This earlier Thursday, Chrysler asked a New York bankruptcy court to terminate its franchise agreements with 789 dealerships across the country and informed them that they would no longer be getting stock, basically closing them. These 789 dealerships will shortly be going out of business. Like any business that has just lost all life support, you will find numerous going out of business sales, even while these dealerships are not actually calling them such.
The dealers have just a a small number of weeks to sell out their stockpile of Chrysler, Dodge and Jeep or run the risk of losing thousands of dollars on them and their only option is to give current car buyers a significant deal. “You’ve got some very good negotiating power,” said Dave Champion, director of automobile testing for Consumer Reports magazine. “[Dealers are] actually looking to shift this inventory. It’s just stacking up all on all sides of them.”
Champion said that it’s vital to find out about incentives and hold backs, which are payments the dealer gets when it sells a car. “It’s not a appalling idea to go in there with a low ball price…. The longer you wait, the less options you’ll have.”
Both General Motors and Chrysler say they have too many dealers for too little sales. They have wanted to get rid of less precious showrooms so they would not exist at the detriment of more valuable dealers. The cuts would allow the stronger dealers elevated profits and more money to spend on marketing, facilities and personnel, making them more economical, also fitting in with the bankruptcy standards they must abide by in the way of effective cost cutting measures.
Fear is affecting axed dealers as they try to figure out what to do with pricey inventories that weren’t selling well even before the bankruptcy move last month. They’ve told us that the inventory is our problem,” said Keith Hollern, one of the owners of a Dodge dealer in Windber, Pa. “Want to buy one? We’re having a fire sale.”
Dealers in general borrow money to buy their inventories, then repay the loans and make a income when the vehicles are sold. Regrettably, Chrysler sales were depressed 46 percent the first quarter, so a lot of dealers have been paying only interest for months. Even if the vehicles are sold at cost, dealers still lose thousands in interest payments.
“Chrysler doesn’t have the money to buy back the vehicles,” said company spokeswoman Kathy Graham, “but it also doesn’t want to leave dealers in a predicament or see the inventory overflow the market at bargain prices.” This has caused most of the dealers to sign a deal with GMAC Financial Services, Chrysler’s innovative finance company, to give loans to remaining dealers that Chrysler plans to keep so they can purchase the 789 dealers’ unsold inventory and sell it themselves. The deal, though, doesn’t include about 4,000 2008 models still on the lots that after the summer will not sell.
Graham said those 789 dealers cut from the company will get Chrysler warranty repayment and sales incentives such as rebates and low-interest financing until June 9. Later than that, they won’t have benefits on either. That means the dealers have a high motivation to sell off their inventory earlier than their franchise agreements end. Chrysler incentives on some vehicles can run as high as $6,000 or more. Without them, dealers who have been cut won’t be competitive with standing dealers who can comfortably offer discounts.
“They’re not giving us a lot of time,” said Michael Wolf, a Plymouth, Wisconsin Chrysler dealer whose franchise was amongst those that won’t be renewed. “They’re neglecting their liability of taking new inventory. They’re not taking anything back.”
“What’ll end up happening, if a dealer desires to stay in business, they’ll probably end up just selling it below cost just to get rid of it,” said Erich Merkle, an automotive industry analyst from Grand Rapids, Michigan. “You’ll probably be able to find Chrysler vehicles perhaps at beneath the dealer cost.”
Dale Horn, owner of a dealership in Malvern, Arkansas, who was one of the 789 that were cut, isn’t counting on any assistance from Chrysler to unload his inventory of 34 vehicles. “Right now, I don’t have much faith that they will do what they say. Nobody’s called me yet saying they’re going to try to aid me,” Horn said.
Waiting until the closure deadline might give buyers even larger buying power. Insiders say that inventory is beginning to dry up with word of the pending bargains. Waiting too long may be a detriment, stopping a buyer from getting their ideal car at their ideal bargain.
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