As Chrysler moves on, dealers wrestle with fate

Roland Jones • Profile • E-mail

For 46 years, Wade Walker sold Jeeps at his dealership in Montpelier, Vt. Now that dealership is going to have to reinvent itself.

In mid-May, Chrysler told Walker it would terminate his franchise agreement as part of the automaker’s plan to cut costs through bankruptcy proceedings by shedding about a quarter of its 3,189 U.S. dealerships. (General Motors, which like Chrysler has filed for Chapter 11 bankruptcy protection, has announced plans to cut about 40 percent of its 6,000-dealer network by the end of next year.)

Walker said his dealership sold about 100 Jeeps a year, making up about a quarter of his business. His Ford franchise made up the rest of his sales, and he’s hoping to survive on selling Ford cars and trucks from here on out.

“This impacts our business tremendously,” said Walker, who values his dealership at up to $4 million. “If you lose 25 percent of your business when car sales are already down about 40 percent, it’s really difficult.”

As a new Chrysler emerges from the wreckage of the automaker’s bankruptcy filing, Walker is among hundreds of dealers left in limbo.

Many are struggling to cope with their sudden ejection from the Chrysler family. Some are scrambling to sell their assets, or find new lines of business, while a few are contemplating the prospect of complete financial ruin.

“It’s unprecedented to wind down what are multimillion-dollar businesses in a matter of weeks,” said Paul Taylor, chief economist for the National Automobile Dealers Association.

“The extreme ‘hurry up’ process we’ve seen here has made financial planning very difficult for these dealers, and of course that’s compounded by the loss of their franchises” he added.

Walker is among the luckier dealers.

After hearing that his franchise agreement with Chrysler would be terminated, Walker sold his inventory to a local dealer who had escaped termination. But he wasn’t so fortunate with his parts business, which he is now unable to use for warranty work on Jeeps. So far, he’s only recouped about 40 percent of the value of that $50,000 business, he said.

Walker doesn’t think he will need to let any employees go to make ends meet in the difficult months ahead, but he isn’t ruling out a round of layoffs, including whittling down his team of eight technicians.

“We’re facing a problem when it comes to revenue,” he said. “How do I get revenue to satisfy my business needs? That’s what I need to replace, not just from vehicle sales but also from warranties and parts sales.”

Walker says he will have to replace the lost revenue by selling more Fords or otherwise downsize, and “obviously that will mean cutting employees and overhead.”

“Or if we decide our business isn’t viable any more, we’ll have to sell it,” Walker said.

Chrysler Deputy CEO Jim Press called the cuts are “the most difficult business action” of his career but they were necessary to help save the ailing automaker, which is now being run by Italian automaker Fiat.

Press said the poor performance of many of the dealers who were eliminated cost the company $1.5 billion in lost sales each year plus $150 million in advertising and marketing costs and another $33 million in administrative expenses.

James Anderer, who owns Island Jeep in Lindenhurst, N.Y., disagrees. He says dealers are independent businesses that pick up their own expenses and cost the automakers nothing.

Anderer, who also was cut loose by Chrysler, said his business is well-capitalized with sales 128 percent above the automaker’s minimal sales requirement for Chrysler dealerships. His dealership was also rated as a five-star facility by Chrysler, he notes, meaning it has met a certain level of customer satisfaction and sales volume.

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