Chrysler Dealer Franchise Agreement Terminations, 2009

Updated 6-4-09

Chrysler will terminate 789 dealerships by June 9. The affected dealers were notified by UPS letters. Due to its bankruptcy, Chrysler did not have to buy back vehicles, parts, or tools from the dealers losing their franchises. It did, however, try to find buyers for dealer assets among those who remain. At the time the letters were sent out, the 789 dealers collectively had 44,000 unsold cars and trucks. Customers have bought 15,000 units and dealers have committed to take a further 26,000 units. The rest of the vehicles will be reassigned soon.

According to Chrysler, 83% of the dealers losing their franchise sell more used cars than new cars. In addition, 44% hold other companies' franchises (e.g. Kia), so the dealerships may be converted to competing brands. 80% of the remaining dealerships will sell all three brands; and it may be easier for the remaining 20% to pick up the missing brands by purchasing the necessary inventory, signage, and (in some cases) tools, and by hiring expert mechanics, from dealerships losing their franchise. This will allow Chrysler to drop overlapping models (e.g. Jeep Compass vs Dodge Caliber).

There have been some interesting problems; Automotive News brought up the island of Maui, which is losing its only Chrysler dealer. An independent garage may be authorized to do warranty work. Similar but less extreme cases appear to be popping up across the country, with isolated areas losing their only dealers.

The political scandal

President Obama has been charged with forcing the closure of Chrysler dealers who contributed to the Republican Party; the source of this story, which has been featured on dozens of sites, is a Republican dealership-owning Congressman whose franchise is being pulled, whose evidence is a quote from a Republican lawyer for the dealers who are losing their franchises. While the story sounds convincing at first, especially with "Chicago politics" and other codewords thrown in enough times, Obama does not seem to be particularly vengeful. For example, the chairman of the new Chrysler Group was a member of G.W. Bush's election organization and has consistently contributed to Republicans running for Congress and the White House.

Two dealers that have been pointed out as being singled out for revenge are Florida representative Vern Buchanon (who appears to have instigated the story) and James Auffenberg. However, Buchanon has been linked to fraud, and Auffenberg was indicted for tax fraud, which indicates Chrysler may have had other things in mind when dropping their franchises; it also impacts their credibility.

Originally, the story claimed that all the 789 dealers losing their franchises were owned by Republican Party donors, the story quickly changed to all-but-one. Some research on a blog (which attempted to paint Obama as a ruthless communist, indicating that it was not particularly Obama-friendly) showed, however, that eight of 39 dealership owners who had made donations that appeared in public databases had donated to Democratic candidates. Thus, there appear to be more Democrats (as a percentage) in the closing dealerships than in the ones staying open.

Nate Silver studied the numbers and found that 92% of dealerships remaining open also contributed to the Republicans. PastAutomotive News polls have shown that an overwhelming majority of car dealer owners are Republican.

No analysis has examined the politics of the dealers who remain open vs those who are closing. Chrysler did post the rationale, along with supporting facts, such as the fact that the closed dealers, as a group, account for a very small proportion of the company's new car sales.

Decision factors used by Chrysler

Before the government got involved with Chrysler, the company had already discussed the need to reduce the number of dealers and was pressuring dealers to sell all three brands. This would have resulted in a high degree of overlap in some areas, particularly those where Chrysler, Dodge, and Jeep dealers with different owners were in close proximity.

Steve Landry of Chrysler stated that the dealers were evaluated using a "thorough, rigorous process that used a data-driven metric." Factors included new car sales (with a minimum that eliminated some dealers known for their good service ); local share; customer satisfaction with sales and service; the facility itself (capacity and meeting new standards); location; and being paired with a competitor.

It is possible that there was a political motivation behind the list, which was according to all accounts generated within Chrysler, but that has yet to be demonstrated. No reputable group, including NADA, has yet made that accusation.

Chrysler dealerships losing their franchise (PDF) • Chrysler dealerships keeping their franchise (PDF)

Opinion: the merit of dropping dealerships