Dealers Catch the Axe, Buyers Pick up Sweet Deals

This earlier Thursday, Chrysler asked a New York bankruptcy court to end 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 lots of going out of business sales, even though these dealerships are not actually calling them such.

The dealers have just a a small number of weeks to sell out their hoard of Chrysler, Dodge and Jeep or gamble losing thousands of dollars on them and their only option is to present current car buyers a serious deal. You have got some very worthy negotiating power, said Dave Champion, director of automobile testing for Consumer Reports magazine. [Dealers are] certainly looking to shift this inventory. It is just stacking up all on all sides of them.

Champion said that it is vital to find out about incentives and hold backs, which are payments the dealer gets when it sells a car. It is not a shocking idea to go in there with a low ball price. The longer you wait, the fewer options you will have.

Both General Motors and Chrysler say they have too many dealers for too few sales. They have wanted to get rid of less important showrooms so they would not exist at the detriment of more valuable dealers. The cuts would allow the stronger dealers elevated profits and additional money to spend on marketing, facilities and personnel, making them more competitive, also fitting in with the bankruptcy standards they must abide by in the way of valuable cost cutting measures.

Fright is affecting axed dealers as they try to figure out what to do with pricey inventories that were not selling well even before the bankruptcy move last month. They have 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 are having a fire auction.

Dealers normally borrow money to buy their inventories, then repay the loans and make a profit when the vehicles are sold. Sadly, Chrysler sales were down 46 percent the first quarter, so a lot of dealers have been paying simply interest for months. Even if the vehicles are sold at cost, dealers still lose thousands in interest payments.

Chrysler does not have the money to buy back the vehicles, said company spokeswoman Kathy Graham, but it also does not want to leave dealers in a tight situation 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, Chryslers fresh finance company, to give loans to remaining dealers that Chrysler plans to keep so they can pay money for the 789 dealers unsold inventory and sell it themselves. The deal, though, does not 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 will not have benefits on either. That means the dealers have a great motivation to sell off their inventory earlier than their franchise agreements end. Chrysler incentives on some vehicles can progress as high as $6,000 or more. Without them, dealers who have been cut will not be competitive with standing dealers who can comfortably offer discounts.

They are not giving us a lot of time, said Michael Wolf, a Plymouth, Wisconsin Chrysler dealer whose franchise was amid those that will not be renewed. They are neglecting their liability of taking fresh inventory. They are not taking anything back.

What will end up happening, if a dealer desires to stay in business, they will 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 will probably be able to find Chrysler vehicles perhaps at under the dealer cost.

Dale Horn, owner of a dealership in Malvern, Arkansas, who was one of the 789 that were cut, is not counting on any assistance from Chrysler to unload his inventory of 34 vehicles. Right now, I do not have much confidence that they will do what they say. Nobody has called me yet saying they are going to try to aid me, Horn said.

Waiting until the closure deadline might give buyers even greater buying power. Insiders say that inventory is beginning to dry up with word of the awaiting bargains. Waiting too long may be a detriment, stopping a buyer from getting their ideal car at their ideal bargain.