If you’ve been reading the papers or watching TV, it would be hard to have missed the debacle that is one-third of what was once Detroit’s Big Three, Chrylser Corporation. There’s a lot at play here – the ObamaNation putting it’s thumb on the scales to tip them in favor of the unions (in a REAL bankruptcy, union contracts are immediately held null and void, as are pension funds and other benefits), the idea that bond holders should head to the back of the line, the giveaway to Fiat (they aren’t BUYing anything…just taking what’s left of Chrysler as a favor).

What amazes me, however, is that the media – on both the left AND the right – is confused about why Chrysler (or let’s get real: The Treasury Dept.) wants to can almost 800 loyal ChryslerCo dealers today.

First, a couple of disclaimers – my wife and I both drive Jeeps, I’m a big fan of the Wrangler, and I used to work for an agency that did ads for car dealers, exclusively.

Congressmen, pundits and TV talking heads are all up in arms about the dealer bloodletting, claiming there’s no reason to kill off dealerships, and that “fewer dealers means fewer sales.”

Balderdash.

Here’s the deal, campers: Not only does Chrysler have too many models that overlap each other, they also have way too many dealers to sell the cars that DO sell to the public. (And keep in mind, everything that’s wrong with Chrysler is 10 times worse when you talk about GM.) It’s a little concept called cannibalization, all part of the laws of supply and demand. Let’s say in your city, you can sell 10,000 cars per month. Okay. Only a certain number of those sales – lets say…um…1,700 of ‘em will be a Chrysler product. Keep in mind, there are no fixed prices in the auto industry. Every dealer competes against every other dealer. Also remember that dealers are required to buy a certain number of cars from the manufacturer per month, need ‘em or not. So you have a situation where dealers are, shall we say, highly motivated to sell every car they can. Now if you have only one or two Chrysler/Dodge/Jeep dealers in a given metro area, you will have less competition. The number of cars you can sell into that market won’t change – only a certain percentage will buy Chrylers, Dodges, or Jeeps, regardless of how many dealers exist. But fewer dealers means less competition for the dealers that sell a particular brand, and therefore improve the odds of those dealers making a profit. Too many dealers cannibalize sales, reduce profit margins, and make it that much harder for dealers to survive.

Now, none of this has ANYTHING to do with how the dealers that will be axed have been chosen. As for me, the whole Chrysler deal stinks on ice – there’s no way that bond holders should have to take 29 cents on the dollar, no way any union should end up with ANY ownership stake in a bankrupt company, and no way that our government should be calling the tune so that they can pay back political patrons. But regardless of the corruption in place that has dictated which dealers live and which die, killing off a bunch of dealerships isn’t just a good idea – it’s essential to giving whatever survives from ChryslerCo a fighting chance to prosper.

From a marketing point of view, this is pretty easy to understand – reduce competition = increased profit. But since the ObamaNation has chosen to politicize the process, I can’t really blame people for being a bit confused about why dealers are going away.

This entry was posted on Tuesday, June 9th, 2009 at 9:21 am and is filed under Random Stuff, design, marketing.You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.