General Motors to Reinstate 661 Dealerships

LA Times

In a move that could provide economic relief for hundreds of communities nationwide, General Motors Co. said it would reinstate nearly 700 dealerships that it had planned to drop from its sales network.

The automaker sought to shed what it considered excess dealers as part of a bankruptcy reorganization last year, an effort to bring its franchise network into better balance with its declining car sales. Closing unprofitable and poorly performing franchises was expected to channel business to the stronger dealers.

But 1,160 dealers took the automaker to arbitration, and on Friday GM said it planned to let 661of them keep their franchises as long as they meet "standard" performance criteria for their facilities and financial status, among other factors.

Bill Hatfield, owner of Hatfield Buick GMC in Redlands, hopes he is on the list.

His dealership has been selling cars since 1913 but received a letter back in May saying the franchise would not be renewed.

On Friday, Hatfield said his phones were "ringing off the hook" as local customers eagerly hoped that the dealership would be saved.

"We're kind of in a waiting situation. We'll either get the letter or we won't, but I'm sitting here on eggshells just waiting to see what they do," Hatfield said of his dealership. "We're still profitable, and we've worked all along with the idea that we'll get the franchise back."

GM, which did not provide a list of the dealers or locations that would be reinstated, said it planned to call the franchise owners it will keep next week and to follow up with formal letters.

"We are eager to restore relationships with our dealers and get back to doing what we do best -- selling cars and taking care of customers," said Mark Reuss, president of GM North America. "The arbitration process creates uncertainty in the market. We believe issuing these letters of intent is good for our customers, our dealers and GM."

It also might help defuse a thorny public relations issue. After GM and Chrysler Group, which also went through a bankruptcy restructuring last year, disclosed plans to close a combined 3,000 franchises, dealers and their supporters complained, arguing that such businesses were important to the economies of their local communities.

The average dealer employs close to 50 people and pumps $16.5 million a year into the local economy, including payroll, taxes, payments to vendors, advertising and charitable giving, said Paul Taylor, chief economist of the National Automobile Dealers Assn.

Congress stepped in and passed legislation requiring the automakers to set up an arbitration process that would be completed by July 15.

That deadline created a certain expediency to reinstating the hundreds of dealers, GM officials said.

"It would have been virtually impossible to arbitrate 1,100 cases in a 120-day period," Susan Docherty, GM's U.S. marketing chief, said in a conference call announcing the decision.

GM has not come anywhere close to its goal of dramatically slashing its dealer network. The company had about 5,500 dealership locations as of Jan. 31 -- just 700 fewer than at the end of 2008, prior to the auto industry's sales plunge.

But maintaining hundreds of dealers more than it expected is unlikely to hurt GM's financial performance, said Jeremy Anwyl, chief executive of auto information company Edmunds.com.

GM is likely to make a profit this year after years of massive losses, its CEO, Edward J. Whitacre Jr., predicted in January.

"It doesn't really cost GM that much to have a dealer that is not very successful," Anwyl said.

Incidentally, the impetus for closing dealerships came from the example of Toyota Motor Corp., which because of its millions of recalls in recent months is now losing sales to GM and other U.S. automakers.

"Everybody looked at how Toyota has only 1,500 dealers and that those dealers are more profitable," Anwyl said. "Ideally, that allows those dealers to invest in nicer facilities and hire better salespeople because they sell more cars per store," he said.

But, Anwyl said, terminating hundreds of dealers doesn't automatically produce those advantages and may actually create some disadvantages.

"A large number of dealers gives you coverage in rural America," he said. "Where are those people supposed to buy vehicles?"

About 600 Car Dealers Try to Get Businesses Back

mLive

About 21 percent of the General Motors and Chrysler dealers whose businesses are being shut down by the automakers have filed paperwork appealing the decisions.

Around 600 dealers out of the roughly 2,800 whose franchises were revoked last year have asked for arbitration hearings in an effort to get their franchises back. Dealers have until midnight Monday to file for arbitration.

The appeals mean that many neighborhood showrooms that were shut down or scheduled for closure could return to business. GM Chairman and CEO Ed Whitacre Jr. has said he expects hundreds of dealers to win their franchises back during the process, which must be wrapped up by June 14.

GM and Chrysler decided to shed dealerships during severe financial problems that plunged them into bankruptcy protection last summer. While GM has told about 2,000 Chevrolet, GMC, Buick and Cadillac dealers that they will be phased out by October, about 700 will stay open because the automaker has not taken away all of their brands. Chrysler already has revoked 789 Chrysler, Dodge and Jeep franchises. Both companies said the doomed dealerships weren't profitable, were too close to other dealers or were in areas where buyers no longer live or shop.

The dealer appeals are being filed under a federal law passed in December that appointed the American Arbitration Association to handle the claims. Arbitrators will consider a dealership's profitability, the manufacturer's business plan, the dealership's economic viability, and whether the dealer met objectives outlined by the automaker.

Congress passed the law after dealers complained that businesses run by their families for generations were taken away unfairly.

India Johnson, an association senior vice president who is in charge of the hearings, said she expects 700 to 800 dealers to seek binding arbitration.

But not all will get hearings, she said. Some filed paperwork to preserve their right to appeal but may not proceed, while other dealers may settle with the automakers before arbitration hearings, she said.

The arbitration hearings, which must be conducted in the dealership's home state, are likely to cost both sides a lot of money. Some dealers may lack money to pursue arbitration because they've closed their businesses or aren't making as much as they once did.

Mike Wolf, who is appealing Chrysler's decision to cut his family's Chrysler-Jeep dealership in Plymouth, Wis., near Green Bay, says the state dealership association told him to expect legal costs of $25,000 to $75,000.

It's a gamble for dealers whose franchise agreements alone are worth anywhere from $500,000 to more than $2 million, Wolf said.

Dealers and automakers also have to split the cost of the arbitrator, meeting rooms and fees. Both GM and Chrysler have received government aid, part of which could be spent on the appeals.

The nonprofit arbitration association will do all it can to keep costs down, Johnson said. In some cases, dealers may represent themselves without an attorney, and others may request arbitrators that will cut their hourly rates, she said.

Chrysler CEO Sergio Marchionne has said the automaker may challenge the constitutionality of the arbitration law in federal court. Spokeswoman Kathy Graham said Thursday that the company has not decided whether to go to court.

Graham said Chrysler already has had to hire people to handle the paperwork, and it likely will need teams of lawyers and company officials to attend multiple hearings on the same day in different states.

Several dealers also are challenging the closures in court under state franchise laws that make it difficult for automakers to cut franchises.

GM plans to have about 4,100 Buick, Chevrolet, GMC and Cadillac dealers in the future. Chrysler had 2,352 dealerships remaining at the end of December.

Chrysler Dealers Left In The Lurch

AP

John Adamy, sales manager at Phil Spady's Chrysler-Dodge-Jeep car dealership, stands in the bare showroom in Columbus, Neb., Tuesday, Oct. 27, 2009. Dealers have heard little from Chrysler's new Italian management about what they'll be selling in 2011 even as they struggle to unload unpopular 2009s and face 2010 with the same model lineup.

Chrysler has been sending its dealers back to class, reminding them about the importance of courtesy and communication: Always return phone calls. Limit wait times. Open doors for customers.

However, the automaker isn't following its own advice.

New management has said little about plans to revamp Chrysler's ailing lineup and return the once-great company to profitability. Dealers are left to wonder what they'll be selling this time next year, even as they struggle to unload unpopular models from their lots.

The lack of communication is a symptom of an automaker so focused on its grand plan that it may be overlooking the basics of running the business.

That means a tough year for the auto industry has turned into an especially trying one for Jeep, Dodge and Chrysler dealers. Sales are down almost 40 percent versus 27 percent for the industry. Dealers have seen a quarter of their ranks purged since June, when the automaker left bankruptcy protection. They're facing shortages of some current models because Chrysler shut its factories for much of the summer.

For now, Chrysler's fate and the livelihood of its remaining 2,400 dealers hang by a thread of government aid. Taxpayer money, around $15 billion, will have to keep the company afloat until its new management, Italian car company Fiat SpA, finds a winning strategy for Chrysler following two unsuccessful ownerships in the last 11 years.

The lack of information is compounded by frequent shuffling of managers. New CEO Sergio Marchionne just broomed out two brand executives appointed only four months ago. Deputy CEO Jim Press, who to many dealers has been the face of Chrysler, is on his way out.

"It is a bit unsettling after everything that we've been through to see unrest at the top," said Michael Andretta, owner of a Chrysler-Jeep-Dodge dealership in central Pennsylvania.

Dealers are impatient for details about Marchionne's five-year game plan - to be announced on Nov. 4. Many say calls to headquarters have gone unreturned or they're told to wait as the CEO tries to keep his plans secret until next month.

Chrysler spokeswoman Kathy Graham says the company couldn't provide details because the product plan just received board approval. Chrysler will present its strategy in eight meetings with dealers around the country after Nov. 4.

The silence, though, is troubling and a sign that Fiat was unprepared to take over Chrysler, said Aaron Bragman, an auto industry analyst with the consulting firm IHS Global Insight.

"This is a company that has been given a lot of taxpayer money and hasn't said a thing," Bragman said.

By contrast, General Motors Co., which left bankruptcy court a month after Chrysler and is also receiving government aid, is "shouting from the rooftops" that it's here to stay and has new vehicles on the way, he said.

"GM understands that their public image has been seriously damaged, and they need to do a lot of damage control. Chrysler has just shut itself away."

GM has run a new ad campaign that touts quality and offers a 60-day money-back guarantee. It has even held online "town hall" meetings to update customers on its progress.

For Chrysler dealers there are only vague assurances of seeing a redesigned Jeep Grand Cherokee in the spring and a new Chrysler 300 large sedan sometime next year.

Chrysler's existing lineup is weak. Flops like the Sebring midsize sedan and Aspen large SUV dragged down sales in recent years. Because the Sebring and its Dodge counterpart, the Avenger, have sold so poorly, dealers have been unable to compete in a sedan segment that made up nearly half of U.S. car sales this year. Both cars have been criticized for noisy rides and poor quality.

And this summer, the Cash for Clunkers windfall all but bypassed Chrysler because it lacked enough fuel-efficient models on lots to meet demand. With factories shut, shipments to dealers ceased. As a result, Chrysler sold just over 7,000 Dodge Calibers, its smallest and most fuel-efficient car. By contrast, Toyota sold 29,000 Corollas.

Although Chrysler's product plan hasn't been formally announced, people with knowledge of it have told The Associated Press that models with Fiat frames and engines will replace Chrysler's current small and midsize cars, and the Fiat 500 subcompact will be added to the lineup.

While the car maker has withheld its strategy from dealers, it's made other details very clear recently. In mandatory customer service classes across the nation, dealers have been told which tiles to line their showrooms with and to make follow-up calls a day after cars are serviced.

Chuck Eddy, a Chrysler dealer near Youngstown, Ohio, serves on the national dealers' council. He understands the dealers' frustration because the council hasn't been told details of the plan either. But he's one of the few who have met Marchionne. He's seen Fiat vehicles, and that's made him optimistic.

"(Marchionne) feels much better about Chrysler than he did about Fiat," when he took it over in 2004, Eddy says.

Eddy said Marchionne's reticence reminded him of former Chrysler CEO Lee Iacocca, who kept details close and made a big splash with product announcements.

"I think he wants to get the Wow! factor back."

But it's been mostly woes for dealers. In early October, Chrysler temporarily closed some factories, due to parts shortages. There's also been problems with financing.

Phil Spady, who owns Chrysler-Dodge-Jeep dealerships in Columbus, Neb., and Yankton, S.D., said each dealership normally has 50 to 60 vehicles, but now their supplies are "in the teens."

Spady's supply of Calibers was quickly depleted by clunkers sales in July and August.

The automaker stopped building 2009 Calibers and won't ship 2010 models with improved interiors until November.

"We get fed last," Spady said of smaller dealerships.

Marchionne recently urged patience and said the company aims to reverse its sliding share of the U.S. market. September sales fell 42 percent and market shares has dropped to 8.3 percent from 11.1 percent, according to Autodata Corp.

Patience, like Calibers, is scarce.

"If I were running Chrysler corporation, I would have communicated with my dealers before now," said Wes Lutz, who runs a Dodge dealership in Jackson, Mich..

Chrysler To Place 25% Of U.S. Dealerships On Chopping Block

Story from CNN Money / Dow Jones Newswires

DETROIT -(Dow Jones)- Chrysler LLC (C.XX) revealed plans Thursday to cut a quarter of its U.S. dealer network, though some outlets vowed to fight the proposal in court.

The company has requested a June 3 court hearing to approve the planned cull of 798 of its 3,188 dealers nationwide.

The dealer restructuring is being driven by Fiat SpA (FIATY), the Italian group that plans to take an initial 20% stake in Chrysler when it emerges from bankruptcy protection.

In a court filing, Chrysler said the move was needed to restore competitiveness with rivals boasting leaner distribution networks.

Chrysler said its dealers sold an average of 303 cars last year, compared with the 1,292 sold by each Toyota Motor Co. (TM) outlet.

Some Chrysler dealers questioned the methodology used by the company and Fiat in their deliberations, and have vowed to battle the planned cuts.

Leo Jerome, owner of Story Chrysler Jeep in Lansing, Mich. and targeted for closure, said he has about $2 million in inventory and Chrysler informed him that the company will not buy any of the cars or parts back.

Chrysler, which filed for bankruptcy protection April 30, warned that it would need to trim its dealerships to cut costs and boost profitability.

The auto maker said all of its dealer contracts allow the company to terminate its relationship for any reasons with 30-days written notice.

Chrysler said it sold 1 million cars and trucks through its 3,298 dealers in 2008.

General Motors Corp. (GM), attempting to avoid bankruptcy protection, is also planning to cut dealers. About 1,000 GM dealers will receive letters Friday notifying them of their status. GM is planning to cut about 2,600 of its 6,246 outlets.