Chrysler’s US dealership network is on the verge of collapse because hundreds of dealerships have closed their doors this year and uncertainty about the company’s future is driving consumers away, a bankruptcy court has heard.
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“A lot of these guys right now are just trying to survive,” James Arrigo, the co-chairman of Chrysler’s National Dealer Council said in the court in Manhattan overseeing Chrysler’s Chapter 11 filing, according to Reuters.
Arrigo, who is one of the company’s top-10 selling dealers, according to court papers, said that even he has seen a drop off of about 50% in car sales this year.
“People are walking in front of the door, saying ‘I would be interested, but I have no idea if you’re going to be here in two to three years,” Arrigo told the court.
Almost 3,200 Chrysler dealerships are nervously watching the outcome of Chrysler’s bankruptcy proceedings.
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By GlobalDataArrigo, who owns two Chrysler dealerships in Florida, said his dealership, which used to average 450 cars a month, sold just 130 cars in April – its worst tally for the month since 1993. Chrysler’s US sales were off 48.1% to just 76,391 units last month.
“Our dealership costs US$2m to run, we’ve cut costs to $1.4m, but with sales where they are we can’t sustain the store at those numbers,” he continued.
Dealers have seen not only a drop in sales, but also a drop in customer traffic over the last few months, Chrysler executive Peter Grady said in court.
“They’ve got some significant issues with capital and liquidity right now, many of them are on the razor’s edge,” Grady said, noting that Chrysler had shut down production and filed for bankruptcy protection just as the dealers were beginning their typically strongest summer selling season.
According to Reuters, Grady said about 400 dealerships have closed or filed for bankruptcy since January, and the figures have “accelerated on a monthly basis”. While the company used to see 15 or so dealerships close a month, it now sees about 35 to 40 shut their doors.
“More than anything the consumers are very hesitant to do business with a manufacturer in bankruptcy,” Grady told the court.
“The dealers are nearly the only source for revenue that Chrysler has,” Michael Bernstein, a lawyer at Arnold & Porter, representing Chrysler dealerships, told the court.
Dealerships are also the public face of Chrysler, and continued failures may make it even more difficult to regain consumer confidence as customers are left behind with nowhere to service their cars, Bernstein said.
According to Reuters, an analysis from Chrysler’s financial advisers filed with the court predicted that even with the proposed sale to Fiat it won’t turn a profit until 2012.
According to the documents from turnaround specialist Capstone Advisory Group, Chrysler lost US$16.8bn in 2008 and expects to lose $4.7bn this year. It expects to earn a profit of $100m in 2012 and $1.6bn by 2013, according to the document cited by Reuters.
But that is all dependent on the company’s ability to sell itself quickly in bankruptcy court.
