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Industry, its dealers, in flux

As the Chrysler bankruptcy clock ticks off the hours to his June 9 demise, William Douglas has 80 cars to move in a little more than a week.

His St. Pete Jeep Chrysler store on U.S. 19 is one of 789 dealerships axed by a reeling Chrysler intent on surviving as a pruned and profitable competitor to the likes of Toyota and Honda.

Douglas says he has resigned himself to the closing and will open a used car superstore in place of his Chrysler franchise. But his stoicism cracks when he considers how a laid-off autoworker gets upwards of $120,000 in severance pay while his dealership is slaughtered without a penny of payout.

"It's criminal and un-American to give my franchise to somebody else without compensation," Douglas said.

The brains behind the consolidation, which include an auto task force run from the White House, are putting 789 Chrysler and 1,100 General Motors dealers out of business. They view the downsizing as a potentially lifesaving move by a declining American auto industry that's bled market share to Japanese competitors.

"The marketplace cannot support the number of dealers out there," said Marc Cannon, spokesman for AutoNation, the huge Fort Lauderdale chain with dealerships all over the Tampa Bay area. "Even big players struggle in the market."

But who's right? Will the better-bled-than-dead philosophy save the patient? Or might the bleeding actually accelerate the decline?

The Tampa Bay area supports about 30 Chrysler and 30 GM dealers. In its announcement on May 14, Chrysler doomed three local dealerships to closure. Aside from Douglas' store, the automaker targeted Tarpon Springs Dodge and Fitzgerald Countryside Jeep.

GM didn't make public its hit list. No more than a dribble of local GM dealers are expected to close, though in selling off its Saturn and Hummer brands, the carmaker will winnow the field further. GM is expect to file for bankruptcy this week.

The two automakers are facing one hard fact: Their dealership networks — 6,000 for GM and 3,200 for Chrysler — are a relic from when domestic brands lorded over the market and the Japanese had a reputation for producing puttering death traps.

As late as 1984, GM held more than 40 percent of the U.S. market, a share that has plunged below 20 percent. Chrysler sales, at about 10 percent of the U.S. market, trail Toyota's and Honda's.

Toyota dealers, being fewer, move three times the cars of an average domestic dealer. GM and Chrysler argue that too many dealerships dilutes quality and cheapens the brand. Half of all the GM dealers due to close sold fewer than 35 cars a year.

With so many dealerships, a flood of unsold inventory on lots suppresses profits as dealers wage price wars against one another. Manufacturers toss in profit-draining rebates to move stagnant product, which has contributed to their financial losses.

Elliot Andrews' family runs two Dayton Andrews Chrysler stores, one in Clearwater, the other in St. Petersburg. He explained that the cars they buy wholesale from the factory come with manufacturers suggested retail prices, but dealers have to slash and burn to make sales.

"By eliminating some dealers and making the stronger ones more profitable, it allows us to maintain a better gross profit and spend more money advertising," Andrews said.

The more domestic dealers can advertise the more they can compete with the fat-and-happy Toyota dealer down the road. Or so the argument goes.

Other industry insiders wonder where's the harm in having a lot of dealers. They're independent businesses. The cost to the auto manufacturers is minimal. If dealers can't turn a profit, they'll go out of business by attrition.

"So many people think Chrysler or General Motors or Toyota own the facility, and we just manage it for them," said Douglas, whose dealership competes with an Andrews outlet across U.S. 19.

"That is totally erroneous. I have put up every dime. Their cars are paid for when the cars hit the train outside the factory. I pay for the parts, the tools, everything in this dealership."

The opacity of the Chrysler closings has brought some Democrats and Republicans together. Missouri Sens. Claire McCaskill, a Democrat, and Kit Bond, a Republican, complained publicly to the White House auto task force.

"Many Missouri dealers are asking us why certain profitable dealers, costing the auto companies nothing, were selected for closure," the senators wrote. "From this perspective it appears an arbitrary standard may have been used to make these decisions. … These dealers deserve a little more than just a pink slip in the mail."

Tom Castriota of Castriota Chevrolet in Hudson sees both sides. He acknowledges the benefit of having family dealerships near to customers, but he concedes that poor-quality dealers reflect poorly on the brand.

"The dealer really doesn't cost General Motors anything, but if the dealer isn't hitting his number, then what is the benefit to GM?" Castriota said.

Both sides of the dealership-closing debate are united in their view that Chrysler's bankruptcy-inspired closing schedule was draconian. GM took a milder course and will let most of its blacklisted dealers stick around until late 2010, though it provided incentives to close earlier.

AutoNation's Cannon is disturbed that Chrysler store owners are spilling inventory into the market in a dash to make the June 9 deadline.

Douglas of St. Pete Jeep Chrysler is one of them. Just a few months ago, Chrysler begged him to restock his lot. Now those cars might go to waste. He expects unsold cars and parts to cost him hundreds of thousands of dollars out of pocket.

Douglas belongs to the Committee of Chrysler Affected Dealers, a group of about 300 business owners fighting the closings.

"It's a bogus bankruptcy deal, bogus because it's a pre-structured, multibillion-dollar deal that gives us only three weeks," he said.

Jim Thorner can be reached at jthorner@sptimes.com.

Arguments for and against closing thousands of dealerships:

FOR

• The average Toyota dealer moves three times the cars of an average domestic dealer. Having too many dealers dilutes quality and cheapens the brand. Half of the GM dealers due to close sold fewer than 35 cars a year.

• The cost to the manufacturer of servicing dealerships through shipping, management and rebates is too high.

• Surviving dealerships will be more profitable, enabling them to afford more advertising and more attractive showrooms.

• Too much inventory on too many lots leads to price wars that reduce profitability.

AGAINST

• More dealerships means more places to sell cars and car parts.

• Since dealerships are independent businesses that buy cars wholesale from factories, GM and Chrysler are actually eliminating first-tier customers.

• The automakers, particularly Chrysler, treated dealers shabbily by giving them less than a month to shut down businesses many have run for decades.

• Chrysler recently begged dealers to buy more cars from its factories. Now it is offering no compensation as dealers try to move their remaining stock before the June 9 termination.

Industry, its dealers, in flux 05/30/09 [Last modified: Monday, June 1, 2009 1:48pm]

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