Chrysler, as you all know, cut 789 of its dealers this Thursday past, roughly a quarter of all its stores nationwide. For me, the news is bitter sweet. Actually- I feel pretty good about it. But more on that a little later.The next day, General Motors too served walking papers to about 20% of its existing network of dealers.
The Economies of Sale
Not to get too technical or political about it, it’s better for these manufacturers and what remaining dealers are left that there will be fewer stores selling the goods. Why? Less competition. In a struggling business that’s competitive enough with namely Japanese brands like Toyota and Honda out there; no need for other mom and pop domestic shops to whittle down the prices so Joe Blow can get the best deal he can on an American car, with his Edmunds.com invoice printed in hand. It’s just not profitable, for any business, uncompetitive product or not.
Which leads me to the other facet of the car sales equation- factory support. Truth be known, a lot of dealers live and die (well, obviously!) by the factory, the manufacturer itself. Incentives, programs, marketing, floor-plans (how most new cars are loaned and supplied to the dealer’s lots), are all dictated by the manufacturer. Dealers, in most cases, supply the brick and mortar, the staffing, the used cars, the insurance, the local marketing and stuff like that; most new cars you see on the lots are loaned to them- by the factory, in an agreement that largely favors the manufacturer. Every day the car sits, doesn’t sell, is costing the dealer money like an accruing debt. It’s taken into account when they sell the car. Ever wonder why they want to show you a car in the back, covered in dust? It's to cut a lingering loss.
The manufacturers set the bar every month for each region, each sales district. Dealers large and small strive to meet the demands of the floor-plan, so that they can get their unit spins- bonus money put on each car sold, which can amount to a significant “P” to the monthly P/L report, often times this money makes their month. It’s a bonus, and they’ll give away the store, sometimes even at a loss so that they can get this bonus. With the Internet and all the dealer’s invoices, “tissues,” floating around, it’s the only real money left in the deal for the dealer.
“Holdback” or money in the back-end, behind the invoice, only goes so far…
With more dealers out there, each undercutting the other to move a unit, the economies of having a GM or Chrysler franchise in every town just does not make sense- with the consumer the savvy with information over the Internet- willing to travel to save a dollar.
But What Do I Know Anyway?
I don’t admit this to many, nor would you tell by talking to me, but, I’ll put it to you this way- I’ve done a lot of things for money. Some of which I’m not proud of. One of them- was selling Chryslers.
I got into the car business because I had to. Well, I kinda wanted to (I love cars). But I really had to. Life had dealt me a bad hand professionally, and I sought refuge selling. I needed something to do. I needed the money. Cars were quick, legal and relatively easy.
The car business is a great business. Despite the economic downturn and widespread recession- basically ruining domestic car sales- the car business is a simple business of people and cars. It’s a fun business. It’s exciting as jobs go. You’re selling what people want, what they’re happy spending money on- no matter the love, (or not) for the automobile, let’s face it- American’s love the smell of a new car. If given the choice of buying a new car and say, toilet paper, toothpaste, or maybe life insurance- they’d pick cars. Trust me.
My tenure at Chrysler was typical and short. I sold a lot of cars, did pretty well, had to lie on every profitable sale, work my ass-off on every pain-in-the-ass deal, only to make $50 bucks before taxes, per copy. Sixty hours weeks on your feet, most often six days a week, in all sorts of weather donning a suit. Rain, sleet, snow, didn’t matter. Push metal, hold gross, make it happen. Hope for the next “five-pounder” to make your week. I’m not saying it’s right; it is what it is (was…). By the way, a five-pounder is a deal with $5,000 gross profit in the front-end (above invoice)- a very good score for a salesmen who makes his money on a percentage of gross profit…
I worked alongside ex-cons, drug addicts, misfits; not all of them, just some of the more memorable ones. The smart ones (and there were many) weren’t honest and the honest ones, well, made no money! They were blown-out, fired, sometimes in a matter of days.
For the record, I also sold Mercedes-Benzes and while the cars were better, and showrooms nicer, prettier women working the reception desk, the salesmen were just as questionable. But they wore better suits. The sale was just as hard, if not harder.
Today I’m reading clips, watching videos of dealers, some of them decades, generations old, in total shock that they didn’t see this coming. Crying, tears, anger, disbelief. Some don’t know what to do? To add insult to injury- in Chrysler’s case, because they’re technically, officially bankrupt, the dealers are stuck holding the bag on all the remaining inventories.
Federal bankruptcy protection trumps state franchise law- where many GM dealers on the hit list are seeking a fight. And GM sellers have a little more time; GM has even agreed to take back inventories. Chrysler- not so much.
Again, not right, it just is what it is.
Welcome to Car Sales
I don’t feel bad for the dealers. If you’re in business 20, 30, 35, 80 years, you’ve raised your kids, grandkids (even great grandkids) in one business- it’s a blessing. You’ve done very, very well for yourself and many others. You’ve employed hundreds, if not thousands of people, given to charities, supported local efforts, other businesses, whatever. You get the picture. The media will have you believing the local economy revolves and feeds around the tits of small-town domestic car businesses.
Whatever. Nothing lasts forever.
In typical fashion, I was blown-out, fired, from the Chrysler business. I find it ironic that, the principles, owners of these “great” businesses, well, were blown-out by Chrysler.
Robert Evans, veteran Hollywood producer once said, something along the lines of “There’s three sides to every story- your side, my side and the truth… And no one is lying. Memories shared serve each differently…” A running theme in his anecdotal movie The Kid Stays in the Picture. Try and rent it if you can.
As for my former employer whom, I heard just lost 40% of his stores, a Dodge, Chrysler and a Jeep franchise- lost one of each… Couldn’t have happened to a nicer guy.
Funny, how that happens.
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