Chrysler will cut urban dealerships

It wants to modernize, consolidate facilities and grow in rural areas in an effort to streamline.

By Brett Clanton / The Detroit News

LEESBURG, Va. — DaimlerChrysler AG’s Chrysler Group plans to reduce by 20 percent the number of dealerships it has in big-city markets over the next five to seven years in a push for more modern and profitable urban stores.

The plan is an outgrowth of a recently completed internal review of Chrysler’s 4,000 U.S dealerships, and it means that roughly 240 of the automaker’s 1,200 metropolitan dealerships could be closed or consolidated in coming years, said Joe Eberhardt, Chrysler’s executive vice president of marketing and sales.

Chrysler said it is well-positioned to grow in rural areas and might even have a competitive advantage in small markets over foreign automakers, which tend to focus more on metro areas.

But Chrysler says it has too many urban dealerships that are undersized, outdated or too close to other Chrysler stores.

“The challenge is to take your existing dealer network and to get as close as you can to that optimal level,” Eberhardt said.

Chrysler’s move to reduce the size of its urban dealer network is the latest attempt by a Detroit automaker to streamline a vast and far-flung collection of stores that have popped up over many decades.

Chrysler, along with crosstown rivals Ford Motor Co. and General Motors Corp., have said it is vital to have strong, profitable dealerships willing to spend money to update showrooms and advertise.

Foreign automakers, because they entered the U.S. market later and had a more focused approach, generally have more modern and profitable dealerships.

Chrysler will downsize its urban dealer base by consolidating locations, with the goal of boosting profitability in individual stores, Eberhardt said. In some cases, Chrysler could help facilitate the sale, closure of relocation of certain dealerships.

Today, Chrysler dealerships have an average profit margin of 1.24 percent – roughly in line with the industry average for a mass-market automaker. But the company wants to “significantly improve” margins as part of an effort to match Japanese automakers in dealer performance and factory productivity in coming years, Eberhardt said.

Chrysler CEO Dieter Zetsche riled some dealers last year when he told a group of financial analysts that the automaker’s dealer base was not world class and needed to improve if the company was going to fend off foreign competition.

But Chrysler dealers like Dan Frost now see the wisdom of the automaker’s move to tighten up.

“It would be a good move (to reduce the number of urban dealerships),” said Frost, president of Southfield Chrysler Jeep. “It’s going to be a stronger network as time goes by.”

Frost was one of 150 high-performing dealers that Chrysler called to its Auburn Hills headquarters last fall to pitch on buying more franchises in urban markets. The automaker called on Chrysler dealers and dealers that sold foreign brands. It showed them upcoming vehicles to gain their confidence that the automaker had a solid future.

Eberhardt said the presentation resulted in about 10 deals and that Chrysler will hold another meeting with prospective dealers this fall.

New urban stores are likely to combine all three Chrysler brands — Chrysler, Dodge and Jeep — under one roof as part of the move to increase sales and profits at each location. As it stands now, about 50 percent of the automaker’s dealer body sells all three brands, while 30 percent sell only Chrysler and Jeep and 20 percent sell just Dodge.

Last year, Chrysler was the only U.S. automaker to gain market share and increase sales. The strong performance came as the automaker was emerging from a three-year turnaround effort during which profits were drained by restructuring expenses, and about 40,000 employees were laid off.

Chrysler posted a $1.9 billion operating profit in 2004.

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