Dealers Get the Axe, Buyers Get Sweet Deals

This past Thursday, Chrysler asked a New York bankruptcy court to end its franchise agreements with 789 dealerships across the country and informed them that they would no longer be receiving stock, basically closing them. These 789 dealerships will soon be going out of business. Like any business that has just lost all life support, you will find many going out of business sales, even though these dealerships are not actually calling them such.

The dealers have just a few weeks to sell out their stock of Chrysler, Dodge and Jeep or risk losing thousands of dollars on them and their only option is to give current car buyers a serious deal. “You’ve got some very good negotiating power,” said Dave Champion, director of automobile testing for Consumer Reports magazine. “[Dealers are] really looking to shift this inventory. It’s just stacking up all around them.”

Champion said that it’s important to find out about incentives and hold backs, which are payments the dealer gets when it sells a car. “It’s not a bad idea to go in there with a low ball price…. The longer you wait, the less options you’ll have.”

Both General Motors and Chrysler say they have too many dealers for too few sales. They have wanted to get rid of less valuable showrooms so they would not exist at the detriment of more valuable dealers. The cuts would allow the stronger dealers higher profits and more money to spend on marketing, facilities and personnel, making them more competitive, also fitting in with the bankruptcy standards they must abide by in the way of effective cost cutting measures.

Fear is affecting axed dealers as they try to figure out what to do with expensive inventories that weren’t selling well even before the bankruptcy move last month. They’ve told us that the inventory is our problem,” said Keith Hollern, one of the owners of a Dodge dealer in Windber, Pa. “Want to buy one? We’re having a fire sale.”

Dealers generally borrow money to buy their inventories, then repay the loans and make a profit when the vehicles are sold. Unfortunately, Chrysler sales were down 46 percent the first quarter, so many dealers have been paying only interest for months. Even if the vehicles are sold at cost, dealers still lose thousands in interest payments.

“Chrysler doesn’t have the money to buy back the vehicles,” said company spokeswoman Kathy Graham, “but it also doesn’t want to leave dealers in a bind or see the inventory flood the market at bargain prices.” This has caused most of the dealers to sign a deal with GMAC Financial Services, Chrysler’s new finance company, to give loans to remaining dealers that Chrysler plans to keep so they can buy the 789 dealers’ unsold inventory and sell it themselves. The deal, though, doesn’t include about 4,000 2008 models still on the lots that after the summer will not sell.

Graham said those 789 dealers cut from the company will get Chrysler warranty reimbursement and sales incentives such as rebates and low-interest financing until June 9. After that, they won’t have benefits on either. That means the dealers have a high motivation to sell off their inventory before their franchise agreements end. Chrysler incentives on some vehicles can run as high as $6,000 or more. Without them, dealers who have been cut won’t be competitive with standing dealers who can comfortably offer discounts.

“They’re not giving us a lot of time,” said Michael Wolf, a Plymouth, Wisconsin Chrysler dealer whose franchise was among those that won’t be renewed. “They’re neglecting their liability of taking new inventory. They’re not taking anything back.”

“What’ll end up happening, if a dealer wants to stay in business, they’ll probably end up just selling it below cost just to get rid of it,” said Erich Merkle, an automotive industry analyst from Grand Rapids, Michigan. “You’ll probably be able to find Chrysler vehicles perhaps at under the dealer cost.”

Dale Horn, owner of a dealership in Malvern, Arkansas, who was one of the 789 that were cut, isn’t counting on any help from Chrysler to unload his inventory of 34 vehicles. “Right now, I don’t have much confidence that they will do what they say. Nobody’s called me yet saying they’re going to try to help me,” Horn said.

Waiting until the closure deadline might give buyers even greater buying power. Insiders say that inventory is beginning to dry up with word of the pending bargains. Waiting too long may be a detriment, stopping a buyer from getting their ideal car at their ideal bargain.