Dealers give Manley a strong vote of confidence -- and a few requests

DETROIT — In his first days as CEO of Fiat Chrysler Automobiles, Mike Manley laid out a large number of complicated tasks already on his personal to-do list: Fix FCA's money-losing operations in China, juice Maserati's flagging sales, and get the problem-plagued production of the redesigned 2019 Ram 1500 up and running at full speed as quickly as possible.

Each is vital to making sure FCA hits its restated — though still aggressive — financial targets by the end of the year. But there's one other pressing issue that also needs a place on Manley's plate: the struggling state of a large chunk of FCA's U.S. dealer network.

Many of FCA's roughly 2,475 U.S. dealers struggle to earn a profit, struggle with payments for warranty and recall work, struggle with getting the vehicles they need delivered and struggle with a mix of old product and expensive new alternatives. From a franchise value standpoint, FCA dealerships are less in demand than their domestic counterparts and trade at skimpier multiples.

Yet if FCA dealers have faith in anyone to improve their fates, it's Manley, the former dealer network guy they've known personally for the last 18 years who, in recent years, has filled their lots with Jeeps that sell.

Manley's selection as CEO "signifies that FCA will move forward and continue all the good that has been accomplished, while expanding on all that has been good," said Denny Rogers, chairman of the FCA National Dealer Council, who responded to questions from Automotive News via email.

But there is work to do, said Rogers, managing partner of Landers Dodge-Chrysler-Jeep-Ram and Landers Fiat-Alfa Romeo in Bossier City, La.

"Dealer Council has dealer profitability as the number-one discussion point in all of our meetings. In due time, when we hear from Mr. Manley, this subject will certainly be an important topic," Rogers said. "The profitability concern has many talking points — margin compression that we have been feeling for a period of time, the volume growth programs that are in play today including the Ram sales program, the numbers and corresponding payouts. And we can't overlook the impact that recalls are having on dealer profitability as they relate to our sales, service and parts operations."

Though the transition between Sergio Marchionne and Manley happened abruptly July 21, Marchionne had been openly talking about retiring from FCA for years and repeatedly said his successor would be one of the men he had trained as his top lieutenants, which included Manley.

"The more I digest this, the more I'm thrilled as a dealer, as a stockholder, as a stakeholder in the company," said David Kelleher, president of David Dodge-Chrysler-Jeep-Ram in Glen Mills, Pa., and a former FCA National Dealer Council chairman.

"Mike understands network; he understands dealers; and he understands they have to be profitable to invest in his company. There isn't going to be a learning curve with Mike Manley."

Kelleher said dealers need FCA to "support the right measures, to give us the right inventory that we need to be profitable. But Mike knows that already, so that's what he'll do."

But even the most successful FCA dealers believe there is ample work ahead for Manley.

"I think [Manley] is going to have a task on his hands," said Erin Kerrigan, managing director of Kerrigan Advisors in Irvine, Calif. "There are [FCA] dealerships making a lot of money, and FCA dealerships that are losing money. But across the board, it doesn't have the stability that you see, even from other domestics."

Kerrigan, whose company handles dealer buy-sells and issues a quarterly report on dealership values and blue-sky multiples, said the industry view on FCA dealership values turned negative in the last half of 2016, about the time that the automaker restated six years of monthly sales reports. The result was a downgrade of the multiples buyers were willing to pay, beginning in 2017, Kerrigan said.

"We see [Chrylser-Dodge-Jeep-Ram dealerships] in a 3-to-4-multiple range now, whereas Chevy or Ford are 4 to 5," Kerrigan said. "We also see much more demand for Ford and Chevy than we do with CDJR."

Take the plight of one medium-sized FCA dealer in Michigan, who shared his story on condition of anonymity because of the sensitive nature of the information. The dealer said it took seven months of badgering for his store to receive promised floorplan expense reimbursements for a factory-ordered stop-sale last fall on the Jeep Compass.

Then this spring, a transportation dispute between FCA and one of its unionized car haulers meant the dealer had hundreds of vehicles he couldn't get delivered to his lot and therefore couldn't sell.

With just two-thirds of his authorized inventory on hand, the dealer missed his stair-step goals for two consecutive months — goals that were reachable had the inventory been delivered — resulting in lost incentive payments, the dealer told Automotive News.

In the meantime, FCA's regional leadership told dealers that the automaker would reimburse them up to $200 per vehicle if they picked up their own new vehicles from regional storage lots. As of last week, that money has yet to be paid.

And when the initial dispute finally ended in mid-May, the floodgates opened, resulting in the delivery of more than 200 new vehicles more than what he was expected to keep on the lot, ballooning his floorplan expenses.

"My accountant sat down and figured it all up, and all this has cost me almost $500,000," the exasperated dealer said.

"That's money that's never coming back."

The longtime dealer said he's at his wits' end. "You just can't be the bank for everybody. Eventually, we have to make a profit, too."