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Chrysler faces tricky dealer mergers

From Automotive News:

Chrysler faces tricky dealer mergers
Project Genesis brings on blame, praise from dealers

Bradford Wernle
Automotive News
June 3, 2008 - 12:01 am ET

In late April, Bob Wilson Dodge-Chrysler-Jeep closed its doors and filed for Chapter 11 bankruptcy protection in Tampa, Fla. The bankruptcy reorganization petition blamed Chrysler LLC's Project Alpha dealer consolidation program for its troubles.

The rapid onset of financial problems at the high-volume Wilson store shows that Chrysler's plan to slim down its dealer body will be painful for some.
In February, Chrysler announced it was renaming its Alpha program Project Genesis. The new program has ratcheted up pressure on dealers to buy or sell their stores. Chrysler now wants most dealers to sell all three brands under one roof and is trimming clone models that compete with one another.
With auto sales tumbling and tight credit, dealers are wary of investing in store improvements. To further complicate matters, Chrysler says it is not offering financial aid to help dealers sitting on the fence. Chrysler also says dealers combining under Genesis must sign exclusivity agreements barring them from selling other brands at their Chrysler stores. With the industry in turmoil and Chrysler's future uncertain, that can be a tough sell.

In addition, the Genesis program reduced facility requirements by 12 percent in view of the slimmer projected product lineup. But some dealers had already invested in larger facilities under Alpha's larger planning requirements.

Chrylser's goals

Project Genesis aims to
-- Work with retailers to streamline the dealer body, combining all 3 brands -- Chrysler, Jeep and Dodge -- under one roof wherever possible

-- Trim overlapping products and add vehicles where Chrysler doesn't compete

-- Increase per-store sales, profits for remaining dealers

Stand-alone woes
Steven Landry, executive vice president of North America sales, says 25 to 30 Genesis deals have been completed since the program was announced. Chrysler cites St. Louis and Tulsa, Okla., as markets where the Genesis project is nearly completed. Chrysler wants metro-area stores, now averaging fewer than 500 units, to sell 1,000 or more annually.

"We have been operating very fast," Landry says. Roughly 100 other Genesis discussions are under way. Landry says many dealers are eager to get deals done sooner rather than later.

What separates Genesis from Alpha is Chrysler's decision to build its entire business plan around the three-brand stores. Chrysler has already axed four models, and more cuts are on the way.

"They made it clear they're not going to be supplying enough units of each of the three brands for stand-alone stores to survive," says Michael Sieving, a Sacramento, Calif., attorney specializing in auto dealer issues.

Says Landry: "There's much higher value in having all three brands. The value of that versus having a stand-alone Chrysler, Jeep or Dodge store is higher. It's kind of like the futures market.

"If you are stand-alone Chrysler, Dodge or Jeep, unfortunate as it is, the value will continue to go down between now and 2012. A lot of dealers are saying, 'I don't want to be last.'"

Burden of debt
Jumping on the consolidation bandwagon early didn't help the Bob Wilson dealership in Tampa, once among the most-profitable Dodge stores in the country, according to court documents. Bob Wilson Dodge, which opened in the 1960s and sold only Dodge until last year, once averaged about 1,600 vehicles a year.

But in 2007, the dealership bought a neighboring Chrysler-Jeep store to comply with Project Alpha. As part of the deal, Bob Wilson Dodge was required by the factory to sell a profitable portion of its Dodge territory to another dealer, according to documents filed in U.S. Bankruptcy Court in Tampa. The resulting debt, combined with slowing sales, crushed the once profitable dealership.

Wilson declined to discuss his situation, but court documents say the dealership was "required to take on significant debt to expand its building to meet DaimlerChrysler's demands to sell additional vehicles." At press time, negotiations were ongoing to find a way to reopen the store.

Said Landry: "We're pulling for Bob to open his doors for sale and continue to sell Chrysler, Dodge and Jeep for us. He's a great dealer."

Good deal
The flip side of Wilson's situation is that of two dealers in the Minneapolis-St. Paul area. Denny Hecker and Jerry Golinvaux were among the first to wrap up a Genesis deal.

After several months of talks, the two agreed that Golinvaux's Roseville Chrysler-Jeep dealership would buy Denny Hecker's Rose-dale Dodge, which was across the street in the Twin Cities suburb of Roseville.

"I had just invested over $1 million adding to my showroom and updating the whole front end of the dealership, so it made more sense for me to have the whole thing," Golinvaux says.

After starting discussions in January, before Genesis was even announced, the two dealers reached an agreement April 1. Chrysler approved it within seven days.

Since combining, Golinvaux's dealership has increased service hours to handle all the Dodge business. "Sales of service and parts operations," he says, "have increased over 70 percent."
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