Good Time to Buy Dodge Vehicles as Chrysler Dealers Cut

The Hampton auto dealer, who owns one of the Chrysler franchises that the bankrupt automaker plans to cut, had just 12 days left as of Thursday to sell about 60 new Dodge vehicles on his lot. With June 9 set as his last day as a Chrysler dealer, Tysinger has discounted his new cars and trucks well below the price he would otherwise seek, just to move the merchandise.

"It's good inventory, but it's Cinderella at midnight," Tysinger said last week. "And if you wait until the clock strikes, that carriage has turned into a pumpkin."

The day after their franchises expire, Tysinger Motor and other dealerships must sell those new, shiny, barely driven vehicles as used. They won't be able to offer the rebates that they can as Chrysler dealers, which means they'd have to discount each car or truck by $3,000 to $6,000 just to compete with remaining franchise owners.

They'd lose money on each sale.

It's the same situation for nearly 800 Chrysler dealers nationwide after they learned May 14 that they will lose their franchises. Some General Motors dealers could be in the same position soon. GM could use the bankruptcy it is expected to file today to expedite cuts planned for its dealer base in 2010.

Chrysler LLC submitted its list of 800 dealers to U.S. Bankruptcy Court in New York for approval. The approval has yet to come, and some dealers - including Tysinger and Edenton Motors in North Carolina - are making cases in bankruptcy court to fight for their franchises. Nobody knows when the judge will decide or whether the judge will change the date that the relationship with Chrysler ends.

The dealers are planning for the worst. The worst for them has led to some of the best deals they say they've ever offered customers.

"We're in a disposal mode," said David Webster, co-owner of Grafton Dodge on Route 17 near Yorktown. He has told his staff not to worry about the dealer 's margin on a sale. "There's a very lucrative pay plan for them - not on profit but on sheer numbers," he said. "It makes it a great time to buy."

Grafton Dodge had sold about 25 of 60 vehicles with 12 days to go. Tysinger started the process - when Chrysler announced its cuts - with about 110 vehicles and had sold about 50.

Edenton Motors was down to four of 12 or 13 vehicles it had to unload, said co-owner Stewart Deacon, who cut the manufacturer's suggested retail prices by 30 to 40 percent.

"I'm selling it at a loss," Deacon acknowledged. "I'm losing money on the sale. But I'd rather sell to a retail customer than to another dealer."

Chrysler has told its terminated dealers that it will help them match their remaining inventory with franchisees who will buy it. Many showrooms, however, already have more vehicles than they can sell and have no incentive to buy product for more than their usual wholesale cost, the dealers said.

Also, remaining Chrysler dealers won't necessarily want cars their former colleagues had trouble selling, said George Hoffer, a Virginia Commonwealth University economics professor who specializes in the auto industry. "The best vehicles will have gone already."

Even as Webster pushed to sell the cars on his lot, he was expecting delivery of four Dodges he had ordered. He's on the hook to sell vehicles - in less than two weeks - that he doesn't have, unless he can persuade Chrysler to keep them and give him his money back.

"Haven't gotten that answer yet," he said. "Still waiting."

Chrysler's rejected dealers, in many cases, will get stuck with parts and equipment they cannot use. Auto manufacturers typically require franchisees to buy the latest equipment to work on their vehicles. Dealer s can cover the cost with the amount of work they'll do on cars under warranty, for which the manufacturer will pay them. But retailers that lose their franchises cannot do warranty repairs after the cut-off date.

In January, Tysinger said, he spent about $15,000 on diagnostic tools for Dodge vehicles, as Chrysler directed him. With almost 800 dealers trying to unload such equipment to other retailers that probably already own it, Tysinger doesn't see selling the tools as an option.

"Basically, we're going to keep them and write off $15,000," he said.

Deacon, too, faces the prospect of wasted money on obsolete tools and parts. But he has managed to collect enough in sales rebates, incentives and warranty payments from Chrysler in the past few weeks to reduce his total potential loss from about $500,000 to about $100,000, he said. "Now, it's going to be negligible."

The dealers said one of their biggest challenges is making sure customers know they will stay in business.

Grafton Dodge plans to convert its operation to used cars. Edenton Motors still has a General Motors franchise. Tysinger sells Mercedes-Benz and Hyundai. "We are absolutely not closing," Webster said.

"We are going to be here."

They believe that many of their customers will stay with them - no matter what they sell - rather than switch to another Chrysler dealer. The automaker has said it hopes reducing its dealer base will bolster remaining showrooms, assuming that customers would switch to a nearby dealer.

Hoffer, however, thinks Chrysler shouldn't count on keeping those customers. Many will choose a Ford, Toyota or a used car rather than drive to another Chrysler dealership, which could be much farther away.

"They will lose more than they think when they lose these dealers," Hoffer said of Chrysler. "Every customer who bought at these dealerships is in play."

Rural dealers, in particular, have built personal relationships with their customers and benefit geographically as the only dealer in town, in many cases.

"You know the owner," Hoffer said. "There's no loyalty to the brand at all."