Sitting in car lots across the nation are thousands of new cars just waiting to be sold before many Chrysler and GM dealerships will be forced to shut their doors in the coming weeks. What is sitting out there being exposed to nature's elements is a bunch of plastic that was used to purchase those cars and now those cards are beginning to fall.
DETROIT — At 789 Chrysler lots across America sit 44,000 potential bargains, cars and trucks that are stuck between shell-shocked dealers and a troubled company that no longer wants their services.
The dealers have just a few weeks to sell the Chryslers, Dodges and Jeeps or risk losing thousands of dollars on them, giving people who want a car on the cheap a serious chance for a deal.
“You’ve got some very good negotiating power,” said Dave Champion, director of automobile testing for Consumer Reports magazine. “(Dealers are) really looking to shift this inventory. It’s just stacking up all around them.”
On Thursday, Chrysler LLC asked a New York bankruptcy court to end its franchise agreements with the dealers, casting them aside so the automaker can move forward as a new company with a leaner network of about 2,400 showrooms.
General Motors Corp. took a similar step on Friday, giving notices to 1,100 dealers that it no longer wants them. On their lots sit 65,000 Chevrolets, Buicks, GMCs, Pontiacs and Cadillacs, but at GM, the dealers’ situation isn’t as dire.
GM isn’t in bankruptcy — at least not yet — so its dealers have more options to fight the move, which the company doesn’t plan to implement until October of 2010. They also have more time to sell the vehicles, plus GM’s dealer agreements also require the company to buy back cars and trucks that meet certain requirements on age and mileage.
Both automakers say they have too many dealers for too few sales. For years they have wanted to get rid of underperforming showrooms to expand the market area of healthier dealers. The moves would give the stronger dealers higher profits and more money to spend on marketing, facilities and personnel, making them more competitive with Japanese automakers.
But inside the 789 Chrysler showrooms to be cast aside, fear is starting to set in as dealers try to figure out what to do with expensive inventories that weren’t selling well even before the Auburn Hills, Mich., automaker entered bankruptcy protection last month.
“They’ve told us that the inventory is our problem,” said Keith Hollern, one of the owners of a Dodge dealership in Windber, Pa. “Want to buy one? We’re having a fire sale.”
Dealers borrow money to buy their inventories, then repay the loans and make a profit when the vehicles are sold. But Chrysler sales were down 46 percent the first four months of the year, so many dealers have been paying interest for months. Even if the vehicles are sold at cost, dealers still lose thousands in interest payments.
Chrysler doesn’t have the money to buy back the vehicles, but it also doesn’t want to leave dealers in a bind.
So it has signed a deal with GMAC Financial Services, Chrysler’s new finance company, to float loans to dealers that Chrysler plans to keep so they can take on the 789 dealers’ unsold inventory.
If you are new to TY&B...hello & thanks for stopping in! If you are a continued patron, thank you for including TY&B in your never-ending search for amusement and enlightment via the blogosphere (whether you'll find it here is questionable). If you would like to post a comment, no need to sign up or become a member to contribute your 2 cents. (Even worthless comments are welcome) Just open up the Comments link under the post and fill in your name where it asks for Name/URL(NO URL is required). Thanks again for stopping by! Hopefully, it was a fun experience!