Is cutting car dealerships a wise move?

Jeep products are offered for sale at Napleton's Northwestern Chrysler dealership May 13, 2009 in Chicago, Ill.

TEXT OF STORY

STEVE CHIOTAKIS: Chrysler has an announcement of its own today. It's cutting loose around 800 of its dealerships. GM will likely do the same down the road -- except a lot more dealers. A wise move? Or yet another example of foot-shooting? Rico Gagliano reports.


RICO GAGLIANO: Chrysler has twice as many dealerships as Toyota. GM has four times as many. Car writer Lawrence Ulrich says that made sense when U.S. carmakers held 90 percent of the market. But these days, it's hurting their bottom line.

LAWRENCE ULRICH: For too many General Motors dealers, the biggest competitor isn't the Toyota store, it's the General Motors dealer down the street who gets in a price battle with you over a shrinking group of customers.

But GM and Chrysler have signed franchise agreements which make it hard to cut ties with dealers. Now, with bankruptcy looming, the companies have more leeway to break those agreements. Which could actually help, long term. But short term? Gary Dilts is with JD Power and Associates

GARY DILTS: Well, if you terminate a dealer, you are obligated to buy back the current model-year vehicles and parts. So that's literally hundreds of thousands of vehicles across the industry that are gonna have to be repurchased.

And in this economy, it's unclear when -- or if -- GM and Chrysler will be able to sell those cars from the dealerships which remain.

In Los Angeles, I'm Rico Gagliano for Marketplace.

About the author

Rico Gagliano is the host of Dinner Party Download.

Comments

I agree to American Public Media's Terms and Conditions.
With Generous Support From...