|Readers of this column know I rarely offer a reaction to factory-dealer issues, simply because they are part of the territory. Dealers know there will always be the days when the factory rep arrives at your door, sends you an e-mail, or talks with you via satellite (in today’s world) with a new program, suggested practice, or their friendly (not) request to step up and take more inventory than you could possibly need. The way I see it, that is just part of the business. Both sides understand it and neither may particularly like it, but at the end of the day, every dealer just deals with it—some better than others. As a result, I normally leave that to other writers.|
This month is different, and I am wondering if the brass at Daimler Chrysler has absolutely lost their minds. It might be keeping with the other part of their anatomy they have already lost in profits.
On April 3rd, the Chrysler Group issued a memo to dealers stating as of July 1, 2007 Chrysler dealers who fail to meet 50 percent of their monthly sales quotas will be barred from the Chrysler’s factory auctions. That was followed, as reported in the April 23rd issue of Automotive News, with an article stating Chrysler had become the rent-a-car king with 48.5 percent of the Chrysler brand sales, and 34.3 percent of the Chrysler Group’s sales going to fleets.
So let me get this straight. One out of two Chryslers sold last year went to fleets, according to the article, 80 percent of them rental cars. These are the same cars that will be coming through the auction lanes six months from now. The Chrysler Groups’ resale values have never been great to begin with. Last year, Chrysler elected to grossly over build, mis-equip and stockpile cars in parking lots and garages all over Detroit. Despite their denials, all you had to do was fly into Detroit to see them lined up.
So the answer is to sell them to the rental car companies, further torching their resale value at auctions? A quick search just showed me 315 2007 Pacifica Tourings sold through Manheim last week with average wholesale price of more than $12,000 under the sticker price for a new ’07. Many dealers in my area still have a depressing number of 2006 models in stock, and we are at 2007 model year build-out.
And I wonder why it is so difficult for a Chrysler dealer to sell a new vehicle?
Just because the factories can somehow trudge on losing billions of dollars, it doesn’t work that way with the retail stores. Entrepreneurs tend to act pretty quickly and must adjust the way they do business. For about a year, the Chrysler Group bamboozled dealers into taking way too much inventory. I would look at 20 group composites or financial statements and see seven months or more of new car inventory. The dealers were told to take the cars and if they did they would get additional dealer cash. Of course if they didn’t, they would own their cars for more than their competitors. That’s not a nice choice.
Finally, they said no. Glutted with inventory and profits in the toilet, they stood their ground, which many consultants had been encouraging them to do. According to Automotive News, the average Chrysler dealer sold a whopping 18 new vehicles a month in 2006. That means one thing. They have to sell a lot of used cars to be in the black at all, let alone achieve any ROI.
So the factory now says, you have to hit at least 50 percent of the quota they set, regardless of what the quota was based on. If you don’t, you don’t get to go to the factory sale. That is incorrigible. These dealers are the ones that are trying any and all ways necessary to meet payroll, let alone ROI.
If Chrysler wants to sell more vehicles, they need to develop competitive vehicles, and price them appropriately. If the vehicles are desirable and priced well, they will retail well, and they will maintain their value. They did well with the P.T. Cruiser when it came out, then again with the 300. Their new auction strategy will simply take the big Chrysler Group buyers out of the market, which will help depress the resale values even more. The lower the resale values, the lower the lease residuals and that, in turn, makes the new cars even harder to retail.
The last thing a domestic dealer wants or needs right now is another arbitrary quota. In a time where poor factory decisions have cost both the factory and the retailers more money than the GNP of some third world countries, the factory needs to be doing everything they can to ensure they have the support of their dealers. If there are dealers which Chrysler doesn’t wish to have represent them any longer, take the issue directly to the dealer and negotiate a buyout or sale.
At the end of the day, the Chrysler Group needs to find a way to strengthen the resale value of their cars. Rather than excluding some of their own, they would be better served by opening their factory auctions to independent dealers. More dealers make a better auction, and that means higher prices. There are plenty of crafty independents who are already buying cars through the factory sale using auction numbers of Chrysler dealers.
The Chrysler Group is on the auction blocks due to ongoing poor decision making resulting in the bloodshed of profits. This time however, their vindictiveness is appalling, and it is aimed squarely at the profits of their dealers. Shame on you!
Until next month, Good Selling!
Auto retail veteran and F&I products expert Paul McCarthy has joined AUL Corp. as vice president of national sales.