For 46 years, Wade Walker sold Jeeps at his dealership in Montpelier, Vt. Now that dealership is going to have to reinvent itself.
In mid-May, Chrysler told Walker it would terminate his franchise agreement as part of the automaker’s plan to cut costs through bankruptcy proceedings by shedding about a quarter of its 3,189 U.S. dealerships. (General Motors, which like Chrysler has filed for Chapter 11 bankruptcy protection, has announced plans to cut about 40 percent of its 6,000-dealer network by the end of next year.)
Walker said his dealership sold about 100 Jeeps a year, making up about a quarter of his business. His Ford franchise made up the rest of his sales, and he’s hoping to survive on selling Ford cars and trucks from here on out.
“This impacts our business tremendously,” said Walker, who values his dealership at up to $4 million. “If you lose 25 percent of your business when car sales are already down about 40 percent, it’s really difficult.”
As a new Chrysler emerges from the wreckage of the automaker’s bankruptcy filing, Walker is among hundreds of dealers left in limbo.
Many are struggling to cope with their sudden ejection from the Chrysler family. Some are scrambling to sell their assets, or find new lines of business, while a few are contemplating the prospect of complete financial ruin.
“It’s unprecedented to wind down what are multimillion-dollar businesses in a matter of weeks,” said Paul Taylor, chief economist for the National Automobile Dealers Association.
“The extreme ‘hurry up’ process we’ve seen here has made financial planning very difficult for these dealers, and of course that’s compounded by the loss of their franchises” he added.
Walker is among the luckier dealers.
After hearing that his franchise agreement with Chrysler would be terminated, Walker sold his inventory to a local dealer who had escaped termination. But he wasn’t so fortunate with his parts business, which he is now unable to use for warranty work on Jeeps. So far, he’s only recouped about 40 percent of the value of that $50,000 business, he said.
Walker doesn’t think he will need to let any employees go to make ends meet in the difficult months ahead, but he isn’t ruling out a round of layoffs, including whittling down his team of eight technicians.
“We’re facing a problem when it comes to revenue,” he said. “How do I get revenue to satisfy my business needs? That’s what I need to replace, not just from vehicle sales but also from warranties and parts sales.”
Walker says he will have to replace the lost revenue by selling more Fords or otherwise downsize, and “obviously that will mean cutting employees and overhead.”
“Or if we decide our business isn’t viable any more, we’ll have to sell it,” Walker said.
Chrysler Deputy CEO Jim Press called the cuts are “the most difficult business action” of his career but they were necessary to help save the ailing automaker, which is now being run by Italian automaker Fiat.
Press said the poor performance of many of the dealers who were eliminated cost the company $1.5 billion in lost sales each year plus $150 million in advertising and marketing costs and another $33 million in administrative expenses.
James Anderer, who owns Island Jeep in Lindenhurst, N.Y., disagrees. He says dealers are independent businesses that pick up their own expenses and cost the automakers nothing.
Anderer, who also was cut loose by Chrysler, said his business is well-capitalized with sales 128 percent above the automaker’s minimal sales requirement for Chrysler dealerships. His dealership was also rated as a five-star facility by Chrysler, he notes, meaning it has met a certain level of customer satisfaction and sales volume.
“Why pick me? I am the crown jewel; I am ranked in the top 2 percent of dealers in the country,” Anderer said. “I am going to fight this; I am not giving up. If they want to cut 25 percent of their dealers they should cut the lower performing ones.”
For Anderer, the termination notice marks an inglorious end for his 22-year-old business on New York’s Long Island, launched in 1987, when he bought a local Renault dealership for $600,000. Renault dealerships were soon combined with Jeep, and then Jeep became part of Chrysler. That’s when his business took off, growing from selling six cars a month to more than 100 and from three technicians to 18 today.
Anderer expects to cut his work force from 48 employees to 15 “very soon.” He said the publicity he has received from appearing on numerous news outlets to argue his case against Chrysler has led to a groundswell of support.
“Because of my media attention I have sold every car I have, but I still have my parts division to sell and soon I’ll have to make a determination as to whether I can stay in business, or whether I can take on another brand. But my future is uncertain,” he said.
“Most of the good brands already have good dealers attached to them, so I would have to pay a premium,” Anderer added. “A Toyota store around here would go for between $12 million and $15 million, and a Honda dealership would go for around $20 million. Those are difficult options for us."
As for switching to Ford or its Lincoln-Mercury brand, Anderer demurred.
"I don’t know if I want to go through what I went through with Chrysler again," he said. "Ford may be well-capitalized now, but where will they be in a few years?”
For Wade Walker, Ford is the future for his business. So far the automaker, which is also shrinking its U.S. dealer network, although not as drastically as GM or Chrysler, has treated its franchisees well, said Walker.
“Hopefully that will continue, but we’ve already seen two domestic automakers force dealers to close, and I hope that Ford doesn’t fall into that trap,” he said. “For the future, we’re just going to look at everything — used cars, other manufacturers; we have to look everywhere to find revenue.”
Above all, Walker intends to remain upbeat about his situation. The auto sales market can’t stay depressed for long, and he expects to carry on selling cars in some capacity, he said.
“You get dealt cards in life and they don’t always make you happy, but you have to keep moving forward, otherwise you’re standing still,” he said.