Chrysler group dealers are fuming about cuts in factory subsidies that help them finance their inventory, advertise and maximize profits.
Dealers can recoup their losses if they meet or beat sales quotas, but many are nervous about making the numbers. And they're angry about being forced to help the automaker bail out of a financial crisis they say is of Chrysler's own making.
The Chrysler group is restructuring after an operating loss of almost $2 billion in the second half of 2000. The loss is blamed largely on management decisions to build too many vehicles. That, in turn, required deep discounts to sell, cutting into profits. The company also let costs climb too high on some vehicles, such as the minivans.
'There weren't external forces (that caused this crisis),' said Dick Withnell, a Dodge dealer in Salem, Ore., who is vice chairman of the Dodge dealer council's executive committee. 'The factory shot themselves in the foot. We're not co-conspirators, so don't ask us for equal pain sharing.'
The lesser evil
But Withnell admits that dealers have little choice.
He participated in meetings Jan. 23-24 in Pontiac, Mich., between dealer leaders and Chrysler group officials, including CEO Dieter Zetsche. Chrysler at first said it planned to cut some dealer advertising support and supplemental floorplan assistance, which averages $270 per vehicle and helps dealers pay the interest on inventory financing.
'We just blew a gasket,' Withnell said. 'We said it would send the wrong message, and people would stop ordering vehicles.' Zetsche told the dealers that Chrysler had to cut $450 million from factory subsidies and asked for suggestions. The two sides came up with a plan that keeps supplemental floorplan assistance intact and combines other subsidy cuts with a dealer incentive program that gives them a chance to recoup their losses by hitting or exceeding monthly sales quotas.
Dealers will be paid $150 per vehicle if they hit 75 percent of their quota and up to $500 per vehicle if they sell 110 percent of their quota.
Chrysler says that if dealers sell 76 percent of their quota, they will recoup all the lost subsidies, and they will get more money back than they lose if they hit their quotas or beat them. The goal is to help dealers make more money while boosting Chrysler group revenues and market share through higher sales.
The subsidy cuts became effective Monday, Jan. 29, and the incentive program took effect Jan. 30. Many dealers, who received their February quotas last week, say meeting the numbers will be a challenge at best.
Bob Eddy, an Austintown, Ohio, dealer, who is secretary of the Chrysler-Plymouth-Jeep dealer executive committee, said each dealer's monthly quota is based on his or her sales during the last six months of 2000. It also takes into account the expected industry-wide sales decline from last year, when 17.4 million cars and light trucks were sold in the United States.
Eddy, who sells about 250 vehicles a month, did not reveal his February quota. But to hit 110 percent of it, he has to sell about nine more units than he sold in February 2000.
He said he's pleased with the number because it isn't 'extreme,' although he admits to reservations about his ability to beat February 2000 sales.
Withnell, whose quota is 68 units, said, 'It's going to be a stretch.' To hit 110 percent, he'll have to sell 75 vehicles. Still, he's 'cautiously optimistic I can get some of my takeaways back.'
John Gunning, a Manassas, Va., Dodge dealer and former member of the Dodge dealer council executive committee, declined to disclose his quota. 'It's reasonable, but it's not a gimme,' he said.
But Fred Frederick, a Chrysler-Plymouth dealer in Laurel, Md., called his quota 'unreasonable.' He said that without a significant upturn in business, he will not be able to meet it.
Wanted: inventory relief
Dodge dealer Joe Ricci, of Dearborn, Mich., said his 42-unit quota is fine, given the current economic conditions. But he has 160 vehicles in inventory, and even if he sells 110 percent of his quota, the incentive program will pay only $150 for each vehicle sold from existing inventory. The $500 applies only to new orders.
'They've done nothing to relieve my inventory,' Ricci said. '(Chrysler said) if we can't hit 75 percent of our objective, then we really shouldn't be in this business. But I just don't see people coming in the door. If they were coming in and walking out, I could see that. But they're not coming in the door.'