Letter from a Dodge Dealer

[jprad]

Quote from schreibdave:

This dealer had a contract with Chrysler. The contract permitted Chrysler to take these actions. Maybe he should have insisted on other terms or operated a different kind of business. Hard for me to feel too bad for him.

I'd agree with you if Chrysler were a viable company and his dealership wasn't.

But, aside from the precedent being set with the union winning while the bondholders lose, which is going to do more harm to the economy then anything else is the fact that there doesn't seem to have been even the slightest hint of objective selection in deciding which dealerships are going to lose.

Common sense would say that the first to go would be the most financially troubled and those with the least franchisee seniority.

I still think this gets gummed up by a major league class action suit which gets announced shortly after the merger, if Fiat is stupid enough to even touch this stinking mess now.

 

[mgmaggie]

Quote from jprad:

The only snag being that he doesn't actually own the cars on his lot. What he does have is a loan, called a floor plan, most likely with a bank.

The bank is not going to let him sell them below market. They're going to get the cars from him in bankruptcy court.

You are probably right. I wonder if he could enter into leases with the cars with all of the locals. Personally finance the cars through his dealership for a one year period while he got his lawyers to try and place an injuction on the sale or closure of his business? At least he will get some service work and by the time they tried to get a court order to stop him several months would pass. That would easily generate 25 to 30 thousand a month.

Something like a few hundred a month, first and last and I bet someone would buy the paper cheap.

There is more than one way to skin a cat and I would not just give up.

 

[QQQBALL]

Quote from piezoe:

Perhaps that's true. I would not know. However, I have a close friend with money but no mechanical knowledge. He likes Jaguars (Fords). He has owned three late model Jags in 7 years. The engine blocks cracked between the valve chambers on the first two well below 100K miles and he junked them. The latch on the center console broke on the first two in the same place. He is a slow learner and bought a third one a couple years old. The headliner has fallen down in the back seat in that one. I am expecting the engine to fail any day now as the car has over 50K miles. Would i buy a Ford. No way!

Your friend is a slow learner

 

[jprad]

Quote from mgmaggie:

You are probably right. I wonder if he could enter into leases with the cars with all of the locals. Personally finance the cars through his dealership for a one year period while he got his lawyers to try and place an injuction on the sale or closure of his business? At least he will get some service work and by the time they tried to get a court order to stop him several months would pass. That would easily generate 25 to 30 thousand a month.

Something like a few hundred a month, first and last and I bet someone would buy the paper cheap.

There is more than one way to skin a cat and I would not just give up.

If the dealer ran the lease program it was essentially a fleet leasing model and those went the way of the dodo due to insurance issues. The newer leases were really a revolving credit arrangement with the manufacturer's lending arm.

As for an injunction, not going to happen. His immediate problem is servicing loans he's already got and making payroll.

But, the loss of the dealership kills his cash flow because, as another poster pointed out, the bulk of a dealer's income is from the service side of the business. The problem there is that work done under warrantee is reimbursed to the dealer by the manufacturer.

 

[powerfade]

Quote from mgmaggie:

You are probably right. I wonder if he could enter into leases with the cars with all of the locals. Personally finance the cars through his dealership for a one year period while he got his lawyers to try and place an injuction on the sale or closure of his business? At least he will get some service work and by the time they tried to get a court order to stop him several months would pass. That would easily generate 25 to 30 thousand a month.

Something like a few hundred a month, first and last and I bet someone would buy the paper cheap.

There is more than one way to skin a cat and I would not just give up.

Wow, this seems like a bad idea. Ever hear of legal fees? You think the R/R is there given the likelihood that he's going to get his injunction? He's not, they have an iron clad contract.

This is the Chrysler dealer equivalent of averaging down into GM all the way from $30

Having said that, who the hell knows what the government is going to come up with next in terms of bailouts, but I still think this is a desperation Hail Mary that can end in total disaster. He should just take his lumps and walk away.

 

[schreibdave]

ok. So lets assume that Chrysler is treating him unfairly and that this is all the fault of Govt/unions/environmentalists/etc (pick one). So what? He entered into a contract with Chrysler that seems to have workered pretty well for him for 35 years. Now times have changed and that contract that he agreed to will lead to his demise. That's awful. But does anybody think that the govt or the citizenry should rally to his defense? If so, I have a long list of things in my life that are unfair and I would like to get in line to be saved after we all save the Chrysler dealers.

As an aside, when was the last time that you felt that you were fairly treated at a new car dealership?

 

[ByLoSellHi]

Quote from jprad:

The only snag being that he doesn't actually own the cars on his lot. What he does have is a loan, called a floor plan, most likely with a bank.

The bank is not going to let him sell them below market. They're going to get the cars from him in bankruptcy court.

Cars are depreciating assets, and that's especially true when their manufacturer has filed for bankruptcy.

Good luck to the banks in not having to see the cars sold 'below market.'

 

[jprad]

Quote from ByLoSellHi:

Cars are depreciating assets, and that's especially true when their manufacturer has filed for bankruptcy.

Good luck to the banks in not having to see the cars sold 'below market.'

I didn't say that the cars won't be sold below market, that's pretty obvious.

It's who that's going to sell them that I was referring to.

 

[dealmaker]

Cars sell below market all the time, even when economy was rocking i.e. 2003 to 2005 e.g. most 4cyl Camry LEs were sold on loser ads to keep volumes and Toyota as the #1 OEM and Camry name plate burned onto consumers brains. You sell the car for a loss make the loss up in the finance department. You turn over inventory, get paid for PDI & flooring by OEM, warranty repairs, build goodwill, apply lots of mop & glow and get referral fees from the banks. There is more than one way to skin the cat. Money is made more ways than one i.e. you can sell a car for a loss and still make money, that's why its so stupid for dealers like our friend the foreclosed Dodge dealer not to turn over inventory. 125 new cars in stock, what a joke ( and that's 45 days inventory)!

 

[Big Money]

I personally disagree with those who think the quality of Chrysler (and most domestics) are on par with the reliability of most imports. It just isn’t true. Of course I mean generally as there are always those who get the good one, or the few models they make that are good. Quality has improved over time for sure but on average, you are going to have less trouble with your Honda or Toyota on AVERAGE. If you don’t believe me, just check the resale values of all these cars. I know plenty of dealers and many wouldn’t own a Chrysler out of warranty for any reason. No matter how much things change, they still remain the same: you get what you pay for.

There is a reason why that Chrysler has lost 50% of its value in less than 2 years. If the quality was the same, the values would be the same. But they aren’t. Not even close. Talk to a dealer about the value of two comparable 2007 chrysler products compared to Honda or Toyotas. I have a friend (a dealer himself) who just bought a 2005 honda odyssey with almost 20k more miles on it than the comparable 2007 town & country/caravan with less miles (around 31k). We took the caravan on a fishing trip for a long weekend (the advantage of being a dealer) and there is no comparison. And the Honda cost 4k more for an older model with more miles. Money well spent IMHO. The disparity is probably going to get worse as the uncertainty over the domestic products is in question for the time being. And before you say the disparity is only occurring now because of this crisis, think again. The disparity has been like this for a very long time.

The bottom line is they make inferior products and it is time to pay the piper. If the quality were the same, I would have considered one in the past (I drive a BMW now). But they aren’t. I do feel for the guy on a personal level who was probably misled by Chrysler leading up to losing his franchise. But it should be survival of the fittest. There have been plenty of warning signs leading up to this. He ignored them just like many traders ignore the signs of change coming. That is how it works in every business, it is just more obvious trading.

Now the gun mint is suspending senior creditors rights and putting the union interests above more senior creditors and showing the world investing here has much higher risk premiums than previously accounted for is a huge negative precedent and how that is not obvious to the moronic gun mint is quite shocking to me. We are showing the world contracts and creditor rights can be changed at any time. But by doing this, I can guarantee I won’t support that business model by buying a car from whatever entity emerges on the other side of this, except with the spending of our tax dollars on this of which I have little control. The big picture they are focusing on is disgraceful and they will learn their lesson the hard way, as usual (I hope).

Good trading.

BM