Rejected Chrysler dealers opt for fire sales

Editorís Note: This story and an accompanying table, now withdrawn, gave the wrong amount that a rejected Chrysler LLC dealer would be out of pocket in a sale of a vehicle to a surviving dealer. The dealer would not be reimbursed for the destination charge. For 2009 vehicles, that amount will be $350. Chrysler will pay the rejected dealer the holdback, co-op advertising fee, and supplemental floorplan assistance that he or she normally would receive.

Bill Colter, owner of Performance Chrysler-Jeep-Dodge in Phoenix, says he had 300 new vehicles in stock at the beginning of May — before learning that his store will be dropped as a Chrysler LLC dealership as of June 9. He sold 70 to 80 vehicles in the past week, discounting them up to 40 percent from sticker with factory and his own incentives.

"We have been losing money on virtually every car; but if we have to give them away, we will," Colter says.

He and other Chrysler, Dodge and Jeep dealers are clearing their inventory by selling vehicles to customers at a loss rather than rely on the automaker's plan for those vehicles.

Out of pocket

Under the automaker's vehicle-redistribution plan, the rejected dealerships are supposed to sell their new-vehicle inventory to surviving Chrysler LLC dealerships.

But the plan's terms, laid out in a May 20 document sent to dealers and obtained by Automotive News, leave rejected dealers out of pocket for $350 per vehicle for the destination charge and presume that Chrysler can find a surviving dealer who will agree to buy the vehicles.

Says Chrysler LLC spokeswoman Kathy Graham: "We came up with this plan to give the dealers a soft landing."

Chrysler President Jim Press says 420 dealers have agreed to have Chrysler redistribute their vehicles and 369 chose not to.

Press says the automaker sought funds in its bankruptcy proceedings to buy back vehicle inventory from rejected dealerships, but the request was turned down.

By late last week, about 28,500 of the 44,000 new vehicles that rejected dealers had in inventory on May 14, the day they were notified that their franchises would be terminated, had been sold at retail, redistributed by district managers or traded among dealers, Press says.

But the vehicles destined for surviving dealerships under the plan cannot be moved until the Bankruptcy Court rules that Chrysler LLC can void the franchise contracts of the rejected dealers, Graham says. More than 300 dealers have filed objections with the court protesting the company's move to reject the contracts. A hearing is scheduled for Wednesday, June 3.

On the day it learned it would be terminated, Archer Auto Group had 700 new Chrysler, Dodge and Jeep cars and trucks in stock at its three Houston stores.

Total liquidation

So the group began running full-page newspaper, TV and radio ads blaring "Going Out of Business, Total Liquidation."

With deep discounts, the group had cut its inventory in half by late last week.

Bart Ferdinand, the dealerships' general manager, says: "We don't want to take the risk of having 300-plus cars on June 9 that nobody wants."

A study of transaction prices compiled by Edmunds.com shows the losses dealers are taking on their fire sales. After Chrysler revealed the rejected dealerships on May 14, Edmunds.com reviewed its data on April transaction prices, focusing on the 789 rejected dealerships.

It found that those 789 stores on average sold each vehicle for $825 less than Chrysler LLC dealerships as a whole.

By mid-May, after the fire sales began, those 789 were selling at a whopping $2,700 less than Chrysler LLC dealerships as a whole.

Last week, Hollern & Sons Dodge advertised a blue 2009 Dodge Journey SXT on its Web site for $22,100. The vehicle had a sticker price of $29,405. The advertised price reflected Hollern's own discounts of about $2,900, plus the factory's customer incentives of $1,500, says Keith Hollern, co-owner of the Windber, Pa., dealership.

"We are losing money at these prices," says Hollern, who had about 18 or 19 new vehicles in stock at the middle of last week.

"We are attempting to liquidate our inventory by any means possible." 

You can reach Arlena Sawyers at asawyers@crain.com

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