Chrysler joins trend to combine stores

Larger dealerships are changing the way vehicles are sold in urban areas

Let's get together
Only a handful of Chrysler group stores in metropolitan areas combine Chrysler, Jeep and Dodge.  
  METRO DEALERSHIPS  
Chrysler-Jeep and Dodge 25  
Chrysler-Dodge 8  
Dodge-Jeep 6  
Dodge only 550  
Chrysler-Jeep only 452  
Chrysler only 128  
Jeep only 99  
Source: Chrysler group  
   
Going down
The Big 3 are slowly slimming their dealership ranks.
  JAN. 2001 JAN. 2000
Chrysler group 4,334 4,419
Ford Motor Co. 4,643 4,756
General Motors 7,831 7,995

A 30-foot-wide driveway is all that separates Don Luke's Chrysler-Jeep and Dodge dealerships in Phoenix. But for the past decade, Luke has been forced to run the stores as separate operations.

Why? Because Chrysler group policy prohibits the sale and service of Chrysler-Jeep and Dodge vehicles under the same roof in metropolitan areas.

So Luke was shocked a few months ago when the factory granted him permission to consolidate his aging dealerships into one $12 million store, which would save $100,000 in overhead.

"I nearly fell off my chair when they said, 'We don't have a problem with that,' " Luke said.

He got a green light because the Chrysler group's new management has embraced the industry trend for fewer but larger, more profitable dealerships in urban markets. The trend is changing the way cars and trucks are sold in the nation's metropolitan markets, where smaller mom and pop operations were once found in every neighborhood.

In 1950, when the automakers sold 7.2 million light vehicles, there were 46,821 dealerships selling domestic and imported brands in the United States. Last year, when the industry rang up 17.4 million light-vehicle sales, there were only 22,000 dealerships.

Luke's combined Chrysler-Jeep and Dodge dealership will be one of the first to open under Project Alpha, a plan to allow select metropolitan stores to sell Dodge, Jeep and Chrysler vehicles at one site. Competing brands will be excluded from the dealerships. If the project is successful, it could eliminate some 500 of the Chrysler group's 4,334 U.S. dealerships.

GM and Ford Motor Co. already have similar dealer consolidation programs as they, too, struggle to compete with large and successful stores of such brands as Toyota and Honda.

GM's channel strategy, for example, calls for stand-alone Cadillac and Chevrolet dealerships in major markets, with combined Pontiac-Buick-GMC stores as a third channel.

Bigger is better

The Chrysler group says it has no target for the number of three-brand dealerships in metropolitan markets. The company initially has targeted open points in four growing areas for these stores: California, Arizona, Las Vegas and Colorado, said Gary Dilts, senior vice president of sales.

The goal is to create large dealerships that can weather bad economic times with higher sales and profits because of increased unit sales, said Stephen Landry, vice president of dealer operations. "The process of Project Alpha will provide us with fewer dealers," he said. "That is not the ultimate strategy. But in a market where we have six dealerships today, we may have just four dealerships because of the consolidation effort."

Landry said the 5- to 10-year goal is to increase sales of metropolitan dealerships from 950 vehicles a year to about 1,500 units. The average Chrysler group dealership sells 500 vehicles annually, he said.

"We figure the 1,500 number is ideal for a dealer to hit break-even for fixed costs and economies of scale," Landry said.

The catch is that any dealer who also has a competing franchise on the same site as a Chrysler group brand would have to sell or move it. Chrysler has 4,334 dealers, of which 1,500 have competing franchises. About 200 of those dealers sell the Korean makes Hyundai and Kia.

Worthwhile trade?

Landry thinks some dealers would make the trade-off because he believes the volume from a Dodge or Chrysler-Jeep store would be higher than the volume of most Korean makes.

Chrysler group dealerships with competing dual franchises sell 460,000 non-Chrysler group vehicles annually. Their sales of Chrysler group makes are 32 percent lower yearly than those of stand-alone Chrysler group dealers.

In Luke's case, it means he'll be moving a Daewoo franchise away from his Dodge store. "It is not something I do with open arms," he said. "I would like to maintain both. But I obviously respect Chrysler's position."

Combining his Dodge and Chrysler-Jeep stores will translate into annual savings of several hundred thousand dollars, Luke said. "I'll save at least $100,000 in what we pay Chrysler alone; I'll have one computer system instead of two, one warranty package and one training package," he said.

"Everything that crosses the street generates a pound of paper. Project Alpha just makes so much sense that it is scary."

Dealer reaction mixed

Dilts said dealers are the best judges of where consolidation makes sense. "The dealers know the chessboard better than we do," he said. "The best dealers know where opportunities exist and how to put the pieces together. Frankly, we like having the best dealers in the country honking at the opportunities."

Larger dealers are undeniably the future, Landry said. But in some rural areas, "mom and pop stores will still be favored; these smaller dealers are in a lot of solid markets," he said.

Project Alpha was unveiled to dealers this month as part of a 25-city road tour to discuss 2002 price cuts. Dilts said dealer reaction has been mixed. "Heads go up and down, and then the murmuring starts to see if you are a buyer or a seller," he said.

Toyota, Honda more desirable

John Gunning, owner of Manassas Dodge in Manassas, Va., 25 miles south of Washington, would love to add Chrysler and Jeep to his business. "I am trying to compete with the Toyota guy that I used to outsell five years ago," he said. "Now he outsells me. My line just doesn't compete with his."

But Gunning doesn't see how he'll get Chrysler-Jeep because consolidation is proceeding slowly. A Jeep dealer nearby still is dualed with a Lincoln-Mercury store, and a Chrysler dealer in the next city doesn't have a Jeep franchise yet. Under the Chrysler group's Project 2000, all stand-alone Jeep dealers were marked for consolidation with a Chrysler store.

Those dealers aren't consolidated yet, "so how can I hope to get the entire product line soon?" Gunning said.

Because Dodge products released in the past several years haven't been successful, Gunning said his sales have fallen to 80 vehicles a month from more than 100 units a month years ago. His Kia and Subaru franchises have helped absorb some of those costs.

Earl Ziemann, general manager of Huntington Beach Chrysler-Plymouth-Jeep in Huntington Beach, Calif., said he doubts the owner of the Dodge store across the street would sell.

But like other dealers, Ziemann said franchises such as Toyota and Honda ultimately are more desirable, especially in a high-import market such as California. "We had Hyundai, but we terminated it," he said. "We couldn't sell it or make money because the margins are so small. It was a losing proposition."

Ziemann also wonders whether pairing Dodge with Jeep is wise: "The Dodge Durango competes with our Grand Cherokee. One of them could take a beating, probably Jeep. Durango is a lot more popular."

You can reach Diana T. Kurylko at dkurylko@autonews.com

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