Disenfranchised Chrysler Dealers Forced into Fire Sales

Peter J. Walsh, the owner of Walsh Dodge in Jersey City, N.J., started out selling used cars in his hometown 28 years ago after the birth of his daughter. He slowly built his business, and felt as if he’d finally made it when he earned his Chrysler shingle in 2000.

But on Tuesday, Walsh Dodge will lose that shingle — as will 788 other dealers across the country. Auburn Hills, Mich.-based Chrysler has asked a bankruptcy court for permission to terminate the franchise agreements of about 25 percent of its dealers. Chrysler needs to cut costs, and claims current sales levels don’t justify a network of 3,189 dealers.

For Walsh and the others on the “hit list,” the last days of selling Dodge, Jeep and Chrysler vehicles have been filled with quick sales at deep discounts, along with sad goodbyes from longtime customers and feelings of dismay and anger toward the automaker they worked with for years.

“It is what it is. It’s just a tough situation,” Walsh said, speaking inside his dealership Saturday morning. “It’s been difficult mentally the past couple of months, but we’ll be OK. I don’t feel as bad for myself as I do for the young guys with families that work for me.”

Chrysler maintains that the franchises singled out for termination were chosen because they weren’t profitable, didn’t have all of the automaker’s three brands under one roof, or were located too close to another Chrysler dealer.

But the dealers argued in court that a smaller dealer base won’t save the company any substantial money. They say the dealers cover their own costs, paying for everything from the vehicles on their lots to employees, advertising and tools.

Walsh said that while Chrysler’s products were good, its dealer support was always poor — too focused on the automaker’s own short-term needs.

And while he might have been underperforming some of Chrysler’s sales criteria, Walsh claims some of that was the automaker’s fault, pointing to its insistence that he sell more pickup trucks — a vehicle unsuited to the densely populated urban strip he serves across the Hudson River from New York City.

“How many Dodge pickups can I sell in Jersey City? It’s not Waco, Texas,” Walsh said.

A court hearing that began Thursday in New York with testimony from over a dozen dealers is scheduled to continue with legal arguments on Tuesday. U.S. Judge Arthur Gonzalez is expected to rule after the arguments conclude.

Steven Landry, Chrysler’s executive vice president of North American sales, said Tuesday’s deadline remains fixed. Dealers can sell the vehicles after that date, but they won’t be able to offer Chrysler sales incentives, making it tough for them to compete.

“We won’t be changing any dealers on the list. We won’t be changing the date,” he said.

Landry said Chrysler had commitments for the inventory of 42,000 vehicles on the lots of the affected dealers. Dealers have sold 16,000 vehicles to customers since the May 14 announcement and Landry said the remaining 26,000 cars and trucks would be purchased by remaining dealers.

Chuck Eddy, a Youngstown, Ohio, dealer who was among those chosen to remain with Chrysler, said dealers have quickly bought up the inventory of those going out of business and are preparing for the transition.

“I have no fire sale going on. There’s no dealer in my town who was terminated having a fire sale,” Eddy said. “People are buying the car for the true value.”

At the Viva Chrysler, Jeep, Dodge in El Paso, Texas, finance manager Jay Welsh said news of financial trouble with Chrysler and the upcoming terminations of other dealerships has done little to deter new car buyers.

The dealership, which sells all three of Chrysler’s brands and escaped termination, sold between 55 and 65 cars a month in April and May, compared with an average of about 25 cars a month in January, February and March, he said.

A few buyers have questioned the viability of warranties, while others have been looking for “fire sale” prices that the dealership has yet to offer, he said.

But other dealers said they moved quickly after finding out they were losing their franchise agreements, hoping to keep their losses to a minimum.

By late last week, Dale Horn, owner of a Chrysler-Dodge-Jeep dealership in Malvern, Ark., had sold 30 of the 35 cars and trucks he had when the company told him that his franchise would be yanked.

Horn said that in exchange for its help unloading the vehicles, Chrysler wanted him to sign papers allowing it to shop the inventory “at a figure less than it cost me.” Instead, he decided to try to sell it all himself, taking losses on all but a few, while making tiny profits on the others.

“In essence, I paid people to take some of my cars,” he said. “It’s just not a pleasant deal. If I’m as small as I am, having the problems that I’m having, I feel so bad for the guys that have got 200 in inventory, or 300,” he said.

At other dealers, longtime customers have showed up to both buy a car and say goodbye.

Janet Reuther Schopp, dealer and general manager at Reuther Chrysler Jeep in suburban St. Louis, said former customers and people she’d never seen before came in to help whittle down her already scaled-back inventory of 125 vehicles.

“It was a huge show of respect for us,” said Schopp, who continues a family business her father started 50 years ago. “They thought it was the right thing to do.”

A neighbor sent her niece in to buy. Her attorney bought two cars for himself and his wife. A stranger who lost his job made a point of driving out of his way to buy at Reuther and a Boeing employee in St. Louis bought a car from her on principle. Nearly all of them paid full price.

Mike Lobb, general manager of Dave Croft Motors, in Collinsville, Ill., outside St. Louis, will try to survive by selling used cars and running a service center, but still held out hope Saturday that a reprieve might come from Chrysler or the bankruptcy court.

Croft, which normally has 350 new cars on the lot, is down to 100 vehicles. Eighty of his sales in the last three weeks have been to longtime customers.

Walsh, the Jersey City dealer, said he has about 14 vehicles left, which he expects to be redistributed to other Chrysler dealers. He said he’s glad he didn’t take more vehicles when Chrysler officials were pushing dealers to help save the company by boosting their inventories this year.

For Walsh, who plans to keep selling used cars, the move marks the end of Chrysler’s slow painful demise for him. He had to reduce his work force from 30 people to 14 during the past year. And his sales of new and used vehicles have declined a third from their peak of 1,500 units a year in 2000, he said.

“My employees have been with me an average of seven years — they’re all local people — and it puts a hole in my heart when they come in here and I have to tell them I’m letting them go,” Walsh said.

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Associated Press Writers Victor Epstein in Jersey City, N.J; Ken Thomas in Washington; Tom Krisher in Detroit; Alicia A. Caldwell in El Paso, Texas; and Cheryl Wittenauer in St. Louis contributed to this report.

6/7/2009 9:01 PM BREE FOWLER AP Auto Writer