December 2009, Auto Dealer Today - WebXclusive
The New Operations of Former Chrysler Dealers
The year 2009 has certainly earned a place among the pages of history books for several reasons; one of the most startling was two domestic auto manufacturers filing bankruptcy back to back.
During the bankruptcy process, both automakers cut their dealer ranks significantly, a decision that upset many in the industry. On May 14, 2009, Chrysler left 789 dealerships, about a quarter of its dealer base, out in the cold by rejecting their franchise agreements and giving them about a month to sell all their remaining new cars, factory parts and service equipment.
Chrysler left a bad impression on many people inside and outside the dealer ranks when they terminated dealers’ agreements. Some rejected dealers were forced to close their doors altogether due to the financial burden of their franchise loss. However, auto dealers are a resilient group and many others sprung into action—applying for other vehicle franchises, setting up shop as independents, and refocusing their time and money on other business endeavors. Those who survived the initial storm are busy working towards a profitable future.
Decades of History
Running a dealership is often a family business, and whether a franchise was run by a second- or third-generation dealer didn’t seem to matter when Chrysler decided which dealers to cut. Monicatti Motors, formerly Monicatti Chrysler Jeep, opened over 60 years ago and is in its third generation of family ownership. The dealership, in Sterling Heights, Mich., is run by brothers Terry and Tim Monicatti.
About 1,000 miles away in Mena, Ark., Bob Carver’s Cars and Trucks stands on a lot that once housed seven franchises—Chrysler, Dodge, Jeep, Pontiac, Buick, GMC and Chevrolet. Dealer Bob Carver had been a new Chrysler and Jeep dealer for about 20 years and a GM dealer for twice as long. He phased out his Chrysler operation and is in the midst of winding down his GM operation—both casualties of the bankruptcies.
Two Pennsylvania dealers, Bo Corwin and Charles Pompey, share similar stories. Corwin’s dealership, a Chrysler and Jeep store in Hickory, Pa., was opened by his father in 1945—the first year the Jeep (initially a military vehicle) was sold to civilians. In Kingston, Pa., Pompey’s father opened a Dodge dealership in 1966, and Pompey bought his father out in 1986 to become a second-generation dealer like Corwin.
For over 50 years, Corwin’s store was a stand-alone Jeep store. He said, “I may not be a [new Jeep] dealer anymore, but I’m still the world’s oldest seller of Jeeps.” In the 1990s, the manufacturer, then DaimlerChrysler, wanted Corwin to incorporate a Chrysler franchise into his Jeep store as a part of Project 2000, a reorganization that included merging Chrysler-Plymouth dealerships with Jeep and eventually phasing out Plymouth. Corwin said, “We went out and paid a lot of money for a Chrysler franchise, so that the other dealers could have Jeep … Then they totally ignored that when they cancelled the dealers.”
To say that these dealers had so much to do in so little time would be an understatement. Phasing out a new car franchise is an involved process, and a month is hardly ample time. Building an independent operation is equally time-consuming. Corwin said, “I think the biggest problem in a transition is that you still have … all the bills from the other things you’ve got going on … and you’re trying to make money. It’s like a two-legged stool. You just can’t quite balance it out yet.”
An independent dealer’s options are quite limited in some areas, especially financing; franchise dealers have their captive finance companies to rely on. When Corwin learned his franchise was being taken away, he immediately started looking for a new floorplanner. He said it was an extremely tough aspect of the transition to independent, and it took him two-and-a-half months to obtain adequate inventory financing. He said, “We’ve got three separate floorplans we gathered that made up to a half-a-million dollars.”
Another issue independent dealers must face is finding indirect financing sources. Losing Chrysler Financial and other finance companies that only work with franchise dealers left a gaping hole in the F&I office. Corwin said, “Finance companies drop you like you have some disease. [It] does not make any sense. My customers are still the same.” To offset losing Chrysler Financial, which got 80 percent of his business as a franchise dealer, he said, “We have now signed up with a lot of credit unions, and the banks that kept us are getting a lot more deals.”
Monicatti Motors lost four finance sources, as well as Chrysler Financial. To help fill the gap, the dealership acquired two new finance sources. Currently, Monicatti Motors is not floorplanning used cars, so the dealership didn’t have to uncover a new floorplanner.
One very tough part of the transition is trimming staff levels, which seemed almost inevitable for the terminated dealers. Carver, however, hasn’t cut a single person as a result of being terminated by Chrysler. He transferred those employees to a new service center and quick-lube he opened on his lot about two months after closing his new Chrysler store. While his dealership can no longer perform Chrysler warranty work, he said, “The service center is doing well. We’re getting a lot of business … It’s staying busy, and I’ve kept all my people so far.”
Positioning Pre-Owned Sales
When building their independent operations, Monicatti, Pompey and Corwin all built off what they already had in place. Monicatti Motors has been relying on its PrimeCar program, which is the dealership’s certified pre-owned program. Monicatti said they started this program over 10 years ago when larger dealership groups like AutoNation and CarMax were implementing similar programs. He said, “[The PrimeCar program] was designed to separate used cars from the dealership, but still keep it associated with the good reputation [we have]. Basically, it’s a 90-day/3,000-mile warranty on a used car … And we have a 4-day/100-mile exchange program.”
When Chrysler took Pompey’s Dodge franchise, he refocused his efforts on his buy here pay here operation. He has three BHPH lots under the moniker Car-Lotta Credit & Car Sales—the first opened in 1986, the second in 1999 and the third in 2008. When he closed the Dodge store, unfortunately having to layoff 28 employees in the process, he remodeled the building and moved one of his BHPH stores there. Pompey said, “I lost hundreds of thousands of dollars on this deal closing it down, but I’m still standing. My buy here pay here lots are very profitable … I’m a very lucky guy.”
Corwin, who’s always been known for selling jeeps, built his independent operation on that notion. The newly-independent dealership’s name is Jeeps by Corwin, Service and Sales. He credits his wife for coming up with the new name, and said it helps with his Web site’s search engine optimization. “The word ‘jeeps’ comes up quicker than the words ‘Corwin Sales and Service.’”
Although he still keeps a good stock of Jeeps, another change for Corwin was his inventory mix. He said, “Probably the biggest thing we’ve done is we’ve broadened our field of selling vehicles. We can sell you a $3,000 car that’s really good, or we can sell you a $30,000 car.” In August, the dealership sold 15 pre-owned vehicles, “which we didn’t think was bad considering Cash for Clunkers,” said Corwin.
Of inventory management, Monicatti said, “We’re trying to stock a multitude of vehicles. We’re still very dominant on the Chrysler cars because that’s what people know us for.” There are about 150 vehicles on the Monicatti lot, which he said is only slightly more than when the store had new cars on the lot too.
Monicatti Motors has been selling between 75 and 90 pre-owned vehicles per month, with the government’s CARS program disrupting sales during the summer. However, even at 75 per month, the dealership has improved used car sales as an independent. The dealership averaged 70 per month in ‘08. Monicatti said, “[The PrimeCar program is] one advantage we had going into this whole thing. We were already branded as a PrimeCar, so people already knew us … PrimeCar’s always been here, and it’s now just a heavier focus.”
Adjusting Fixed Ops
Fixed operations automatically took a big hit when warranty work stopped coming in. Although Corwin has kept his service department open, he estimated he’s missing out on $15,000 worth of warranty work each month. He also doesn’t like sending his loyal customers to another Chrysler dealer for warranty work, but as a service to his customers, he does. When his customers call, he tells them to bring their vehicles to him first to diagnose the problem and make sure the work is covered under warranty. If it’s not covered, he can still service the vehicle. He said, “Probably 40 percent of the stuff is not under warranty, so we’re able to keep the customer in our showroom.” When a repair is covered by the manufacturer’s warranty, he will suggest and sometimes even take a customer’s vehicle to a Chrysler dealership.
Soon, Corwin’s service department will have the brand name Meineke attached to it. About partnering with Meineke, he said, “We contacted each other – it was really funny – at the same time.” Corwin decided to inquire about a Meineke franchise after reading an article about dealers incorporating a Meineke franchise into their service departments. “We’re hoping that will replace the warranty work in the short-term, and in the long run we can grow that business,” he said.
Similarly, Monicatti Motors’ service department has become a NAPA Auto Care Center. The body shop is NAPA Auto Care Collision Center, and the dealership also has a NAPA Auto Parts center. Monicatti said, “When this all happened with Chrysler, that’s when NAPA actually sent out cards to a lot of dealers. They initiated the program to partner with [dealers] because [these dealers] needed a parts source.”
Partnering with franchises such as Meineke and NAPA is advantageous for these dealers because they were able to keep certified technicians on staff, have access to quality parts, and get the brand recognition that comes with these nationwide franchises.
While Pompey also opted to keep his service department open, it’s for internal work only. With three BHPH lots selling over 100 units combined per month, he has plenty of cars to recondition. He did, however, keep his collision center open.
Getting the Word Out
When Chrysler announced it was shedding 789 dealers, the “cut list” was made public, and in some cases, news outlets from across the country used incorrect terminology when explaining what Chrysler had done. Corwin said, “[The Media] said we’re closing these dealerships, so there’s people that think we’re out of business.” To counter the wrong idea his customers got from the news, he sent out a few direct mail campaigns to his customer base, updated his Web site, and is continuing to advertise in the newspaper.
Ironically, while some media outlets gave the wrong impression, the local media in both Corwin’s and Pompey’s communities ran stories on what was happening at their dealerships and even did updates. Pompey didn’t have to pay to advertise that he was staying open because “there was so much positive PR basically given to me free by the local media.” He added, “We had long relationships with all the media – the newspapers, the radio stations and the TV stations – and they came and I was interviewed at least twice by every single one of them.”
Both Monicatti and Carver ran advertisements in the newspaper and spots on the radio to let their customers know they were still open for business, and Monicatti is planning to do some television spots this fall. Monicatti added, “It’s still a little unclear with the public who’s open … because Chrysler’s been sending out some things too through the other dealers saying [his dealership is] not a franchise anymore, so that’s got some confusion out there.”
A Brighter Tomorrow
Hopefully, the future holds success for these four dealers. Monicatti, Corwin and Pompey have emerged from the whirlwind of closing their Chrysler operations and are looking towards a brighter future. Carver has emerged from closing down his Chrysler store with a successful service center and quick-lube, but he is still in the process of winding down his GM store before becoming an independent dealer.
Monicatti hopes to balance out his operation by adding a new car franchise in the future. He applied for a Kia franchise, but the dealership wasn’t awarded the franchise. Monicatti concluded, “From here, it’s kind of weather the economy and keep promoting, keep selling, try and rebuild our service and parts business, and build more used car sales.”
Pompey sees expanding his BHPH operation in the future, but not the immediate future. He said before he can think about that, he has “to recover financially,” adding that BHPH is a good business. “I just have to save up a little money after all Chrysler cost me. We’re going to be expanding in the next couple of years for sure. It’s just a question of time.”
Corwin’s goal is to incrementally increase his business—both in sales and service. He hopes to reach 30 sales per month by the end of the year. He is getting more comfortable with his business now that he’s completed the transition to an independent dealer. “It’s still a balancing act though, and let’s hope the economy gets better … I think the positive attitude that most of my people have will help with that.”
Vol. 6, Issue 11