Chrysler Dealer Network

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July 16, 2009.
Chrysler Group LLC has acquired a strong dealer network from Chrysler LLC, which remains in Chapter 11. The company’s new dealer network is comprised of 2,385 dealers open for business across the United States, and are selling new Chrysler, Jeep® and Dodge vehicles and servicing Chrysler products with genuine, authorized Mopar® parts
• 1,364 Chrysler, Jeep and Dodge dealers are located in rural communities
• 592 Chrysler, Jeep and Dodge dealers serving Metro areas
• 429 Chrysler, Jeep and Dodge dealers serve secondary markets

More than 50 percent of the 789 dealers whose contracts were rejected during Chrysler LLC’s bankruptcy reorganization remain in business – selling other manufacturer’s new vehicles, selling and servicing used vehicles, or operating groundbreaking new business ventures, such as acting as a buyer’s advocate for consumers purchasing a vehicle. In addition:
• Chrysler launched a job-posting function as part of its dealer computer system to match displaced dealership employees with remaining dealerships
• To date, 239 dealerships have hired 436 displaced employees and 202 open jobs are currently posted

Chrysler actively worked with dealers whose contracts were rejected to facilitate a soft landing within the constraints of bankruptcy reorganization
• Chrysler’s dealer reductions took place as part of bankruptcy reorganization, and as a result there was not funding to repurchase vehicle, parts or special tools inventory
• Chrysler, working with the major wholesale floorplan lenders, facilitated the redistribution of 100 percent of the remaining vehicle inventory
• Chrysler was not obligated to make arrangements for the left-over inventory, but felt it was the right thing to do
• Chrysler matched ‘rejected’ dealers who wanted to sell parts and special tools inventory with remaining dealers interested in purchasing parts and special tools inventory
- 590 of the 789 dealers requested assistance with parts redistribution
- Of the 590 dealers, 528 (almost 90 percent) have received commitments for redistribution

There is a substantial cost to Chrysler to support underperforming dealers:
• $33 million annually in administrative costs to maintain 789 discontinued dealers (personnel to support ordering, auditing, processing of payments and invoices, etc.)
• $150 million annually for Marketing and Advertising for the 789 dealers (corporate cost - above and beyond dealer contributions)
• $1.5 billion in lost revenue due to underperformance in 2008 CY (the 789 rejected dealers achieved only 73 percent of their minimum sales responsibility, resulting in 55,000 lost vehicle sales, which equates to $1.5 billion. This is revenue that is lost not only to Chrysler, but to the dealer, the community and the state, as well)
• $1.4 billion (over 4 years) for product engineering and development of "sister" vehicles (the company had to develop "sister" vehicles when the majority of the dealer network did not have all three brands under one roof)

In addition to the “hard” costs outlined above, there are soft costs that affect Chrysler Group LLC’s corporate and brand reputations
• When there are too many dealers in an area, the dealers are not as profitable as they could be, resulting in a reduced ability to invest back in the business, which ultimately affects a customer’s perception of the dealer and the brand. A first impression is lasting. Once a customer is lost over their first negative impression of a lackluster dealership, it’s very difficult to get them back
• Too many dealers in a market drive down the prices on vehicles because they compete against each other for the sale, which negatively impacts dealers and the company, as well as residual values, which can hurt the consumer
• Retaining the best salespeople is key to both selling vehicles and providing the customer with an exemplary experience. It is difficult to keep top talent if they have the potential to triple their income at other manufacturers’ dealerships. (Average throughput at Chrysler LLC dealerships prior to the rejection was 405 sales annually. The U.S. average is 525, Honda's average is 1,219, Toyota is 1,292 and Nissan is 693. Again this contributes to a negative perception by consumers and hurts the company’s, and dealer’s brand image)

Simple fact is new vehicle sales have declined 40 percent since 2007
• The U.S. dealer network was built to service a 16 million unit per year industry which no longer exists. There are too many dealers for the business
• From 1990 – 2007, annual new vehicle sales in the United States averaged 16 million units per year. In 2008, that figure dropped to 13.5 million units, and in 2009 it is forecasted to be approximately 10 million units
• Even the dealers whose contracts were rejected testified during the bankruptcy proceedings that Chrysler’s dealer network was too large and needed to be reduced

Chrysler has been reducing the size of its dealer network for more than 10 years. The bankruptcy reorganization necessitated speeding the process up and completing it during the court process. The U.S. Bankruptcy Court, Southern District of New York, approved Chrysler’s motion to reject the contracts of 789 dealers
• In the opinion approving the motion, Judge Gonzalez noted that the “court concluded that the procedures utilized by the Debtors to determine which contracts would be assumed and assigned to New Chrysler was a reasonable exercise of the Debtors’ business judgment. The decision-making process used by the debtors was rational and an exercise of sound business judgment.”
• He further noted “The Court also finds that no evidence has been presented to the Court showing that the Debtors made their individual rejection decisions irrationally, such that the rejections demonstrate bad faith or whim or caprice.” (Opinion regarding authorization of rejection of all executory contracts and unexpired leases with certain domestic dealers and granting certain related relief - Case No. 09-50002, Judge Arthur J. Gonzalez) Data cited is as of June 30,2009

(source: Chrysler)

chrysler new horz logo sm 07

2007 New (horizontal) Chrysler logo.

Chrysler   Official site.
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