Car Dealerships Feebly Fight Back Against Bankrupt Automakers

As GM’s bankruptcy looms, let’s take a look at what might be in store for its network of dealerships. Chrysler dealers are understandably angry at the company’s shutting down of dealerships, refusal to take back unsold inventory, and general inability to, in the words of Jon Stewart, “be a f@#king person.” Or ethically behaving corporate entity, whatevs.

Those dealers, though? They’re fighting back. With lawyers.

They’re not likely to win, but they’re going to try. Last Friday, BusinessWeek covered their fight:

“Last year, we bought far more vehicles from Chrysler than we needed to help them out-and because they asked us to-and now we have to sell them for whatever we can get, at a loss,” says [Texas Dodge dealership owner Nicholas] Parks. The interest costs on carrying the excess Chrysler vehicles last year swelled from $15,000 per month to $50,000. Parks has joined with other dealers in hiring lawyers to represent them in the bankruptcy case, although most experts say that the dealers have scant legal hope of gaining much in such a forum.

In an automaker bankruptcy filing, dealerships with excess inventory that they can’t sell become unsecured creditors—after all, the automaker owes them money. They can sell the vehicles, at a significant loss, to anyone out there who’s able to buy a new car right now. Or they can wait for whatever tiny amount of money they stand to collect in the bankruptcy proceedings. The former is the best option, but it’s a very unappealing one.

A Saturn dealership in Olympia, Wash. saw this coming, and decided to terminate its GM franchise agreement before the company could declare bankruptcy. Worried that they might be treated as an unsecured creditor as a Saturn franchise, the owners have rebranded Saturn of Olympia as a general used car dealership. This may turn out to be a wise business decision for other reasons, too:

Service manager Don Fritz, a Saturn of Olympia employee for the past three years, said Thursday that he welcomes the change to Olympic Auto because too much speculation about the Saturn and GM brands had slowed business.

Angry Car Dealers Try to Fight Closings [BusinessWeek]
Saturn dealer switches to used [The Olympian] (Thanks, Ben!)

(Photo: Karim-m)

Comments

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  1. MercerCh00x says:

    A giant eating will leave crumbs for the smaller people. When it dies there will be no more crumbs.

  2. doctor_cos wants you to remain calm says:

    I still fail to see how anyone in their right minds could be motivated to buy a new GM or Chrysler car from any dealer, closing or not.
    Seriously, warranty issues will be handled how? Now you’re on the list below the ex-dealers!

    Especially here in SWFL, most of my ‘local’ Chrysler dealers are on the death list. So even if I was to buy a Chrysler, I would have to drive to another county for warranty service. What a great idea!!!

    And a side note to you folks with the ‘Buy American’ stickers, what are you shopping at wally world for?

    • RobertW.TX says:

      @doctor_cos: If you can get a good enough deal to ignore the factory warranty. Take your car to an independent mechanic you trust for all your maintenance and service needs. You will probably be happier with an independent anyway. I rarely take my 2002 Dodge Dakota to the Dodge dealer and it is purring like a kitten after 98,000 miles.

    • HiPwr says:

      @doctor_cos: The Federal Government has promised to back warranties. I’m sure it will work at least as well as Amtrak and the USPS.

    • balthisar says:

      @doctor_cos: I have an American car that’s the best car I’ve ever owned (and I’ve owned two Hondas in the past. Not bad cars, either). But, I don’t have a “Buy American” sticker (my Apple sticker probably came from China, and all of the Apple electronics certainly did). Given that, I don’t shop at Wal-Mart. That doesn’t mean good stores don’t have Chinese stuff, too, but I do try to avoid it (not always possible these days).

      The “Buy American” stickers are working, though. Last Friday, I saw a Mercedes with a sticker indicating “60% American” on it, although if I were to buy a Mercedes, I’d want a “100% German” one m’self.

      • s73v3r says:

        @balthisar: While your Apple (same goes for Dell, HP, etc) was probably built in China, it was definitely designed in America. Most computer brands design the laptop, and then contract out the actual manufacture. It would be possible, however unlikely, that a company could set up a factory in the US and receive a contract to build them.

    • Shane Elliott says:

      @doctor_cos: I doubt anyone would want to buy a GM or Chrysler. I certainly don’t and will never buy from them again. Ford from here on out (at least, until I have enough cash to buy a Mercedes or Bimmer)

    • deadandy says:

      @doctor_cos: It’s a myth that you have to obtain warranty service from a dealership.

      • doctor_cos wants you to remain calm says:

        @deadandy: So I could take a Chrysler to a Ford dealer?
        How about a Toyota dealer? They just bought the Honda dealership across the street from the Toyota dealer.

        Does this tell us anything about ‘merican’ cars?

        • madog says:

          @doctor_cos: You’re just naming other dealerships, in which case the comment you are replying to says, “from a dealership”, which wouldn’t just switch it from GM to Toyota, but rather obtaining a warranty from a third party (however good or bad that may be) as there are always independent mechanics to take vehicles to.

  3. th1nwhiteduke says:

    Regarding Chrysler:

    “the company contends that the affected dealers were contributing little in terms of sales-one half sold fewer than 100 cars in 2008. Chrysler says that most of closings are only happening to dealers that do more sales volume with used than new cars, and indeed some of the affected dealers have vowed to stay in business selling used cars. Likewise, 44% of the closed dealers also sell other brands as well and may remain in business.”

    Facts are cool.

    • madanthony says:

      @th1nwhiteduke:

      Those facts may be true, but dealers are still taking a big loss on unsold cars, and are getting a raw deal from Chrysler. It’s not like they wanted to become used car dealers, and who knows how long they will survive as used car dealers.

      One of the closing dealers is one my parents have been buying cars at for years – Belle Mead Garage in NJ. They were a rarity – an honest car dealership – and once loaned my parents a van for free for two months while they waited for the one they ordered to come in. I doubt Joe’s Highway Auto Mall will do that.

      Excuse me for thinking that dumping a dealer that’s been selling your product since 1927 is kind of a dick move.

    • Skaperen says:

      @th1nwhiteduke: As the public was refusing to buy new cars for two big reasons (1: the risk of losing warranty on a new car, 2: their own economic situation), SOME dealers were still doing their job of selling. Rather than let these customers walk, they sold them a used car instead. And these are customers that will more likely come back to the dealer in the future. The trouble is, this distorted the figures for these dealers. In other words, the manufacturers cut dealers that would be good for them in the future just because these were dealers that were playing fair with the customers. It’s going to be very hard for these brands to restore the customer based after emerging from bankruptcy.

    • subtlefrog says:

      @th1nwhiteduke:
      Facts are cool, but in this case I think somewhat irrelevant. We also don’t know how many cars each dealer is getting stuck with, and frankly, the sales may be less about the dealership and more about the demographics of the area. E.g., lots of comments on here have mentioned how all the area dealers of Chrysler are being shut down and they’ll now have to drive pretty far to get to a dealer if they are interested – so perhaps people in that area by and large don’t want Chyslers (that area apparently being the USA…ahem…).

      Another thing to consider about the initial allocation of cars is that when the new line comes out, they send a weighted number of cars to each dealer. Then, as dealer a sells more blue Saturn whatevers than they have, they start calling around and getting them sent over from the neighboring dealers. So in a sense, the dealers are banks for each other. So even if the guy over here is selling few cars, in a banner year, he’s still a resource for the guy selling a lot of cars (or for the guy who wants to return his leased car early…).

      • subtlefrog says:

        @subtlefrog:
        Not that I have any particular love for car dealerships or salesmen.

        I do not.

        Many of them I consider only slightly better than puppy kickers. Some of them probably do kick puppies.

  4. WiglyWorm must cease and decist says:

    Great photo, Karim-m.

  5. FooSchnickens - Full of SCAR says:

    I still think Fiat goofed big time by buying out Chrysler and not saving Saturn/Opel.

  6. Possinator says:

    Didn’t the government say they would honor the warranty’s?

    • Canino says:

      @Possinator:
      “the government” = taxpayers

      Hurray! Now on top of everything else, I get to pay for other peoples’ car warranties!

    • Skaperen says:

      @Possinator: So. The manufacturers have not canceled their warranty obligations, yet. Only if they were canceled in bankruptcy would the government promise kick in. And that’s not even likely to happen.

      The problem is, to get that warranty service, many people now have to travel 20 to 50 miles further away to another dealership (this is the case in some less densely populated areas … not in big cities). The government did NOT promise that it would be easy to get that warranty service.

      My closest Chrysler and GM dealers did NOT get cut. So it would not affect me. But I won’t be buying those brands any time soon, if ever, as a result of this stupidity.

  7. MisterE says:

    I’m glad these shitbag dealerships are closing. After screwing customers for years, they getting what they deserve. Selling poorly made cars at high prices could not last forever.

    • Skaperen says:

      @MisterE: Now we just need to close the rest of them.

    • Trai_Dep says:

      @MisterE: Yeah, I almost feel for the dealers, who are sure getting dumped into a ditch by corporate.
      Then I recall who they are, and how their business model runs, and the high-fiving they did each other after conning some 18-year-old kid to buy too much car at too high a rate for too little of a trade-in with a 15% savings off the $2,000 undercoat. Then my heart beats faster seeing that ultimately, the market does triumph.
      I mean, what kind of ethical business would develop the four-corner worksheet unless they were crooks, through and through?

  8. DjDynasty says:

    Yea, but at least buying crappy Chrysler and selling them, We’ll finally have an acronym for the quality. Fix it again tony. :-)

  9. TheObserver says:

    @doctor_cos: I agree with you, it’s a crapshoot. We all know about government “guarantees.” And ditto about the buy American stickers. All these hoo-has with their buy American stickers don’t seem to care about the other stuff they purchase like electronics, clothes, etc. etc.

  10. SgtBeavis says:

    If I were a Chrysler dealership that had just been abandoned, I would adopt a scorched Earth policy. Get the local news out there and start setting a few Chrysler cars on fire. Maybe put up a billboard telling everyone how Chrysler has abandoned them.

    Better yet, go get a Toyota or Nissan franchise. I bet Toyota would love to get higher market penetration in the mid-west.

    • ncpeters says:

      @SgtBeavis: Toyota and Nissan have been smart enough to not get into this situation by not oversaturating the market like GM and Chrysler. I can’t imagine there’s many areas that don’t have Toyota or Nissan dealerships and those companies aren’t going to upset their current dealers by giving out new franchises. I think we’re just going to end up with a lot fewer dealers. I know my local Chrysler/Jeep dealer will likely go under, since the only other new car they sell is Suzuki.

    • Saltillopunk says:

      @SgtBeavis: I was thinking along the same line. But the dealers should make it more symbolic by trucking all the leftover stock to the Chrysler HQ and setting them on fire there. Or in the very least, dumping the cars there for the company to deal with.

  11. zarex42 says:

    Now they just have to wait to be sued by the Olympic Committee for using “Olympic” in their name.

  12. Phexerian says:

    I don’t see how dealerships can bitch about being screwed over considering they have been screwing customers for years. Want your cake and eat it too? Screw you GM and Chrysler, and especially screw you car dealers.

  13. Urgleglurk says:

    RobertW.TX:
    Good idea, but where are you going to get parts?

    • SacraBos says:

      @Urgleglurk: For all the new parts they make, parts makers continue to make those parts of many years. So while the “new” parts business may be slipping, the “old” parts business will start increasing.

      Also, there’s always junk yards. I had an old Pontiac that I bought all kinds of parts for it from junk yards.

  14. H3ion says:

    I may have read this wrong but I thought that when the franchise plug was pulled, all of the vehicles, even if never driven, were considered “used” and would not qualify for the new car warranty nor be financed as a new car. The dealer in Washington may have converted all of his inventory to “used” as soon as he dropped the franchise.

    The government has stated that it will back warranties. I’m not sure how. Do I take my car to the White House for service?

    On parts, there are always aftermarket parts available from manufacturers other than the auto manufacturer. Western Auto, just as an example, doesn’t have a pipeline to the auto manufacturers but it seems to have almost anything one would need. Crash parts may be a different story.

    Last, I want to see a dealer call itself “Monster Auto” and see what happens.

    • Saltillopunk says:

      @H3ion: I think the plug is officially pulled on June 9. So they are still franchises until that day and as such, the vehicle is new. Also, I think that until a vehicle is officially tittled it can not be considered “used”. That is just a guess based on what I have heard n the past, and may not be correct.

      • econobiker says:

        @Saltillopunk: For a micro comparison look at the Daewoo fiasco after GM bought them and dumped the US dealer network. I read in a used car trade mag that one SC or FL used car dealer bought about 50 new Daewoos for $3500 each wholesale and turned them for $10k with a 4th wheel warranty probably… (A warranty that lasts until the 4th wheel of the car leaves the dealer’s lot.)

    • mzs says:

      @H3ion: No they just can never be titled to be considered new. I’ve seen cars go from one dealership to another and sold as new even when one was failed. Sometimes it makes more sense though to buy the new car at dealer auction and sell as low miles used particularly when the car is two model years old though.

  15. Erik Wiffin says:

    Would it be possible to get a list of dealerships being closed?
    I’m hoping there’s one near me. I need a new car and I’d be willing to buy a Chrysler if I could get it cheap enough.

    • ncpeters says:

      @Erik Wiffin: Here’s the link, [online.wsj.com] GM didn’t release a list of it’s dealers that will lose its franchises.

      • ncpeters says:

        @ncpeters: Edit: Apparently it won’t let me post the whole link here, but if you search the list is fairly easy to find.

        • Rectilinear Propagation says:

          @ncpeters: It’s the whole link, it just truncates it for the visual part. Also, it might have added a dot at the end. I had to delete it for the link to work.

          (Yeesh, are they getting rid of every dealer in GA?)

  16. deadandy says:

    Are we supposed to be feeling sympathy for the manufacturers or dealerships? Seriously? It’s akin to feeling sympathy that the guy who’s been forcefully sodomizing you for your whole life is about to get castrated.

    • Snarkysnake says:

      @deadandy:

      “It’s akin to feeling sympathy that the guy who’s been forcefully sodomizing you for your whole life is about to get castrated. “

      I like your analogy . It’s funny and to the point.

      But the truth that is hiding behind this big shakeout is that if ,(and it’s a huge IF) GM and ChryCo get their acts together,the screwing has only begun. When the dealer of say, Chevys or Buicks realizes that their competition is other companies cars and not the GM guy up the road , well , lets just say that they will deal differently than before. Toyota , Honda and Nissan dealers already have pretty airtight territories that are spaced in a way that keeps them pretty well set and unless the whole industry is collapsing (like last fall/winter) , they really don’t have to deal on price- and they don’t (again,when times are “normal”).

      If the bankrupt twins DON’T start building good cars and taking care of buyers a lot better all of this is just an academic discussion.In fact , I can’t really figure the long range gameplan for Chrysler anyway. They are getting hooked up with Fiat ,which got its ass kicked out of this market over a quarter century ago because they built shabby rustbuckets that would not start and run on any day ending in “Y”. Once the novelty value of the small Fiat Cinquocento wears off, what are these dumb bastards going to sell ?

  17. econobiker says:

    As I previously mentioned, some of the “deals” that will come out of the closing dealers will make the ethics of the now closed Bill Heard Chevy (may they rot in hell) group look like angels…

    The only upside is that the majority of stupid sub-prime folks are in over their heads in the housing market right now so they will not fall for the scam automotive deals as in the past…

  18. Haggie1 says:

    “Hmmm, let’s see. What type of business do I want to own? I’ve narrowed it down to a GM dealership, a buggy whip factory or I might invest in an online pet food company with a sock for a mascot…”

    GM dealers get no sympathy from me.

  19. layton59 says:

    I am reminded of that old saying/joke “What is 100 lawyers at the bottom of the sea? A good start.” Now apply that witticism to the new car dealers forced to close. My only fear is that with less competition created by fewer dealers, we car buyers will suffer the most. If you thought buying a new car was insufferable before, then just wait until this all comes to pass. Your fewer and far between dealers will have the upper hand, and the non-affected car-makers (Toyota, Honda, etc.) will greatly raise their prices, too. The Beat Goes On.

  20. hardcle says:

    All of the Saturn dealers here in Kansas City also recently switched to used cars. It really ticked me off because I’ve never had my car serviced anywhere else and I don’t know where to take it now.