Chrysler dealers: Fix sales quotas

All-or-nothing goals trigger price wars among dealerships

Bradford Wernle | | Automotive News / December 11, 2006 - 1:00 am DETROIT -- Now that Chrysler group sales chief Joe Eberhardt is gone, some of the nation's largest dealers are begging the automaker to replace a monthly sales incentive program that encourages price wars between Chrysler dealerships.

Dealers say the "Volume-based Performance Award," which earmarks up to $700 per vehicle for dealerships that meet monthly sales goals, has two big flaws:

1. Unlike other automakers' programs, it has little stairstepping that allows partial awards, so it's virtually an all-or-nothing proposition.
2. Sales targets are so high that dealerships must slash margins and wage brutal price wars with neighboring Chrysler dealers.

A dealer can find himself in big financial trouble if he tries and fails to meet those targets while a neighboring store succeeds.

Chrysler offers little to dealers who fall short. "You've got to make certain assumptions about whether you're going to hit your (quota) because it's an all-or-nothing deal," says Barry Frieder, president of Potamkin Auto Group, of New York.

"It's pretty risky," agrees Earl Hesterberg, chairman of Houston-based Group 1 Automotive Inc., the nation's fourth-largest dealership group. "This thing needs to be overhauled to get it in balance and within reason. It costs you market share. You lose to Toyota and Ford and to other (Chrysler) dealers."

Doug Alley, owner of Alley Chrysler-Jeep in Kingsport, Tenn., says the policy pits Chrysler group dealers against each other. "Scrap the whole damn system," Alley says.

"We don't need to compete against Chrysler, Jeep and Dodge. We need to compete against Chevrolet and Toyota."

A Chrysler spokesman steered clear of the controversy on Friday, Dec. 8: It "is an internal program and is not something we are prepared to discuss publicly."

What dealers want
Dealers want the Chrysler group to

* Revise its monthly dealer sales incentives
* Restore local dealer advertising associations
* Aggressively push 3-brand store consolidations

Mending relations

Chrysler used the incentive system to trim its huge inventory. But the chief architect of that system -- Eberhardt -- is gone. And Chrysler group CEO Tom LaSorda is trying to mend frayed relations with dealers.

Two weeks ago LaSorda announced incentives ranging up to $7,000 per vehicle to clear out unsold inventories of 2006 models. A few days after this new incentive was unveiled, Eberhardt, known for his abrasive treatment of dealers, suddenly resigned.

LaSorda met Friday, Dec. 8, with about 50 Detroit-area dealers to discuss their grievances. LaSorda admitted that Chrysler had made mistakes and promised to work with dealers in the future.

After his speech, dealers gave him a standing ovation.

"It was a very uplifting meeting," said Warren, Mich., dealer Carl Galeana, who describes himself as a LaSorda fan. "I feel a helluva lot better than I did a year ago."

But it will take more than speeches to pull Chrysler out of its troubles. Last week top dealers gave Automotive News a list of other actions LaSorda should take, including:

* Offering financial inducements to selected dealers to sell their stores, so that surviving dealerships can house all three Chrysler group brands under one roof.

* Allowing dealers more say in advertising decisions.

* Cutting vehicle production and maintaining a 60-day inventory of vehicles.

In recent months, Mike Jackson, CEO of AutoNation Inc., has conducted a public campaign to pressure Chrysler to cut production. The Fort Lauderdale, Fla., dealership group has 19 Chrysler franchises, 21 Dodge franchises and 19 Jeep franchises. "They absolutely have to change their inventory policy," says Jackson. "They have to embrace 60 days supply as a retail target. That hasn't happened."

Local ad groups

Another sore point: Several years ago, Chrysler reorganized its dealer advertising associations, combining them with its regional dealer councils. Dealers say they lost much of their input into Chrysler's national advertising.

"I'd like to see the (associations) return in their original capacity," says Galeana.

Chrysler said last week that Steven Landry, vice president of sales and field operations, and Michael Manley, vice president of sales strategy and dealer operations, will continue running the sales operation for now. Both will report to LaSorda.

Chrysler has declined to say whether a replacement for Eberhardt will be named.