Wednesday, July 25, 2007

Chrysler Circles The Wagons

Cerberus is still closing the acquisition of 80% of Chrysler from Daimler (NYSE:DCX) and Chrysler is already circling the wagons. Latest news is that many of their dealers are receiving letters to increase sales or face losing the franchise within 180 days. Chrysler confirms that these letters have been sent.

Legal observers comment that most dealers are capable of fighting off this type of action as state courts are usually sympathetic to the dealer. Certain dealers many of whom have been receiving this letter have also been blocked from purchasing used cars from factory. These two actions indicate that the economic incentive to sell new Chryslers may not be as strong as it should be. Sending everyone to the principal's office for discipline will not drive sales.

In the next 180 days the new models will come onto the market. In the arcane world of car dealers new car allocations are influenced by last years sales levels. Could there be an intimedation factor present? By the way if new car sales do not look good shooting a few dealers will not solve the product and marketing problems.

If you want to close down a significant part of your dealer network you need to be ready to replace them in some fashion. Otherwise you give away market share.

Does current operating management need a shield against pointed questions from Cerberus?