News that DaimlerChrysler AG would sell Chrysler Group to a private equity firm was met with relief and optimism by African American Chrysler dealers who expect the deal will bring much-needed stability to the organization.
DaimlerChrysler ended months of speculation about the automaker’s future in May, when it agreed to sell a majority stake in Chrysler Group to an affiliate of New York-based Cerberus Capital Management L.P. for $7.4 billion. Cerberus, one of the largest private equity investment firms in America, primarily invests in undervalued companies in the hopes of making them profitable. Cerberus has acquired countless businesses in varied industries, from paper products, government services, and real estate to retail–generating more than $60 billion in annual revenues .
Before the announcement, “you had employees wondering what was going to happen, and how this was going to affect us,” says John W. Roy, chief executive officer of Southland Chrysler Jeep Inc. in Southaven, Mississippi (No. 81 on the BE AUTO DEALER 100 list with $28.3 million in sales). “You don’t need that when you’re trying to accomplish your various sales objectives.”
Rumors that DaimlerChrysler was looking to unload the automaker were also hurting sales efforts. “The customers kept asking, ‘Are you going to be here?’ and ‘What’s going on?’” says Monti M. Long, chief executive officer of Vicksburg Chrysler Dodge Jeep Inc. in Vicksburg, Michigan, (No. 77 on the BE AUTO DEALER 100 list with $29.9 million in sales). Receiving no ready answers, some customers might have taken their money elsewhere, Long says.
While a new parent company may ultimately mean a new direction for Chrysler, Cerberus has indicated that it would support the current product lineup through 2009, says E. Dale Early, owner of Deerbrook Forest Chrysler Jeep in Kingwood, Texas (No. 82 on the BE AUTO DEALER 100 list with $28 million in sales).
However, in the long term, changes are likely. “I can almost guarantee that there are going to be cuts in terms of dealership counts for Chrysler,” says Jesse Toprak, executive director of industry analysis for automotive information Website Edmunds.com.
The most vulnerable businesses are those in areas where there are multiple Chrysler dealerships. “In some markets you can see three, four Chrysler dealerships within a 20-mile radius,” says Toprak. “There are going to be some casualties.”
Dealers still stand to gain if dealerships close. “Chrysler would have to pay the dealership a certain amount of money for them to close the business,” says Toprak. The amount would vary based on such factors as the dealer’s contract with the Chrysler Group, the cost of the real estate the dealership is located on, and the performance of the dealership, Toprak says.