Fiat Chrysler Automobiles dealers David Kelleher and Wes Lutz are unfazed by the automaker’s plan to add about 380 U.S. dealerships. But others worry.
Kelleher: Turned down new point
“I’m an overperforming dealer, so there’s no chance they’ll put someone new in my market,” said Kelleher, owner of David Auto (Chrysler-Dodge-Jeep-Ram) in Glen Mills, Pa. “If they do, I’d make sure I contest it.”
Lutz said having a glut of buyers supports store values. “There are so many stores being bought by large private companies, if I decided to sell my store, I would have a buyer in 30 days,” said Lutz, president of Extreme Chrysler-Dodge-Jeep-Ram in Jackson, Mich., and the 2017 National Automobile Dealers Association vice chairman.
But buy-sell advisers warn that FCA’s plan could ding the value of many existing FCA dealerships. While no pending FCA buy-sell deals have been frozen because of the news, they say, some buyers got skittish on Chrysler-Dodge-Jeep-Ram stores.
“The impact was immediate in our conversations with dealers,” said Moshe Stopnitzky, president of Performance Brokerage Services Inc., in Irvine, Calif. “There is no doubt in my mind [FCA’s plan] will adversely affect the goodwill value by however much the net profits will drop. It’s simply a less desired brand now.”
Lutz: Plenty of potential buyers
Good will is the amount a buyer will pay beyond a dealership’s book value. It’s an intangible figure, based on the perceived value of the franchise, location or buyer demand. So-called blue sky is also intangible, but is based on the buyer’s estimate of future earnings potential.
FCA did not respond to a request for comment, and has not publicly confirmed plans to add points. But Lithia Motors Inc. CEO Bryan DeBoer told Automotive News in February that he is in talks with FCA to win multiple new open points.
Similarly, several months ago FCA offered Kelleher a point in rural Pennsylvania that was “20 miles away from any other dealer” and “uncontestable,” said Kelleher, a member of the FCA National Dealer Council. He turned down the offer because he estimated the store would cost about $5 million to build, and only slowly return the investment.
FCA is expected to notify dealers when it intends to add a point to their market and consider all applications, said buy-sell adviser Alan Haig, president of Haig Partners in Fort Lauderdale, Fla. For some dealers, a new point is “good news because they could get a franchise, most likely in a growth area like the Southeast or Texas,” he said. But “the smaller the market, the bigger the impact” a new point will have on eroding existing stores’ profits and values, he added.
FCA’s store count
|Fiat Chrysler Automobiles slashed its dealership count during its 2009 bankruptcy, then reinstated some after arbitration and added others. Now it plans to add about 380 more stores. Here’s how the count has changed over the years.|
|YEAR||U.S. BRANDS*||ALFA ROMEO/FIAT||MASERATI||TOTAL|
|Notes: Rooftops as of Jan. 1 each year.|
|*Chrysler, Dodge, Jeep, Ram|
|**U.S. brands’ share of the additional stores is unknown.|
|Source: Automotive News Data Center|
A key question is what brands the new points will sell. “The majority of these add points appear to be Fiat, Alfa Romeo and/or Maserati franchises going to Chrysler dealers,” buy-sell adviser Tim Wild, director at Tim Lamb Group, wrote in an email, citing details he has received from well-informed dealers. So if the new Chrysler-Dodge-Jeep-Ram stores go into “underserved, growing” markets, the impact of the plan will be “inert” for most dealers, he said.
Adviser Mark Johnson, president of MD Johnson Inc. in Seattle, said he expects existing FCA dealers to see their estimated good will slashed in half in affected markets. Even so, most dealers are unlikely to challenge an add point, he said. One dealer, who spoke anonymously, said many dealers are “afraid” to fight the factory even though an add point often makes the store “sell-proof.”
Said Johnson: “There’s a rule when you’re an auto dealer that you don’t step on Superman’s cape.”