Dumped GM, Chrysler dealers endure grieving process

DETROIT -- Nearly 2,000 car dealers spent the weekend asking themselves: What now?

General Motorsgm told 1,100 dealers Friday that they would lose their franchises by October 2010. Thursday, Chryslertold 789 dealers they would be shut by June 9.

Many dealers plan to fight by filing appeals with the manufacturers or mounting legal battles in court. Others say they'll switch to selling only used cars and continue doing repair work for their customers.

They could make more money selling and servicing used cars but would provide fewer jobs. And before dealers can do anything, they have to work through grief, anger and shock.

"It's sort of like finding out your girlfriend's been cheating on you; my heart is broken," said Chuck Clancy, a Chevrolet dealer in Cartersville, Ga., who got the bad news from GM on Friday. "I wasn't expecting this at all."

Allan Rose, who owns Rose PontiacBuick GMC in Gloversville, N.Y., said he didn't know how to feel after receiving GM's notice that his franchise won't be renewed.

"It's been extremely stressful," he said. "I'm an unflappable individual. I've been through a lot of very, very difficult times; through an oil crisis, a bank foreclosure, losing my building, been threatened to lose my franchise twice, and I'm still here.

"But this is the worst," he says. "By far, the worst." Rose says he'll file an appeal with GM.

GM has 5,969 stores now and says it will cut that to approximately 3,600 by the end of 2010.

Legally, it's hard for an automaker that's not in bankruptcy to break its franchise agreements with dealers.

The automaker says the 1,100 dealers closing are the company's worst performers. Mark LaNeve, vice president of sales, service and marketing for GM, says the group made up just 7% of GM's sales last year. The automaker scores dealerships not just on sales volume, but also according to customer service satisfaction rates and how much working capital they have available.

Some on the list sell just 35 vehicles a year, he said.

Before the recessionary collapse last year, dealerships were averaging more than 650 new-vehicle sales a year, according to the dealers' main trade group, the National Automobile Dealers Association.

NADA called the GM plan "drastic" and said it would destroy, "in many cases, family-run businesses that have been loyal partners with GM — through good times and bad — for multiple generations."

LaNeve agreed that dealers haven't caused the problems, but the market has fallen so fast, there aren't enough customers to support so many dealerships. Dealers compete with each other for sales, cutting into profits.

"If our dealers are in a position where they don't have a big enough market to serve, they can't afford to reinvest into their businesses," he said. "What is critical is that we have a healthy, viable dealer network."

LaNeve said GM is giving the dealers until October 2010 to wind down their businesses, which he hopes is enough time for them to find other options. Chrysler's dealers have just three weeks before they're closed.

"We think this is a much better situation for us in terms of inventory disposal, and it's better for the dealer, in that it gives them more time to transition the business," LaNeve said on a conference call to discuss the news.

If dealers are forced to close quickly — as is the case with Chrysler's June 9 deadline — it could result in a glut of new vehicles hitting the market and dragging down prices. While attractive to potential new-car buyers, it temporarily could hurt surviving dealers unable to sell their inventory at prices low enough to compete.

Used cars an option

Team Chevrolet of Smyrna, Tenn., got GM's notice and will switch to used-vehicle sales only. The closure letter was "kind of what we expected," general manager Chuck Hanes said. The company already was operating in its own bankruptcy reorganization, and was waiting for permission from GM to transfer its franchise to a new owner, Smyrna Mayor Bob Spivey.

"Our plans are to move forward with the pre-owned operation and keep as many of our 35 employees in place as we can," Hanes said.

Dealerships able to manage that transition might fare well, according to Sageworks, which collects and analyzes data from accounting firms. Sageworks data show that used-car dealerships have a much higher profit margin than new-car dealerships — 3.19% to 5.67% the past four years, vs. 0.41% to 0.66% for new-car dealerships in the same period.

The GM news was delivered in a stomach-churning way for many: Instead of notifying dealers first, as has been customary, the automaker issued a press release Friday morning announcing the cuts, then held a noon press conference. Many dealers were still waiting Friday afternoon for the FedEx package from GM sealing their fate.

Lynn Thompson said he had received three FedEx packages before noon Friday, but none contained the dreaded GM letter. "It's like a man in a black hat comes in and says he's going to fire one out of four people in your business," said Thompson, co-owner of Thompson Auto Sales in Springfield, Mo. "Maybe the first time, he brings you a pen. The next time, coffee. Then, he's just lingering by your desk."

By Sunday afternoon, he still had not heard, and took that as confirmation he'll stay open.

Contributing: G. Chambers Williams III from The (Nashville) Tennessean; Gregory Trotter from the Springfield (Missouri) News-Leader