealer locations.

cyd

May 14, 2009 3:38 PM

Well- I am a widow, purchased at least three other Chrysler vehicles that were paid off. When my husband passed away, lost my job, they would not work with me. The vehicle was 50% paid for, they took it to make their 4,-5,000. from a widow who had nothing!All Chrysler had to do, was forgive a balance of under 10,000. and when I got back on my feet, I would have paid them back, plus they would have kept me as a customer and I would have referred them to everyone I knew. Greed set in, and look at where they are today. My situation happened only 2.5 years ago!
They will not survive under Fiat either!

Jason

May 14, 2009 6:01 PM

It is a smart marketing move by Chrysler, I just pray that the good people (and they are not all good) laid off by this move find jobs elsewhere.

To Cyd: if you lost your job, you needed to restructure your finances. If you had to sell a car and buy an older car until times got better, you should have done it. Expecting anyone, from a bank to a brand name, to forgive a debt of any amount is ludicrous. Restructure your payments, maybe, but asking them to write off your debt simply because times are hard for you is utter nonsense. I am sorry times were hard for you, but life does not owe you anything. Get over it.

Obriar

May 14, 2009 6:23 PM

This is a total act of stupidity on the supposed New Chrysler. Shuttering dealers will save Chrysler very small dollars, and you will see lawsuits up the yazoo, long delaying the bankruptcy process, and giving consumers more reasons to avoid them for a period. It will mostly be reversed by the courts in the end. Phooey.

kevin

May 14, 2009 6:46 PM

thats really sad because i owned three different japanese products the last 6 years 2 cars and one over priced truck (tundra) and just had nothing but problems with 2 of them,and got such a hard time about the truck that i swore i would only buy american from now on.after the third time it was towed i had them take it back to the dealer.i had only made 4 pmts.so you all can have the junk im going to be american again after i go to court for that junk truck!

Kenneth

May 14, 2009 6:51 PM

Chrysler will not survive. I don.t want my tax money going to help either them OR GM! Now they will sell out thousands of families that depended on them! SHAME on you Chrysler!

wjtinatl

May 14, 2009 7:03 PM

Unbelievable! Not sure who's more to blame here, Chrysler or the US Govt. Certainly the situation validates the statement; "lie down with dogs, you get fleas". The least of Chrysler's problem was it's dealers. Try their boring, uninspired, poorly built products first. The Dodge Caliber, Chryler Sebring, Jeep Patriot were worst in their class despite being introduced in the past 2 years. Certainly Daimler-Benz did a number on Chrysler, but the brain trust at Cerberus is equally culpable. Paying any amount for Chrysler in the shape it was in was absurd, installing Nardelli who couldn't sell hammers at Home Depot, let alone cars and finally going straight to the Fed's when things turned bad instead of reaching into their own private pockets were the last straw. Now they think reducing their sales outlets by 25% (although Dealers cost the mfg. relatively nothing) and then STICKING THEM WITH THEIR CRAPPY PRODUCT in inventory, even though they are no longer an authorized dealer is a good plan! Who in their right mind would buy these cars. I run a franchise division for a company (not automotive) and know that you cannot treat the independent business person who represents your company in this matter and not expect repercussions. PR alone will likely finish off Chrysler, if the legal fees don't. And at the end of the rainbow... Fiat. My god, what would Walter P. Chrysler think?

Karl

May 14, 2009 7:09 PM

If Chrysler had been producing fuel-efficient cars that cost less than $10,000.00, they'd be FLOURISHING right now! However, they opted to produce bigger, expensive vehicles that many Americans cannot afford. So much for the HEMI, huh?

LISA

May 14, 2009 7:25 PM

Kevin is talking about he thinks its good to lay off Chrysler dealers, and he hopes the bad ones get laid off. Yes they do have bad ones, but what about the employess and their families. Obama and his group who have never sold a car in their life are going to determine who goes and who stays. How supid they are. what about AIG AND FANNIE MAE, THEY ARE THIEVES. WHY AREN'T YOU COMPLAINING ABOUT THEM

Kool-Aid Remedy

May 14, 2009 7:32 PM

PK, your guess of "millions of jobs lost at the 789 dealer locations" is no where near what will be affected. Try more like 5000 jobs, maybe. And that is if the Dealer, who, according to this article, is very likely a multi-brand dealer, totally closes shop because of losing his new car franchise.

Yes, companies paid handsomely for those franchise agreements, but none lately. Well, I take that back. Some complete lack of foresight companies might have purchased a Chrysler franchise in the last 2 years, but they would have been very bone-headed if they did.

Anyway, your "millions of jobs" quote is so far out of touch with reality, I was wondering if you could ask it "How is the weather in the Astral plane?"

Thienloi

May 14, 2009 8:58 PM

Oh Oh, Why don't you try one Japanese car ? Nothing happen with them. You said you have nothing but the problem and the boring with Chrysler and it's time to start one new chance. Enjoy this hard time, maybe it's better to complain too much.

Tom

May 14, 2009 9:05 PM

This is a great business move, no doubt. Those people arguing that Chrysler will save nothing by getting rid of these dealerships must not have read the story. 50% of the dealers make 90% of the profit for Chrysler. This is about natural selection - only the best performing will survive. Chrysler isn't a charity whose job is to keep inefficient dealerships employed. Besides, do you think people at car dealerships actually do anything positive? Everything can now be found online - all the specs, colors, combinations, prices, consumer comments, editorial reviews, etc. You can even buy the car online! Why employ someone to sit around and give people coffee?

Ezdriver

May 14, 2009 9:18 PM

Have GM, Ford, Chrysler and Benz in the garage. See little difference in the approach any of them have with respect to their customers. They are all run by the same mentality. So it goes ___ The old and refined art of horse trading stares accountability in the face; maybe for the first time ever.
I hope what comes out of this socialist mess is a readjustment in the honesty with which they run their businesses.
I wish them all WELL; however I will NOT be a future customer for any of them. It's independently dealt used cars for me from now on.

Steven Hart

May 14, 2009 9:29 PM

I want to know how chrysler can possibly save money by closing my local dealership. I will now have to drive over 60 miles for warranty work on my vehicles. My next vehicles will likely be from GM or Ford so that I can get service without driving for an hour. Way to go, Chrysler. You are getting it all wrong.

Gary

May 14, 2009 9:48 PM

Wjtinatl........Well said...I couldn't have said it better!

matt

May 14, 2009 10:32 PM

I found out today that they were closing the dealer I work for. We were not costing them anything. I agree changes need to happen... but cutting a profitable dealer,rediculous.

Mark

May 14, 2009 10:33 PM

There will be more and more Americans having to pay for a failed social economic model unfortunately

JOHN FAIR

May 14, 2009 10:47 PM

I drove chevy's all my life. I now own a 2009 Dodge ram 1500 4x4 top of the line. This is the best truck on the road. Go drive one and see for yourself. All the Dodge and Chrysler vehicles have a personality about them unlike the rest of the automakers. When the american automakers are out of business, you will be paying top dollar for forgein junk. Thw Toyota's made in America are of a lesser quality than the ones made in Japan. Look at what happened to the quality of products we are now forced to buy that come from China. We have to spend our hard earned money on itmes that just don't last or are poison to our children and pets. Buy American and demand American quality made products.

Neon Driver

May 14, 2009 11:02 PM

We are seeing double standard here - AIG borrowned $180 billions tax payers money from the Department of Treasure, and so far, it has made no effort to repay.

And all 789 Chrysler dealers - owners and employees are about to lose their businesses, but none of them will ever get any help from the Department of Treasury.

This is horribly unfair!!!

dodgeforeman

May 15, 2009 12:25 AM

As a Chrysler Tech for over 25 years I have seen the good and bad with this company. From a technical standpoint Chrysler is superior to most other brands, of course the consumer can't see this becuse they don't have the training a technician does. That is the reason the Daimler wanted Chrysler, the concept to product timeline was the shortest in the indudstry, problem was Daimler took and never really gave Chrysler anyhing except for one transmission and a few rear axle designs. I hope that FIAT will share some of their technology in the small engine department and give us better small cars, honestly our quality is actually better now than in the "glory days" late 80s and 90s. Also we are hoping some Italian style will make Chrysler more appealing.

emil

May 15, 2009 12:29 AM

let's see now, how does that work? i have a 100 apple trees and if i get rid of 25% of them i'll sell more apples and make more money with only 75 apple trees.

katie

May 15, 2009 1:19 AM

I agree with Ralph here,
The Japanese cars are better made more economical and affordable.
American cars are just plain JUNK that's all they are. And to fuel this junk America attacks sovereign states to quench it's oil thirst.
Shame on America,and stupid and foolish American Dream

Blinx

May 15, 2009 3:08 AM

Whatever... it's all about product. Make a compelling product and buyers will come. The American automotive industry stopped making compelling products years and years ago. Other companies stepped in to fill the gaps.

schippe1

May 15, 2009 5:24 AM

I don.t want my tax money going to help either them OR GM! The people that should be out of work, are the top management of Chrysler.
If they want to put people out of work, Then no should buy there cars. Ant that gos for GM too.

Kris123

May 15, 2009 11:03 AM

Jason-
There is nothing more obnoxious than a person who uses the line "get over it." The only people I ever hear with that line are arrogant, selfish fools. So my message to you is "If you don't have anything nice to say, keep your trap shut." PS- You are responding to the article, not worrying about other peoples comments. Go get a life and someone to debate with realtime and not online. Loser.

Darrell

May 15, 2009 11:03 AM

This is another example of ALL of us living way beyond our means!!!

shannon

May 15, 2009 11:14 AM

so how is it the taxpayer is getting chumped on that 4 billion loan our elected representatievs extended to chrylser? i mean, fiat and the UAW are just scrapping those chips off the table without so much as a thank you! i did not elect a president to give my tax dollars to create an obama-motors and then just give it to the union that helped kill the old one and a bunch of italian businessmen.

gary

May 15, 2009 1:15 PM

If they keep the same old tired management it will be more of the same old crap, they will be in financial crap again in short order. I have 5 dodge trucks now and a chrysler car. Never any problem. the quality is there never ran a dodge (gas) truck less than 450,000 miles. Only item besides batteries was one water pump at 270,000miles. To CYD crying that chrysler should have forgave her debt on a car, let her keep it etc??
how about you sell me some thing then I don't pay for it. Would you like that. could you keep your business going?
That: "let me have it and not pay" is a welfare attitude, don't ya think.

chrysler is closing the rural dealership here, IF for ONE minute they think I will drive 175 miles to buy one of their cars they are OUT OF THEIR MIND!
Besides the dealer in the nearest city is an AHole in my opinion

john

May 15, 2009 1:17 PM

HEY KATIE, IF YOU DO NOT LOVE AMERICA GET OUT!!!!!!!!!!!!

Tom

May 15, 2009 2:39 PM

Emil - "let's see now, how does that work? i have a 100 apple trees and if i get rid of 25% of them i'll sell more apples and make more money with only 75 apple trees."

Hmmmm, well gee, you're right! Why didn't anyone see this before! Stop the presses, Emil has solved the problem everyone!

The thing is that each apple tree also COSTS money to grow and maintain. Say apple tree 1 produces 500 apples and apple tree 2 produces 3 apples but both cost the same amount of money to maintain and grow. Your gross misrepresenation was admirable though.

Chrysler's are technically the best car on the road? Bwahahahaha! The consumers spoke with their wallets over many years. Its not because of some conspiracy theory that Chrysler is known for horrible quality cars. The Dodge truck is a good truck - but guess what - gas prices are up and will only keep going up. The rest of their lineup - especially their cars - are horrible quality.

Robin P

May 15, 2009 2:56 PM

This isn't about Chrysler as a company. It's taking a play from the Honda playbook. Less availability means artificially higher margins. Less competition means more profits. Jim Press is a notorious liar. This is the same guy who last week bragged about having the Government as a partner in his company, saying that they have nothing to worry about now. He should be worried about taxpayers wondering what his stupid #ss is doing with all their money. His latest creation is the list of Chrysler Dealers he is running out of Business. To be on the list you have to: 1. Not owe Chrysler any money. 2. Not be beholden to the Chrysler Brass. 3. It also seems that if you've never kissed Chrysler #ss your automatic for the list. I am amazed that the same people who killed the company are picking the dealers they don't want anymore. I was hoping the Bankruptcy Judge would put an end to their idiocy. Even Edmunds says closing dealers doesn't save Chrysler any money. It just grants more monopolistic terms to the dealers that "play ball". If I sound pissed, its because I'm an employee of a company on the list. By the way we are the 76th largest CJ dealer in the country as of yesterday.

todd

May 15, 2009 4:17 PM

Tom, if you didn't have your head up your *** you might know what goes on in a dealership. people like you who now noting about the automotive business should keep their mouth shut.

nyongesa

May 16, 2009 12:45 PM

Do any of the commentors actually read the articles beforehand!!!!

Simply look at a comparative chart of number of dealers relative to sales. Chrysler has gone from number three to number five in sales volume, yet it's dealer network has increased. It's that simple, it's called rationalisation.

1. Of all Auto manufacturers selling in the U.S. Chrysler uses twice the amount of dealers to sell less cars than Honda. On a per car sold basis, it ranks dead last.

2. Dealer frachise agreements are protected by a thicket of state laws, that make it very difficult for the manufacturers to shed them when necessary. This has prevented the dealership network to shrink in accordance with sales volume for Chrysler and GM.

Do you people know you live in a capitalist economy. Creative destruction. When were the buggy & whip dealers supposed to have been cut from the government dole? if it's a social crime to close failing business models.

Some dealers will become Tesla dealers, some Geely, some Hindustan Motors, and the rest will move on to something productive and wealth creating, with their time. After a period of depression and self reflecting, that is. It's how America re-creates itself, and America is the best in the world at it.

Floyd

May 17, 2009 7:51 PM

The problem with Chrysler and GM is that they were enabled in their unsustainable business models by loose accounting rules, Wall Street knuckleheads, and devil-take-the-hindmost levels of debt. Cerberus is "private equity" - they took Chrysler "private" simply because the cash flow (profit spinoff) looked like a good return on their investment. Cerberus is not interested in the auto business, American jobs, car culture, etc. Now that the return on their investment has turned negative, they will foreclose - i.e. liquidate. This scenario with private capital and banks goes back to the Great Depression. Chrysler and GM have been run to maximize cash flow for the short term (shoddy products fluffed with accessories and sold with life-style advertising - they have been losing market share for a decade). Bankers use the Keynesian model of business valuation, made popular by Harvard Business School and adopted by Wall Street about 80 years ago. American business has been gutted by managements mortgaging assets and taking on unnecessary debt - there has been no long-term business building going on at most corporations in trouble today. An exception may be Ford, who was moderate and forward-looking in lining up financing, and is still partially family owned - so here we find the value of that most uncommon commodity - common sense. However, new car prices have risen everywhere to the extent that they are now "luxuries". The new president of Toyota said in an interview a couple of weeks ago that they were going to change their business model - i.e. resume building more modestly priced cars.

joe

May 27, 2009 8:02 PM

I'm looking to buy a Dodge 2500, 4x4, deisel from a deal who needs to deplete their stock, used is my choice but I would entertain a new truck at a good price.

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