Uncertain Times for Local Dealers as GM, Chrysler Reorganize

By Beacon Staff

The tenuous state of the U.S. automotive industry is reverberating into the Flathead as some of the valley’s car dealers wait to hear from their parent companies whether they may be forced to close.

Chrysler filed for bankruptcy April 30, and as part of its reorganization and alliance with Italian automaker Fiat, plans to close underperforming dealerships from among the 3,200 franchises it has nationally. General Motors, which has a June 1 deadline to reorganize or declare Chapter 11, has announced plans to force as many as 1,200 dealerships to close, and plans to cut 2,600 dealers by 2010.

What that means is a lot of questions for northwest Montana Chrysler and GM auto dealers, and few answers. As of press time, there were indications that GM and Chrysler could let dealers know as early as this week where they stood.

Doug Scarff’s family has been in the car business since 1922, and the dealership he purchased on the south side of Kalispell in 1993 – which sells Buicks, Pontiacs and GMC trucks – has been in the Flathead for 60 years. GM plans to shutter the Pontiac line altogether, along with selling or cutting Hummer, Saab and Saturn. But beyond that, Scarff is waiting to find out from GM what the further implications of its reorganization might be, and whether his could be among the dealerships forced to close.

“Our business is affected greatly by the whole thing – you don’t sleep at night,” he said. “You watch the mail; you watch the lot for the suits to come.”

Scarff has shepherded his business through the shuttering of previous GM vehicle lines, like Oldsmobile and Eagle. Under normal circumstances, he said, GM is required to reimburse the dealer for the fair market value of the discontinued vehicles on his lot. But if GM declares bankruptcy, all bets are off, and local dealers may not have these protections.

“What happens here is out of our control,” Scarff said. “It’s nothing that we’ve done wrong or mistakes that we’ve made. It’s a worldwide problem.”

Like other dealers interviewed, Scarff is focused on the things he can control, like backing up the warranties in his vehicles, and trying not to dwell on grim national headlines. But with continuous updates on the state of GM and Chrysler plastered everywhere from cable news to talk radio, it’s a subject that can be hard to avoid – and it’s having an effect on customers.

“People aren’t spending any money because they want to learn more about what’s going on, and they’re also frightened about what’s going on,” Scarff said. “I’m sure a lot of people are concerned about where the auto companies are going to be in three to five years.”

Up the road at Kari Dodge, Managing Owner Jim Peterson was in his office last week listening to a radio ad he had just recorded that begins, “The good news for Chrysler is already happening,” an attempt to point out new deals, as well as counter some of the negativity about the auto industry listeners were likely hearing during the newscasts.

Peterson is waiting for word from Chrysler as to whether his will be among the dealerships forced to close, but given Kari’s ranking as the 95th best-selling dealership in the country, he feels “fairly confident about how we’ll be treated.”

“I get up each day and I tell myself ‘control what you can,’” Peterson said, adding that as long as he stays focused on that, things will work out for the best.

Since Peterson is, after all, in the business of selling cars, he is quick to point out that those interested in buying can get extraordinary deals, and he believes Chrysler’s merger with Fiat will result in a greater offering of inexpensive, fuel-efficient cars arriving at dealerships in the fall. But the success of the bankruptcy and reorganization depends entirely on whether people will buy those cars.

“The future looks really good; we just don’t know how long it’s going to take to get there,” Peterson said. “These manufacturers can reorganize all they want, but if they don’t bring it to the marketplace, and have the consumer react by buying it, it’s all for naught.”

Over at Eisinger Motors, Dealer Greg Eisinger is taking a similar approach, and feeling relatively safe as the largest Chevrolet and Cadillac dealer in the region, while trying to not dwell on unknowns of GM’s potential bankruptcy.

“I don’t have any idea what the final action is going to be,” Eisinger said. “Until I have that, I don’t spend any time worrying about it.”

In Whitefish, Don Kaltschmidt of Don K Chevrolet said his business is well capitalized and profitable despite the economy, and even if GM cut his franchise, he would take on another franchise, and continue selling used vehicles and operating the service department.

“I feel confident that we’ll make it and be a GM dealer,” Kaltschmidt said. “I’m from the Flathead Valley and I’m not going anywhere.”

Meanwhile at the state level, a media campaign is underway by the Montana Automobile Dealers Association (MADA) to emphasize that local auto dealers are independent franchise owners, and bear no fault for the financial woes of GM and Chrysler. Last week, MADA President Tim Hubbard penned a statement blasting the plan to consolidate dealerships as one that will threaten market share for domestic auto companies and eliminate nearly 200,000 jobs across the country. Montana’s 130 new vehicle dealers provide 4,280 jobs with a total annual payroll of $161 million, according to Hubbard.

“This rapid shuttering of dealerships will put ‘closed’ signs all across America, unnecessarily eroding brand equity and further weakening consumer confidence,” Hubbard wrote. “Dealership closures also will mean an immediate loss of competition and convenience for customers.”

Marilyn Olsen, MADA executive vice president, said Montana has not yet lost any large dealerships, though many have had to lay off staff as sales declined. She is betting that the vast landscape of Montana could work out in the state’s favor.

“We’re hoping that the fact that we are a rural state, and our dealerships our so far apart and we only have one dealer of each franchise in each town, that that will make a difference,” Olsen said. “Whether it will, I don’t know.”

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