I'm not disputing anything - but it is hard to draw a direct correlation here. There really isn't any concrete data released yet that substantiates the notion that more dealerships has an adverse effect on Chrysler. Also, comparing the foreign dealerships to the US dealerships is more difficult because the respective dealership networks were built out over, and in, different times. Most of the foreign dealerships didn't start building out their US presence until the late sixties, and they generally picked territories that they were quite sure could sustain them. The US dealerships were historically mom and pop shops in rural areas at first, and those legacy dealerships largely hung around as new US dealerships were added in urban areas.
In a free market, we've already seen a lot of unprofitable dealerships go under. They died of natural causes. What doesn't quite make sense is the closing of dealerships that are profitable and in some cases the only Chrysler/Dodge/Jeep dealerships in a territory - when neighboring single or dual-brand stores that were less profitable didn't make the death list. That seems to go against free market logic as well as Chrysler's arguments for reasons to close certain stores.
I don't think so. There IS a negative effect from too many dealerships.
"Detroit’s move to cut dealers is long overdue
How does getting rid of car dealerships help GM or Chrysler? This is a question I’ve been asked a lot, as Detroit’s struggling automakers move to slash nearly 2,000 dealerships across America.
Dealers like to argue that they generate auto sales and aren’t contributing to the automakers’ billion-dollar losses.
“Dealerships equal revenue to manufacturers, not costs,” according to a May 21 statement from the National Automobile Dealers Association.
That may sound convincing, but it’s not true — and the nation’s dealers, upset as they might be over the impending cuts, know it. Dozens of dealers complained to me about the glut of dealerships and the problems that causes when I wrote a series in 2007 about the problem, titled “Dealership Overload.”
Dealers sued to stop glut
Dealers have themselves been warning Detroit’s automakers for decades that they were adding too many stores. In repeated lawsuits, dealers tried to block new stores, arguing there were already too many and adding more would hurt business.
Unfortunately, Detroit’s automakers believed so strongly that more dealers would equal more sales — a misguided concept they’ve since abandoned — that they often fought their existing dealers in court.
A few years ago, for example, four GMC dealerships sued to stop GM from adding more franchises in Chicago.
It took the Supreme Court of Illinois to block the effort.
“There are a total of 27 GMC dealerships in the Chicago area,” the court observed.
Why too many is bad business
So, why are all those dealerships bad for business?
When a company steadily loses sales, as GM and Chrysler have, it doesn’t need — and can’t financially support — as many workers, factories or, as it turns out, stores.
Last year, GM and Chrysler dealers, which have more than 22,000 brand franchises combined into about 9,500 dealerships, sold about 199 vehicles per franchise.
By contrast, Toyota, which has been growing sales with just 1,461 dealership franchises in the United States, sold an average of 1,518 vehicles per store.
That means the average Toyota franchise sold nearly eight times as many vehicles as the average GM or Chrysler dealer.
Consequently, Toyota dealers had a lot more money to spend on advertising, upgrading facilities and customer service, like free coffee and rental cars.
Dumpy dealerships
When I was working on the series in 2007, a Chrysler dealer in the Boston area wanted me to visit his Dodge store so he could show me what a dump it was and how badly it was hurting Chrysler’s image.
This dealer wanted to upgrade his run-down store, but, the way he saw it, Chrysler had crowded so many dealerships into his area to fight over a shrinking pie that he would never be able to sell enough cars and trucks to pay for the renovations.
Dealers clustered in an area would move quickly to discount cars and trucks — sometimes taking a loss — just so they could close the sale and move a vehicle off their lot.
Cutting the price obviously hurt the dealers and the automakers.
But the dealers had no choice. If they didn’t, another nearby dealership selling the same models most certainly would.
As if to emphasize how illogical this situation had become, the dealership chain Auto Nation recently noted that its GM dealerships slated for closure as part of the automaker’s restructuring contributed “0%” to Auto Nation’s bottom line.
Translation: They didn’t make any money. At all.
This is no way to run a business.
Detroit’s overloaded network of dealership has excess administrative costs, too.
There’s a lot of debate about how to calculate these.
But Detroit’s automakers spend billions delivering vehicles to stores and offering a variety of administrative services, such as marketing assistance, training, parts-and-service support, auditing and other behindthe- scenes activities, such as basic communications.
At the end of the day, nobody likes to see any community business closing down and taking jobs with it. But to save Detroit’s automakers — and provide any hope of growth — downsizing dealerships is precisely what’s needed. The automakers and their dealers have known this for years.
Does it hurt? Of course it does.
But when America stops buying Detroit’s cars and trucks, Detroit’s automakers have no choice.
WHEN A COMPANY STEADILY LOSES SALES, IT CAN’ T SUPPORT AS MANY STORES."
