No orders, no auction, Chrysler tells dealers

Bradford Wernle | Automotive News / April 16, 2007 - 1:00 am

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Cracking down What it is: Dealers who sell less than 50 percent of their monthly new-car sales target will be banned from Chrysler's used-car factory auctions. Starting when: July 1 Why Chrysler is doing it: The company says some dealers aren't selling enough new cars because they prefer to sell used vehicles. Why it's controversial: Some dealers say they can't survive without used cars.

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No more honeymoon?

Among dealers, opinions vary on the need for a ban. Some disgruntled retailers say Chrysler CEO Tom LaSorda has squandered the good will that he built up in recent months in his meetings with dealers.

Others say Chrysler had to crack down on dealers who were abusing their privileges by using their franchise signs to promote what have become essentially used-car operations.

Chrysler has to walk a fine line between hurting dealers who are trying to do their jobs and clamping down on those who aren't, says Chuck Eddy, owner of Bob and Chuck Eddy Chrysler-Dodge-Jeep in Austintown, Ohio.

"We've got to have more dealers putting their oar in the water," says Eddy, who represents Chrysler-Dodge-Jeep dealers on the industrial relations committee of the National Automobile Dealers Association.

But Eddy acknowledges that the new policy is controversial. "Be careful, Mister Chrysler. Don't hurt a guy who's in a market where he can't do his job. You need to help that guy."

John Schenden, owner of Denver Pro Chrysler-Jeep, believes the ban will affect only a small minority of dealers. "If dealers … are selling four times more auction cars than new cars, then I think they're abusing the system," he says. "There's got to be a fair balance there somewhere."

Bad for rural dealers?

Other dealers say the new plan is unfair.

A small-town West Coast Chrysler dealer told Automotive News that his store is near five other Chrysler dealerships. One of those stores is owned by a major group that sometimes sells new vehicles at $300 to 600 below invoice.

The dealer, who asked not to be named, says he can't hit his monthly sales targets because he can't match the larger stores on price. So he sells used cars to keep his store afloat. "This is a real serious problem," the dealer says. "It could eliminate a lot of smaller dealerships. It's bad for rural America."

Chrysler's McTavish disputes contentions that rural dealers will suffer disproportionately. "That's not the case," she says. "It really has nothing to do with the size of the market or the size of the dealership."

Doug Alley, owner of Alley Dodge in Kingsport, Tenn., says his dealership depends heavily on used cars. Located in the foothills of the Appalachians, Alley Dodge generates a gross profit of $2,300 on each used car, compared with $1,200 for a new vehicle.

Alley predicts that Chrysler's new policy will backfire. "They would be shooting themselves in the foot," Alley says. "They don't have a monopoly on the used-car business. All that will do is reduce the number of buyers in the lane and they'll have fewer cars sold as a result."

At least one auction executive agrees. "It seems foolhardy," says Ray Nichols, CEO of BSC America Inc., a chain of auto auctions based in Bel Air, Md., which does not hold any Chrysler factory auctions.

"It seems to me that dealers need to make money on new and used cars. The profits are in used cars now. Chrysler needs to sell those 'program' cars, too."