Chrysler Hopes to Consolidate Dealerships
Voluntary program targets Toyota's per-store sales

By MARY CONNELLY | AUTOMOTIVE NEWS

AutoWeek | Published 02/14/06, 8:56 am et

In a bid to boost dealership profits and sales, the Chrysler group wants more metropolitan stores selling the company's three brands under one roof.

"One thing that is very important to us is if our dealers are profitable, and a key to profitability is throughput," says Mike Manley, Chrysler group vice president of dealer operations. Throughput is the number of new vehicles a store sells annually.

Combining Chrysler, Jeep and Dodge in a single metropolitan store increases sales volume beyond what the brands would sell in separate stores, strengthening dealer profits, Manley says. Well-capitalized dealers with up-to-date stores, large inventories and the money to attract and train top-notch employees boost volume, the company says.

Currently, about 150 of the Chrysler group's 1,150 metropolitan dealerships are selling the three brands, he says.

Chrysler's so-called Alpha strategy encourages profitable large-volume dealers - both inside and outside the company -- to acquire poor performers.

The program is voluntary, Manley says. It will reduce Chrysler's dealership count, but the company is not saying by how much.

"We don't have a target number for Alphas," Manley says. "But long-term, you will see more Alphas. We have a number of markets where we have too many dealers, and it is difficult for dealers to make the level of profit we want."

Eye on Toyota
Chrysler wants a network of large, profitable dealerships that can compete with industry leaders such as Toyota for vehicle sales per store.

"Toyota dealers on average have significantly more throughput than our dealers do," Manley says. "And we know that throughput is a key indicator of the profit opportunity for a dealer."

Toyota Division averaged 1,487 new light-vehicle sales per dealership in 2004. The Chrysler brand averaged 223 new units per dealership, Dodge averaged 405 units and Jeep's average was 169 units.

The Alpha strategy boosts volume, says Cory Shea, vice president of Central Florida Chrysler Jeep Dodge in Orlando.

"I have an Alpha store in Orlando and a single-point Dodge store in Nashville, Tenn., and I am working around the clock to Alpha the Dodge store," Shea says.
More inventory
Why the enthusiasm?

"It doesn't cost any more to facilitize all three franchises in one place," Shea says. "I don't have to buy a building, my electric bill doesn't go up, my fixed costs don't change."

And sales increase because inventories are larger, Shea says.

"Chrysler has done a wonderful job in the last couple of years of diversifying Chrysler, Jeep and Dodge," he says. Each product line is distinct, he says.

The Orlando store opened in May 2003. The three franchises were additional points because the market needed more dealerships, Shea says. In Nashville, he says, "we're working diligently at some buy/sells and acquisitions."

Chrysler's Manley says that "by far the majority" of the Alpha stores are created when one dealer in a market wants to expand and approaches another dealer. "They put together the deal and come to us and say, 'This is what we want to do'," he says.

"But there are times we will talk to our dealer body in a market where we see there is a situation that needs to improve," Manley says. "We talk to the parties involved about how you would resolve the situation."
Getting it right
Dealership consolidation is critical to the Chrysler group's strategy of profitable sales growth.

"If we don't have the right dealers in the right markets, it affects our volume," Manley says.

Dealers do not feel pressured to sell to create Alpha stores, says Andy Palmen, chairman of the Dodge National Dealer Council and owner of Palmen Motors (Chrysler-Jeep-Dodge) in Kenosha, Wis.

But metropolitan stand-alone dealers do worry about the larger dealerships, he says.

"The dealers that can get all three franchises view it as very positive," Palmen says. "The dealers that aren't in a position to get all three are more concerned about their franchise as a stand-alone."

The Northeast has a history of dealership crowding, Manley says.

"In New York, Chicago and Boston, the domestic manufacturers have significantly more dealers than new entrants like Toyota and Honda," Manley says.
Dealership sales up
Dealer Bill Golling opened Golling Chrysler-Jeep-Dodge in Bloomfield Hills, Mich., in a new 83,000-square-foot store in July 2005.

"I was in six different buildings (operating three different franchises)," Golling says. "If we were just Chrysler-Jeep or just Dodge, this would not have been possible to do. You need the throughput of all three brands."

Golling will not specify his investment, except to describe it as considerable.

"Our sales have gone up about 20 percent," Golling says. "In December 2005, we did 691 units new. A year ago we were in the low 500s."

"We have established a sales forecast that is up for this year over last," he says, declining to provide numbers. In 2005, new-vehicle volume totaled 5,100 units.

"We have been as profitable every month as we were beforehand in spite of the launching expenses," he says. "We had to move, relocate everybody, buy new furniture and new showroom furniture."

The appeal of the new store and a large inventory boosts sales, Golling says.

"The facility, the branding, the location, the street presence we have," he says when asked what contributes to the sales increase. "In the old buildings, the most we could keep was about 80 cars. Now we have 800."

"The showroom is much more comfortable and inviting. We have a child's play area. We have a cafe so you can eat while you are waiting for service. We have a wireless waiting room overlooking service."

He adds: "There is no way I would want to go back."
Product bonanza
Neither would Cass Burch, owner of Cass Burch Chrysler-Dodge-Jeep in Quitman, Ga., a suburb of Valdosta.

"People are looking for ways to save themselves some time," Burch says. "In an Alpha store you can look at three brands that have a lot of variety."

Customers are more likely to buy and less likely to leave the store to do more shopping, he says.

"My store sells 11 times what the planned penetration is for my market," Burch says.

Burch also owns Cass Burch Chrysler, a 25,000-square-foot stand-alone Chrysler store in Valdosta. Sales at the two stores combined total about 1,000 new vehicles annually, he says. Both dealerships were built within the last four years.

"I see the expenses under a microscope in my own stores," he says.

An Alpha store streamlines staffing and operations, he says.

"You create savings," Burch says. "And every dime you save is a dime made."

But for Burch, future product is the strongest argument for an Alpha store.

"We aren't rolling the dice on two or three cars and hoping one hits," he says.

"If you've got an Alpha store, you have 20-something new vehicles coming out over the next 30 months," he says. "That is almost one new vehicle every month for

the next two and a half years. You can unveil something fresh in your store every time you flip the calendar.

"And product is the absolute remedy to every problem we've got in this industry."
Big metro players
Selling Chrysler, Jeep and Dodge under one roof in metro markets will boost per-store sales, the company says.

2005 Average annual light-vehicle sales per store

Toyota Division 1,487

Chrysler brand 223

Dodge 405

Jeep 169