Jack Fitzgerald has spent more than half a century selling cars, and the past four decades as a Chrysler dealer outside Washington, DC. Thirty years ago he was a vocal proponent of the carmaker?s campaign to secure a package of loan guarantees from Congress. In recent months Fitzgerald had been working his contact list again, trying to drum up support for the latest Chrysler bail-out.
But not any more. On May 14 Fitzgerald was among the 789 Chrysler dealers, a quarter of the total, that the carmaker ?extinguished?, as he puts it, as part of its move through the Chapter 11 bankruptcy process. The decision had been expected: the firm had been saying it needed to cull its dealers for years.
The same is true of General Motors, which still had nearly 6,000 dealers in America last year, hardly fewer than in the 1960s when it controlled roughly half the domestic market (these days it is struggling to keep its share close to 20%). Just a day after Chrysler?s announcement, GM sent letters to 1,100 of its own retailers letting them know their franchise agreements would not be renewed. At least 500 more dealers will be dropped in the months to come as it closes or sells off its Hummer, Saturn, Saab and Pontiac brands. It eventually hopes to get the number down to 3,600.
Why are the companies desperate to reduce their dealer count when they are haemorrhaging sales and market share? Foreign firms such as Toyota have found that they can do a better job with fewer stores. Toyota now outsells Chrysler with barely a third as many showrooms. Its dealers do not have to compete with one another on price. That means they earn better margins which, according to Mark Templin of Lexus (Toyota?s luxury brand), they put back into their stores ?to deliver a more attractive experience for their customers?. The biggest cutbacks by GM and Chrysler are in city centres where many dealers offer overlapping products and services.
It is only thanks to bankruptcy (actual for Chrysler, imminent for GM) that the two carmakers can now overcome onerous state franchise laws that have long frustrated their efforts to modernise the system. Individually and through umbrella organisations, such as the National Automobile Dealers Association, car retailers are some of the country?s most effective lobbyists?which is not surprising as they are among the largest state and local taxpayers. In some states, such as Texas, taking away a franchise is virtually impossible, even when a retailer is convicted of fraud. A few years ago GM spent more than a billion dollars to buy out the retailers affected by its decision to eliminate its Oldsmobile brand.
Dealers warn that the cuts could backfire because of the close ties they maintain with their local communities, sponsoring teams in youth leagues and providing cars for 4th of July parades each year. Loyal buyers could shift to foreign brands, suggests Fitzgerald. After losing five Chrysler stores in the Washington area, he will focus on the multiple import franchises he handles at places like the Fitzgerald Auto Mall in North Bethesda, Maryland.
? The Economist Newspaper Limited 2009
