Forever the old-movie buff, sometimes I can’t help but relate fictional film characters to the reality of current events.
Errol Flynn was a star before I was born, but I’m fascinated by his old movies. One in particular flashes to mind when it comes to FCA CEO Sergio Marchionne and his seemingly stressful effort to find another auto company willing to merge with his.
The movie I’m thinking of is the 1941 epic “They Died With Their Boots On.”
The definitive scene in the highly fictionalized film shows Errol Flynn as General George Custer and what was left of his troops fighting to the end as the entire Sioux and Cheyenne Indian nations encircle them. If you didn’t know the historical outcome, you’d get the impression Errol Flynn was going to get out of this jam.
The auto industry increasingly is getting the feeling Marchionne is up against the wall. You wonder what the outcome will be.
Wait a minute, Ziegler, Chrysler dealers are knocking it out of the ballpark aren’t they? Sales are outdistancing most of their competitors. Jeep is on fire and Ram trucks are increasing market share. I still get mad when I have to call it FCA, but on the surface it seems like Chrysler, OK FCA, is bulletproof.
But product-development costs, multi-million dollar losses in Europe and other markets and the highest customer incentives in the industry (approaching $3,500 a vehicle) are dragging down cash reserve for new product development.
The perception FCA is in trouble is compounded by Marchionne’s escalating effort to form a merger with another major manufacturer, preferably Ford or General Motors. He has even alluded to a techno-merger with Google or Apple.
Many industry observers predict Marchionne will try to force a hostile takeover of GM, which has rebuffed him. So has Ford. Yet, Marchionne is ratcheting it up.
He is lobbying GM shareholders to force the merger. There is that long-shot possibility that in true Marchionne-style he might pull it off.
His argument for a merger centers on efficiency of scale, reduced labor force and lower product-development costs.
The downside is that any partner of Marchionne would also be saddled with Fiat, which despite hopes when it re-launched in the U.S. comes with baggage.
Jeeps and Ram trucks are driving most of FCA’s North American sales.
But the car side isn’t doing as well. Getting way out of proportion is the money-on-the-hood incentives for dealers to move the Chrysler 200 midsize sedan and Dodge Dart compact.
A full-line Chrysler dealer told me the other day, “Even though sales are soaring on Jeep and Ram, it’s harder to make a profit with FCA continually ratcheting up the pressure.
“They just took away our Lease-Loyalty incentive money and then they cut 1% off of the dealers’ invoice (which takes an average of $300-per-sale profit margin away from the dealers) and stepped up the pressure with the incentive programs.”
He speaks of deep discounts and increased competition among same-brand dealers. “They’re making us cut each other’s throats trying to hit their numbers.”
My dealer friend didn’t mention it, but FCA also increased the administration fee charged to dealers for employee discount sales. It was $75. Now, it’s $200.
This will hurt Michigan dealers as well as those in any manufacturer or supplier industry town.
Now Marchionne is saying he wants to participate in supplier profits. What does that mean? Are we talking about suppliers funneling money to the automaker? We all know what happened pre-bankruptcy when manufacturers financially squeezed suppliers too much. Many of them went under.
But you’ve got to love Chrysler dealers. They’ve been through the hell of multiple auto-company owners, weathered the recession and the bankruptcy dealer purges and suffered through oppressive stair-step incentive programs.
They once pushed units out the door when product quality was so bad they prayed the vehicles would make it to the street.
They put up with all of that and bailed out the manufacturer repeatedly. The multiples have never been higher for selling dealerships. Some Chrysler dealers now wonder if the time is right for that.
Jim Ziegler president of Ziegler Supersystems based in metro Atlanta, is a trainer, commentator and public speaker on dealership issues. He can be reached email@example.com. WardsAuto readers also may comment on this article by logging in or registering below.