Many GM and Chrysler dealers are protecting themselves by cutting inventory and factory orders. GM and Chrysler desperately need orders, but dealers are holding back because the automakers are in such bad shape.
Dealers also are speeding up reimbursement requests to the automakers on warranty work and cash rebates for fear that the money could be tied up in court. And some are spending advertising money from the factories for the same reason.
"We're SOL if GM goes BK," said Chevrolet dealer Larry Dimmitt.
Dimmitt, who owns Dimmitt Chevrolet in Clearwater, Fla., ordered some GM vehicles in February because he wanted the cash incentives of up to $1,250 per vehicle. Now he regrets it.
Dimmitt said he thought the market would open up but "it hasn't -- it's gotten worse."
He estimates his days' supply is five to six months at his current sales rate of about 15 a month. He has stopped ordering new vehicles from GM.
As of April 13, Dimmitt had sold only seven new vehicles this month. He was hoping for 20 sales by midmonth. Early in this decade, he said, he would sell about 65 new vehicles by midmonth.
If a manufacturer files for Chapter 11 protection from creditors, the value of inventory will plummet. With an automaker in Bankruptcy Court, floorplan lenders want their dealer customers to have minimal inventory to reduce their risk.
Relying on service revenue
In an interview, Mark LaNeve, GM North America vice president of vehicle sales, service and marketing, said dealer orders are down substantially. He did not give a specific figure but said they roughly matched GM's decline in production. GM's first-quarter production plummeted 58.0 percent compared with the first quarter of 2008.
"A lot of dealers are attempting to reduce inventory," LaNeve said. "I don't believe that's really unique to GM."
GM's days supply remains too high, he said. On April 1, GM had a 122-day supply. Sixty days is considered the industry target.
"Dealers wanting to manage their inventory tighter is consistent with us," LaNeve said, "but those same dealers want the new Chevrolet Camaro and the new Buick LaCrosse, so we have to keep our plants running to some level."
Falling orders from dealers prompted GM and Chrysler to slash vehicle production and inventory.
Richard Carpenter, general manager of Oroville Motors, a rural Chrysler-Dodge-Jeep dealership near Sacramento, Calif., is reducing his inventory. Carpenter, who is himself a mechanic, said his service business has always been a strong part of his revenues so he will capitalize on that.
"I've been advertising that we will service any make and model of vehicle, seven days a week," he said.
Self-preservation is the mantra for Chris Haydocy, a GM dealer in central Ohio. He resists programs that offer incentives to take inventory.
"We're working diligently to reduce inventory, new and used," he said. Haydocy owns a Buick-Pontiac-GMC store in Columbus and Chevrolet and Cadillac outlets in Bucyrus. "We're doing what's in the best interest for the dealership now and not necessarily for the manufacturer," he said.
Chrysler dealer Troy Allen, said, "I didn't order one vehicle for most of October, November, December, January." Then he participated in Chrysler's wholesale allocation program in March and April, meaning he got up to $1,000 a vehicle on most vehicles.
He owns Allen Motors, a Chrysler-Dodge-Jeep dealership in Derry, N.H. In December, he hired a bankruptcy lawyer to prepare his dealership for a possible Chrysler bankruptcy.
Report it fast
Dealers also fear losing some or all of the money owed to them by the factories for sales incentives, warranty work and other items.
Many dealers in medium or large markets say GM typically owes them up to $500,000 each month in incentive reimbursements. Warranty reimbursements could total $100,000 at any given time. And the holdback, which GM pays quarterly, could amount to $250,000. The GM holdback is 3 percent of the manufacturer's suggested retail price, which is paid to a dealer after a vehicle is sold.
Dealers are trying to speed up reimbursements.
Dealer Bill Delord, owner of Bill Delord Auto Center in Lebanon, Ohio, said: "We get the delivery on the road and report it as soon as possible so that it gets in the incentive payment queue quickly." Delord sells Buicks, Pontiacs, GMCs and Cadillacs.
To reduce exposure to uncertain rebate reimbursements, Chevrolet dealer Ken Fichtner is steering customers instead to 0 percent loans. He owns Fichtner Chevrolet in Laurel, Mont.
Another small GM dealer, who asked not to be named, said he has been able to get some loyal customers to "hold the rebate." When he gets refunded by GM, he sends his customers a check for the rebate amount.
"That's the only way I can do it," the dealer said. "Two cars are $11,000 worth of rebates, and I won't get it for a month, and I can't stay in business that long without that kind of money."
Use it or lose it
While they cut inventory, some dealers are freely spending advertising money from local marketing associations. They fear the money, doled out by manufacturers, might not be available after a bankruptcy filing.
Dealers also fear for money in a co-op fund, called the In Market Retail fund. Dealers and GM contribute to the fund, and a dealer uses it for individual store advertising.
For April, the Cincinnati local marketing association for Buick, Pontiac and GMC spent about $100,000 on advertising. That leaves $250,000 in the account, and dealer Delord, who is head of the fund, plans to be aggressive in May, too. He said it's now up to the local associations to lure customers into showrooms.
Delord said it's a balancing act. If they spend too much of the money now and GM doesn't file Chapter 11, the association could run short of advertising money later in the year.
As bankruptcy fears grow, he said, many decisions are aimed at reducing risk.
"We've got to do business, but at some point it becomes a law of diminishing returns," Delord said. "So you take it day by day, and that's what every dealer is doing now."
(Source: Automotive News, 04/20/09)
