Today is Thursday, the 14th of May, and I was just finishing up my commentary for the week when the do-do hit the fan. Time to change direction. The rumors were out there that Chrysler and General Motors planned to close a good portion of their dealer network, but it still came as a shock when Chrysler notified 789 of their 3200 dealers that their franchise agreements would be terminated on June 9th.

General Motors is supposed to do the same thing tomorrow to 1000 of their dealers. From what I read, but have been unable to confirm, Chrysler will NOT buy back any inventory from it's dealers meaning cars or parts. While on the other hand GM said they would buy back both.

In the Detroit area fifteen dealers were terminated including Birmingham Chrysler Plymouth, one of the bigger operators in the area with a huge wholesale parts department. There were also some dealers, without naming names, that somehow survived and nobody I talked to can figure out why.

There were quite a few large multi-dealer operations that lost their franchise. Allan Samuels in Waco, Texas; Auto Nation lost seven stores in Fort Lauderdale, Florida; Bob Dance who owns several dealers in the Sanford/Orlando area lost his Dodge store; Elhart lost a couple of dealerships in Holland, Michigan; Spitzer had six stores dumped in Elyria, Ohio and the list goes on and on. Some of the dealers have been in business for over half a century, some are small, and some are big. Land knows what the criteria was used to determine if a store stayed in business or hit the chopping block.  

Many of these stores face bankruptcy since in today's economy it will be almost impossible to pick up another car line. On the employee side the best of their technicians should not have trouble finding a job at other dealers or independents. However, again the way the economy is, these techs might be replacing less skilled people, which still end up with more people in the unemployment lines. Does this hurt your business? You bet! Because as we all know a body man is never out of a job. When they are laid off they open a tax-free business in their backyard.

The sales and support staff at the dealers are the ones that will have a tough time since other dealers are laying off, not hiring. A star sales person will have no problem, but others might have to start selling mattresses or appliances.

If you are buying parts from one of the dealers that has been dumped by Chrysler and you have been carrying a balance on your account things will change. When the dealer let you fall thirty, sixty or ninety days in arrears because he didn't want to lose your business when you owed him money you are probably going to feel a lot of pressure to pay up. Now you will have to pay for parts from your new parts supplier while trying to whittle down the balance at your old supplier.

There is some good in all of this for the independent since the strong dealers will become stronger. Those that are committed to wholesale parts will be able to build inventory (probably on the cheap) and offer better service because they will have more accounts.

General Motors is going is cut about 40% of it's dealer network with about 1000 dealers receiving warning letters yesterday that their franchise agreements will not be renewed in October of 2010. This gives these dealers at least a little time to prepare although how many people are going to buy or have cars serviced at dealers that will not be in business in sixteen months. Perhaps GM will keep the list secret, but you know how long secrets last in the car business --- maybe until Monday morning!

Obviously if you are pro-DRP the opportunity exists to pick up new insurers who had contracts with the terminated dealers, although many insurers are trying to reduce their networks not increase them. Never the less there will be some networks open for new shops plus the additional collision business that would have gone to the Chrysler dealers that were terminated.

It is a sad thing to see what is happening to the automotive business in our country. I guess we are all to blame. The manufacturers started outsourcing cars and parts to other countries for cheaper labor, while the consumer bought foreign cars. Now our manufacturing jobs are gone and our once strong car manufacturing is floundering. I for one am more than a little troubled about where the automotive industry is heading especially if the government starts designing cars now that they own so much of General Motors.