G.M., Chrysler Announce Thousands of Dealership Cuts

It hasn’t been a good year for car dealerships.  Gas prices skyrocketed, meaning more people were eyeing the bus and the bike; the economy downshifted, meaning more people were eyeing the electrical tape than the new-car circulars; and now two of the Big Three U.S. automakers have announced plans to cut a combined 3,158 dealerships in the next year or so.

G.M. made its announcement today.  The company plans to cut its network of dealerships by 2,369 (40 percent) by 2010.  These cuts will come from cutting off 1,100 dealerships that underperform, closing 500 dealerships that only sell the Pontiac, Saab, Hummer, and Saturn lines that G.M. is looking to get rid of, and by combining other franchises.  Right now, G.M. says this will happen in late 2010, when contracts expire, but if it files for bankruptcy, the closures might move up significantly — say, to this fall.  They haven’t yet announced which dealerships will close, but have said they’re focusing on underperformers, a logical way to make cuts.

Chrysler made its announcement yesterday, complete with a list of who’s going to close, where.  They’ve asked the court to cut off these contracts on June 9.  You can download the full bankruptcy filing [huge .pdf] and search for your home state, if you’re curious (I was). 

What you might find is that some dealerships aren’t closing outright — they’re just losing the Chrysler side of their business, as the Jeep-Volvo-Volkswagon dealer near me will be.  That’s still a big hit in product supply, of course, but the reports that say unambiguously that 3,000 dealerships are going out of business seem to miss the nuance: 3,000 dealerships will lose supply of brand-new G.M. and Chrysler vehicles, but the industry is so cross-pollinated now that it doesn’t automatically mean 3,000 dealerships will fold.  It will be a huge loss for these businesses, which will also (presumably) lose financing arrangements through GMAC, but it’s not the end of the road for every one.

Yet G.M. in particular seems to be ready to cut off its smallest dealerships, those that sell only a few dozen cars a year and are probably likely to be heavily tied to one brand.  While that makes perfect business sense, I wonder if won’t also contribute to the declining economy in the middle of the country, where, like the slogan says at one my old hometown car-dealerships, “a handshake is still a deal.”  Small dealerships are everywhere in the Midwest, and while they do a fair trade in used cars, there’s still a culture of The Car Dealer, the small town salesman who can talk you into a new Cadillac when you came in for a tire rotation, that seems sure to die.

Fiat’s Chrysler Buy: Just the Ideas, Ma’am

Here’s the question that matters this week: If you had $14,000, would you buy this car?

It’s the Fiat 500, and the concept most likely to be coming soon to a Chrysler plant near you, should the Fiat/Chrysler merger come together.  Sergio Marchionne, Fiat’s CEO, has been saying since last year that he’d like to bring the 500 to the American market.  And Chrysler’s been encouraged by the government to produce smaller, more fuel-efficient cars pronto.  The 500, which would fit in my car’s trunk, gets 46 miles to the gallon on its base model (a more eco-friendly version gets 67 mpg, with carbon emissions nearly equal to a Smart car).  Did I mention it currently goes for 10,500 euro ($14,000)?

The 500 and its Fiat brethren (The Fiat Panda seems a likely companion, but only for people who never listen to Top Gear’s Jeremy Clarkson) are the future of Chrysler.  They are, in fact, what Fiat is “buying” into Chrysler with — the company is offering no money at all to take a 20 percent stake in the company.  Instead, they’re offering concepts and techonology — $10 billion worth.

It’s probably a good deal.  The government viability report [.pdf] on Chrysler mentioned again and again that the company was, basically, out of ideas.  It spent everything it had to keep pace with its larger competitors, putting everything it had into production, so that it had cut back sadly and deeply on research and development.  The merger will offer Chrysler a way back into the new-car market, putting its plants to work on constructing cars based on Fiat-researched models.  What we’ll get won’t be the 500 — Ford took that name already — but a twist on it, a Fiat with the familiar Chrysler wings on front.  Sounds like a happy ending, right?

Except what we’ve come to is that an Italian company is going to buy an American car-maker not on the strength of its money, but on the value of its ideas.  In that respect, it’s hard to think of Fiat as the savior of the American manufacturing industry.  If innovation is the problem, well, it’s hard to think of a way to save the industry at all.