Both General Motors Corp. and Chrysler LLC have announced plans to dramatically reduce their networks of thousands of dealers, saying that the moves are needed to cut costs as part of their restructuring efforts.
But the dealers argue that they don’t cost the automakers much of anything — in fact, they make money for the firms, they say — and that the termination of the nearly 2,000 franchises between the two automakers could result in the shuttering of many of the businesses and the elimination of thousands of jobs.
Here are some questions and answers about why the automakers are ending their franchise agreements with so many dealers.
Question: What exactly are Chrysler and GM doing?
Answer: As part of its Chapter 11 proceedings, Chrysler released a list of the 789 dealers for which it plans to terminate franchise agreements.
The affected dealers, which account for about 25 percent of the company’s dealer base, have until Tuesday to sell off their inventory. After that, they won’t be able to offer Chrysler-sponsored financing and other sales incentives, making it tough for them to compete with other dealerships without dramatically slashing their prices.
GM plans to drop about 1,100, or 20 percent, of its dealers when their contracts end late next year, but the automaker has declined to reveal which dealers were chosen.
Besides the 1,110 dealership cuts, the company will shed about 500 dealerships that market the Saturn and Hummer brands, which the company has reached deals to sell, along with the Saab brand, which GM also plans to phase out or sell.
And when the surviving dealers’ contracts are up in late 2010, GM will cut still more by not offering renewals to about 10 percent of the dealers that are left.
Q: What’s keeping the automakers from just closing the dealerships immediately?
A: Contrary to what a lot of people think, GM and Chrysler don’t own the dealerships that sell their cars and trucks. The dealerships are franchises owned by independent companies or business people who sign a contract with an automaker to market their vehicles.
Q: Why is it so important for the automakers to cut dealers?
A: Both Chrysler and GM claim that having such a large dealer base results in extra costs for them that they need to cut in order to be competitive in today’s global automotive market.
Jim Press, Chrysler’s vice chairman and president, testified before a Senate committee last week that the poor performance of many of the dealers the automaker wants to eliminate costs the company $1.5 billion in lost sales each year, along with $150 million in advertising and marketing costs and $33 million in administrative costs.
Q: Is there anything the dealers can do to fight this?
A: A group representing about 300 of the affected Chrysler dealers, along with several individual dealers, have filed objections to the automaker’s plan in bankruptcy court.
A hearing on Chrysler’s motion to terminate the agreements began Thursday with testimony from about a dozen dealers slated to lose their franchises. It’s expected to continue on Tuesday with arguments from both sides.
Q: Are all the dealers losing their franchises going to shut down?
A: No. Many of the affected dealers plan to stay open selling used cars and operating their body shops. Some of them also carry other automaker brands that aren’t affected by the decisions of Chrysler and GM.
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