Behind the Scenes @ Chrysler Dealers

[flash]

We've all heard about Chrysler's decisions to (quickly!) close selected dealers across the country, and while we've thought "that's sad", and "the economy doesn't need this right now", and other such things, most of us don't have a clue how dealers & manufacturers interact, so it's hard to understand who benefits or is hurt & how.

Think you've read enough? Consider this: How would you feel about being told that a business (or a portion of a business) that you had purchased, invested in (time & money), and made successful was being shifted to a competitor, without any form of compensation? And, oh yes, the inventory on your lot (which you have already paid for) cannot be returned & can no longer be sold as new, under the terms of the closures?

A friend forwarded this information to me (see below; (1) Letter from a Dodge dealer; (2) Memo with key points & gov't contact info; (3) Letter from a Jeep Dealer), and I would like to pass it on to you. I found it eyeopening, in terms of understanding the financial side of acquiring, maintaining, and losing a "car brand" dealership. Please take a moment to read the information below, and if you are concerned by what you see, please take one more minute to share your thoughts with the government representatives and agencies shown below. Thank you!
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May 19, 2009
Letter from a Dodge dealer
letter to the editor
My name is George C. Joseph. I am the sole owner of Sunshine Dodge-Isuzu, a family owned and operated business in Melbourne, Florida. My family bought and paid for this automobile franchise 35 years ago in 1974. I am the second generation to manage this business.
We currently employ 50+ people and before the economic slowdown we employed over 70 local people. We are active in the community and the local chamber of commerce. We deal with several dozen local vendors on a day to day basis and many more during a month. All depend on our business for part of their livelihood. We are financially strong with great respect in the market place and community. We have strong local presence and stability.

I work every day the store is open, nine to ten hours a day. I know most of our customers and all our employees. Sunshine Dodge is my life.

On Thursday, May 14, 2009 I was notified that my Dodge franchise, that we purchased, will be taken away from my family on June 9, 2009 without compensation and given to another dealer at no cost to them. My new vehicle inventory consists of 125 vehicles with a financed balance of 3 million dollars. This inventory becomes impossible to sell with no factory incentives beyond June 9, 2009. Without the Dodge franchise we can no longer sell a new Dodge as "new," nor will we be able to do any warranty service work. Additionally, my Dodge parts inventory, (approximately $300,000.) is virtually worthless without the ability to perform warranty service. There is no offer from Chrysler to buy back the vehicles or parts inventory.

Our facility was recently totally renovated at Chrysler's insistence, incurring a multi-million dollar debt in the form of a mortgage at Sun Trust Bank.

HOW IN THE UNITED STATES OF AMERICA CAN THIS HAPPEN?

THIS IS A PRIVATE BUSINESS NOT A GOVERNMENT ENTITY

This is beyond imagination! My business is being stolen from me through NO FAULT OF OUR OWN. We did NOTHING wrong.

This atrocity will most likely force my family into bankruptcy. This will also cause our 50+ employees to be unemployed. How will they provide for their families? This is a total economic disaster.

HOW CAN THIS HAPPEN IN A FREE MARKET ECONOMY IN THE UNITED STATES OF AMERICA?

I beseech your help, and look forward to your reply. Thank you.

Sincerely,

George C. Joseph
President & Owner
Sunshine Dodge-Isuzu

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M E M O R A N D U M
TO: ALL PARTICIPATING AFFECTED DEALERS
FROM: THE COMMITTEE OF CHRYSLER AFFECTED DEALERS
DATE: MAY 23, 2009
________________________________________________________________
URGENT ACTION REQUIRED
In light of the fast-moving events of the past week, as well as critical hearings scheduled to take place before the Bankruptcy Court in the upcoming week, please read carefully the following bulletin from Committee of Chrysler Affected Dealers (the “Committee”).
I. CONTACT YOUR GOVERNMENT AND REPRESENTATIVES
• The Committee urgently requests that ALL Affected Dealers and your families, employees, customers, friends and others, contact by email, telephone or fax all of the parties listed below and urge them to support the Committee in its efforts on behalf of the Affected Dealers. Everyone needs to demand that the rights of the Affected Dealers be protected and enforced and that Chrysler’s efforts to terminate dealer franchises be stopped immediately.

• For your convenience, we have included certain suggested “talking points” as well as some relevant contact information. Specifically, your elected leaders and representatives need to be made aware of the following key points impacting not only the Affected Dealers, but all 50 States, the local communities and consumers served by the Affected Dealers and the economy in general:

o “Right-sizing” (Chrysler’s term for closing dealerships) is a deceptively benign term for an act which will have devastating and wholly unnecessary consequences. With a lifetime of work spent building our businesses, and with our life savings invested in them, we, the Affected Dealers, will be robbed of our businesses and financially ruined. Our dealership employees and their families are facing financial ruin as well. As any community organizer will tell you, local community budgets will suffer, as will the local charities. The actions by Chrysler are unfair and unwarranted. The criteria by which Chrysler determined who would survive and who would not are murky at best, and to effectively end our businesses on essentially three weeks’ notice is a callous and reckless act without regard to the toll of human and financial wreckage that is left behind.

o Reducing the number of dealers does not in any way save Chrysler money. It costs them money. Moreover, the dealers, not Chrysler, have put untold amounts of our own money into these dealerships. For Chrysler to successfully come out of bankruptcy, it will depend on a large distribution network to purchase and sell its vehicles. The dealers are really Chrysler’s biggest customers. The more customers, the more sales. If a bigger dealer knows there are not a lot of dealers with whom to compete, competition suffers, and the consumer loses.

o Chrysler, with the approval of the U.S. Government and the Auto Task Force, is asking the Bankruptcy Court to ignore the laws of all 50 states that were enacted to protect us, the dealers, from termination without compensation, a blatant and utter disregard for both the law and the well being of those they were enacted to protect.

o Instead of allowing the free market to determine which dealers survive, Chrysler and the Government are effectively playing the roles of judge, jury and executioner, and these unwarranted terminations are going to unjustifiably destroy businesses and exact a high personal toll on not only businesses, but also individuals who may be forced into personal bankruptcy as a result.

Below please find contact information and website links for many of those who need to be contacted in order to enable the collective voice of the Affected Dealers to be heard -- the Committee urges you to act TODAY by contacting your elected representatives and others to explain how devastating Chrysler’s actions will be for dealer and their families, employees and communities:

• President Obama and Vice President Biden:

The White House
1600 Pennsylvania Avenue NW
Washington, DC 20500
Comments: 202-456-1111
Switchboard: 202-456-1414
Fax: (202) 456-2461
Email: www.whitehouse.gov/contact

• Treasury Secretary Timothy Geithner:

Department of the Treasury
1500 Pennsylvania Avenue, NW
Washington, D.C. 20220
General Information: (202) 622-2000
Fax: (202) 622-6415
Email: timothy.geithner@do.treas.gov

• Labor Secretary Hilda Solis:

U.S. Department of Labor
200 Constitution Ave., NW
Washington, DC 20210
(202) 693-6000
National Toll-Free Contact Center. Monday through Friday from 8:00 a.m. to 8:00 p.m. Eastern Time by calling, 1-866-4-USA-DOL, TTY: 1-877-889-5627

• Automotive Task Force:

Matthew Feldman, counsel to the Automotive Task Force
Email: matthew.feldman@do.treas.gov


• U.S. Senate:

Locate your U.S. Senators at:
http://www.senate.gov/general/contac...nators_cfm.cfm

• U.S. House of Representatives:

Locate your U.S. House Representative at:
https://writerep.house.gov/writerep/welcome.shtml

• Locate your Governor at:

www.usa.gov/Contact/Governors.shtml

• Locate your State Attorney General at:

www.naag.org

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From: Amy Krone <>
Date: May 27, 2009 12:53:37 PM GMT-04:00
To: senator@stabenow.senate.gov
Subject: Chrysler Dealer Closures

May 27, 2009

Dear Senator Stabenow,

I am writing to you to request your help in urging the President to stop Chrysler’s efforts to terminate dealerships and to revisit the Chrysler plan. I do not believe that what is occurring is what our Government intended, and I do not believe that the Auto Task Force made its decisions with full and accurate information at its disposal. A huge injustice is taking place under the guise of cost cutting to save Chrysler and GM, and it is happening far too quickly to have been well researched.

Chrysler is using this unprecedented point in history and the cover of bankruptcy to push a corporate agenda that has nothing to do with making them a stronger company or reducing their expense structure. They have long wanted to merge their three brands under one roof compelling dealers to build them separate facilities and have worked diligently for the past 10 or more years to do so.

Please look hard at Chrysler’s argument that dealers cost them money. It is not true. Reducing the number of dealers does not in any way save Chrysler money. It costs them money. Were it up to manufacturers there would be even more dealers – hence state franchise laws. Dealers are their biggest customers. Dealers purchase their vehicles and parts. The more dealers they have, the more customers they have, and for Chrysler to successfully come out of bankruptcy, it will depend on a large distribution network to purchase and sell its vehicles. Dealers own their own buildings, rent the manufacturer signs, rent the manufacturer computer systems, pay for training (most of which is web-based so the more dealers they have paying for it, the more the manufacturers’ development expenses are defrayed), pay for marketing materials and brochures, purchase their own special tools, and pay their own people. The manufacturer makes money if a dealer never retails even one vehicle to a customer. Manufacturers hold no stake in dealership companies or facilities and pass on to dealers all of the expenses involved in conducting business with them, and even mark the expenses up for profit.

The personnel Chrysler claims to need more of in order to serve more dealers are often telephone reps whose job it is to sell product to dealers (cars, parts, etc.). They are not essential personnel, as dealers use the computer systems they pay for in order to place these orders themselves as they need product. They are the equivalent of commissioned sales representatives. If asked, the manufacturers could not ever show you any evidence that dealers cost them money. When Chrysler was in dire financial trouble they asked dealers to order cars in order to keep the factory going and the company solvent. Many dealers assisted them. Dealers have played absolutely no role in Chrysler’s current problems – the fault does not lie with the dealers. The only people hurt by fewer dealers will be the customers, who will have fewer options and, with less competition, will pay more for the product and the employees of the many small businesses that will be forced to downsize or close.
This closure of dealerships, if allowed, will cause the loss of tens of thousands of jobs due to the downsizing or shuttering of many small businesses (dealers). And it will save Chrysler and GM nothing in terms of costs. It will have allowed Chrysler to shift franchises from one dealer to another in order to force construction of their facilities. Chrysler knows that closing points is not in their best interest. They are working under this guise to keep the same representation they have always had – just shifting ownership from two or three individuals to one. In the process closing businesses and costing jobs; stealing franchises that dealers paid for and operated profitably and giving them to someone else without any payment or legal recourse.

Chrysler, with the approval of the U. S. Government and the Auto Task Force is asking the bankruptcy court to ignore the laws of all 50 states that were enacted to protect dealers from termination without compensation, a blatant and utter disregard for both the law and the well-being of those they were enacted to protect.

What is occurring is wrong. Instead of allowing the free-market to determine which dealers survive, Chrysler and the Government are effectively playing the roles of judge, jury, and executioner, and these unwarranted terminations are going to unjustifiably harm or destroy small businesses and exact a high personal toll on individuals, as well.

“Right-sizing” is a deceptively benign term for an act that will have devastating and wholly unnecessary consequences. Taking franchises owned by dealers, who have purchased these franchises, spent a lifetime of work building these businesses, invested life savings in them, and operated them profitably and giving them to someone else or closing them altogether without having to work within the law to do so is simply theft. Dealers will be robbed of their businesses and, in many cases, financially ruined. Many of the employees that will necessarily be laid off will face financial ruin, as well. Ultimately, with the closure of 789 Chrysler dealers, many small businesses will be harmed, tens of thousands of jobs will be cut, small business owners will have seen their companies stolen from them and given to someone else and Chrysler will not have saved a dime. The actions by Chrysler are unfair and unwarranted, and the criteria by which Chrysler determined who would survive and who would not are murky at best.

To effectively end small businesses on essentially three weeks’ notice is a callous and reckless act. The speed at which this “right-sizing” is being attempted further suggests that Chrysler knows its actions are wrong and is hoping to enact them before the Government realizes the mistake and stops the action.

Please protect our rights. Please stop this from happening at speed, without some due diligence being performed before decisions of this magnitude are finalized. The stakes are too huge and too important and the effects too devastating and far-reaching to be rushed into. The fact that laws could be set aside and it could occur at all is unbelievable in our country. The fact that dealers, small business owners, could then be left with the huge financial liability of product that they no longer have the franchise to sell is unfathomable. How can there be any argument at all for terminating a small business that is profitable, pays its taxes, and creates jobs and pays for its own existence? Additionally, how can there be any argument for then giving that business to someone else? Finally, how can there be any justification for taking that business, giving it to someone else, and not paying a dime for its value?

Please protect us from having the franchise we paid for and operate profitably taken from us without reason, without payment, and without any legal oversight or recourse and for no valid business purpose. Please protect the thousands of dealership employees who will lose their jobs needlessly and without changing the cost structure of Chrysler or GM in the slightest. Please take the time to deeply delve into these issues before closing small businesses across the country for no valid reason.

I know the administration is supportive of small business, and I am certain that if the facts were understood this would not be allowed. Please do not let these companies misrepresent the facts and use this terrible situation to push agendas that have nothing to do with bankruptcy, costs, or their own viability. Please do not let them take advantage of this window in time where laws are suspended in order to take these grossly unjust actions that could never, ever have been legally undertaken.

Finally, I know it is probably hard to find thirty free minutes in your day, but the link below to Greta Van Susteren’s interview of car dealer Jack Fitzgerald is very informative. She interviewed a long-time auto dealer who did a great job illustrating the facts and outlining the true situation. Even though you may wonder if Mr. Fitzgerald and I are a bit biased as we are both dealers who have had our franchises slated for termination by Chrysler, I hope you will take the time to watch this interview – it is well worth it, and I believe the views and facts he espouses would be supported by dealers throughout our country, whether or not they are on the list to be terminated as dealers.

The link is:
http://gretawire.foxnews.com/2009/05...ck-fitzgerald/

Thank you very much, Senator, for taking the time to consider my request.

Sincerely,

Amy Hayes Krone
General Manager/Owner
Orrin B. Hayes, Inc. Jeep-Mazda-Mercedes-Benz
Kalamazoo, MI

[beccaB]

What I want to know is- why would a person want to drive 45 minutes away to purchase a Chrysler if the corporation has closed the local dealership? I live in Jackson, and I am not going to go to Lansing or Ann Arbor to buy a vehicle. I thought the small town dealerships were supposed to stay open.The small towns are where the people live who drive Chryslers and Dodges. This is a very bad decision on the part of the government and/or the corporation.

[Irulan]

I'm curious, does your family own a dealership or do you work for one?

I'd like to see an analysis of the franchise contracts. These kinds of actions cannot be a total surprise.

I think that if a franchise owner is truly surprised by all of this they are living with their heads in the sand. They have been sellling a brand that has been on it's way down for years. How could they not be aware that the quality ratings on Chrylser are very low? That oil is going up, not down? That perceived climate issues are affecting the kinds of cars people buy?

Any business person with good sense would be looking 5-10-20 years down the line and perhaps think to themselves, "you know, I bet we can't sell Hummers and large SUVs forever. What are our options"? Or perhaps, "you know, this company is just not profitable". Or " you know, Chrysler vehicles are consistently in bottom rankings of Consumer Reports quality", maybe we should look at selling the dealership before it gets really bad.

I agree that lots of people losing their jobs is really unfortunate, incredibly unfortunate. But the market also needs correction. There are very few companies that can sell an inappropriate product and carry lots of debt on their own, and survive.

I'll put my flameproof undies on now.

[Biciclista]

Irulan, I agree with you. I've been driving a 1991 Honda for 10 years now because car manufacturers couldn't be bothered to produce a car with gas mileage as good as I'm getting unless they could charge a fortune for it (Like a Prius).
Why buy a new car if the old one runs well and gets better gas mileage? I've seen a slight movement towards producing more efficient cars in the last couple years...
Only in the USA do we say "the government ought to do something about this - about every little thing"
and then say "cut government spending!!" or "this is socialism" when we the people mention that health care for all would be good for our children.

you just can't have it both ways. Why didn't Chrysler come up with cute little low gas mileage vehicle? WHY on earth did they put so much advertising and funds into HUMMERS? is that not the most repulsive recreation vehicle ever made? I see people driving it to and from work every day, stopped on the freeway, belching carbon dioxide, monoxide and whatever else, with one little tiny person inside. Kind of makes me sick.

So, yes, I think it's sad that car dealers are getting the shaft from Manufacturers, but if it's illegal, there will be a class action law suit and the lawyers will win and the dealers will get some satisfaction.

[Irulan]

I bought a new car last year. What I really wanted was a cute, high mileage WAGON, not too spendy, nice trim level. Right. Remember the old Corrola and Civic wagons? I was really hoping for an updated version but I ended up having to "settle". I'll spare you all the detaills; I've listed them in other threads.

[flash]

Hiya! Great question. No, I don't work for or have any affiliation (family, business interest, etc.) with auto manufacturers or dealers.

My interest / concern here surrounds the decision & the way it is implemented. As I see it, IF the rushed & forced closures ARE illegal, then a class action suit and a court decision delivered years from now doesn't help anyone (dealers, communities, etc.).

Love the heated discussion ... this is going to be an interesting one

[PamNY]

"Chrysler is able under bankruptcy to cancel franchise agreements with its dealers" at least according to this primer in the New York Times.

A lot has been written about this; if you Google "Chrysler bankruptcy dealership contract" or similar you will find it. My amateur understanding is that bankruptcy changes things, and contracts or franchise agreements that Chrysler had with dealerships (or anyone else) can and probably will be altered by the bankruptcy court.

Pam