GM, Chrysler dealers watch and wait

By Mike Boyer

The big unknown in the unprecedented decisions by General Motors Corp. and Chrysler LLC to shrink their national dealer networks by about a third is how consumers will respond.

The fear is that consumers already squeezed by the recession could be leery of stepping into any GM or Chrysler dealerships to buy a new car.

“It is likely that consumer perceptions toward the Chrysler and GM lines will decrease further and consumer confidence will dip lower,” said Rob Riggsbee, president of Inside Media Inc., a Anderson Township media buying and consulting firm.

Jack Nerad, executive editorial director for Kelley Blue Book, which tracks new and used car values, said Chrysler has already seen erosion in market share as bankruptcy talk heated up around the company. And he said the same is true for GM, which is facing a deadline at the end of the month to clear several hurdles in its restructuring or likely be forced to seek bankruptcy protection.

Chrysler, which entered Chapter 11 bankruptcy April 30 as part of a government backed plan to sell most of its assets to Italian car maker Fiat, has notified nearly 800 of its 3,200 dealers, including seven Greater Cincinnati and Northern Kentucky, that it plans to terminate their franchise agreements next month, if the bankruptcy court approves.

GM has put 1,100 of its 6,000 U.S. dealers on notice it plans to terminate their franchises by the end of 2010 as part of a broader plan to eliminate up to 2,600 dealers.

Nerad said fewer dealerships means less convenience for car buyers and customers seeking service, which could influence buying decisions even for loyal GM and Chrysler owners.

“Many long-standing relationships with dealerships will be disrupted,” he said.

What impact the dealer cuts will have on new vehicle prices also isn’t clear.

The seven area Chrysler dealerships to be terminated hold about a quarter of the new vehicles listed by 15 area Chrysler dealers.

Chrysler has shutdown production while it’s in bankruptcy to help reduce inventories. The said it hopes remaining dealers will buy inventory from those it is closing.

But Nerad said with most dealers already deeply discounting new car prices because of weak sales, it’s unlikely that further steep price cuts are on the horizon.

“We might get to fire-sale pricing, but we aren’t there now,” he said.

GM, like Chrysler said it needs fewer but stronger dealerships to remain competitive. Unlike Chrysler, it didn’t disclose which dealerships were put on notice. There are 43 GM dealers in the Greater Cincinnati and Norther Kentucky region, but it isn’t clear how many were notified. GM left it up to individual dealers to decide whether they want to make public that information. Most aren’t expected to disclose it, for fear it could hurt their business.

“These guys are competitors, but they’re also my friends. It’s a tragic situation,” said long-time GM dealer Bob Pulte in Lebanon, who said he wasn’t commenting further.

Mark LaNeve, GM’s vice president of sales service and marketing, said the dealers who got termination notices were poorer performers “who were in danger of going out of business anyway.”

He said the dealers put on notice represented only 7 percent of GM’s total sales last year.

Estimates are the Chrysler and GM dealer cuts could eliminate more than 140,000 jobs at dealerships nationally. The seven Chrysler dealerships in Greater Cincinnati employ more than 200.