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Dealership closing 101: What you need to know

  • Story Highlights
  • Chrysler and General Motors announce they will shrink dealer base in U.S.
  • Chrysler dealers will be "forced out" by June 9
  • Your warranty is valid through its term, no matter where you bought your car
  • You will save a lot of money on a new vehicle purchase right now
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(AOL Autos) -- Chrysler and General Motors announced this week that they would shrink their dealer base in the U.S.

Chrysler will close 789 dealers. General Motors announced the closing of 1,100 dealers.

Chrysler will close 789 dealers. General Motors announced the closing of 1,100 dealers.

Chrysler will close 789 dealers, leaving them with approximately 2400 stores in the U.S. General Motors announced the closing of 1,100 dealers and hopes to be at a size of 3,600 dealers at the end of 2010.

While Chrysler dealers will be "forced out" by June 9, GM is positioning for a smoother closing of its stores, with each shutting down when it runs out of inventory.

Unlike Chrysler's announcement, GM's list of closing dealers will not be made public, leaving that decision to each dealer.

What happens to my GM or Chrysler vehicle warranty?

Your warranty is valid through its term, regardless of where you bought your vehicle. In March, President Obama announced that the U.S. government would provide the backing for Chrysler and GM vehicle warranties under the "Warrantee Commitment Program."

Can I take my vehicle for service and warranty work to another (surviving) dealer?

Yes, but make sure it's a certified dealer. If you're going to take your Chrysler, Jeep or Dodge vehicle in for warranty work, you can do so at a closing dealership until June 9. After that time, Chrysler will no longer pay those dealers for warranty work. GM vehicles will receive service and warranty work at closing dealers until they shut down.

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Will there be good deals on these vehicles?

The Chrysler dealerships to close will have about 44,000 units on hand, or roughly what Chrysler, Jeep and Dodge sell across the country every 2-3 weeks (using April's sales numbers as a guide).

There will be deals, but be warned that if those 44,000 aren't sold before June 9, Chrysler will work to redistribute them to other dealers. Whether the best deals will be had before or after June 9 is likely negligible; if you're interested in a Chrysler, Jeep or Dodge product, you will save a lot of money on a new purchase right now.

One important factor to keep in mind is that approximately 10% of those remaining units are 2008 vehicles. Be careful the car you're looking at hasn't been sitting on the lot inactive for too long; cars actually do "rot."

GM's dealer announcement is a different story, since the company isn't releasing the names of the closing dealers. Dealers who chose to disclose their shutdown may provide better deals. AOL Autos: Why do cars rot on the lot?

How many people and jobs are affected by closing dealers?

The impact on communities will be significant. Since dealers typically employ about 50 people and contract with a handful of suppliers (consider the business that sells paper or office furniture to each dealer), there will be impact within the community.

Some economists, however, believe that the impact will be less than expected, since dealers typically have a high turnover rate and technician jobs were in a short supply already. But, the related aspects of dealer closings are certain: think of the little league baseball teams and charities that receive funding from do-gooding dealers.

Even real estate is affected; car dealerships usually set the market for commercial real estate in smaller communities. When those go empty, the entire city feels the pain. AOL Autos: Pressure to buy American

Why were these dealers chosen?

Both Chrysler and GM have expressed interest to shrink their dealer base. Company officials cite various data points related to choosing these dealers, but the main one is performance.

GM said that the average dealer of the 1,100 affected only sold 35 cars in all of 2008. Chrysler cites similar numbers, with half their closing dealerships selling less than 100. But, even after these reductions by Chrysler and GM, they still have more dealers than other manufacturers.

Using April 2009's sales data as a proxy, Toyota has approximately 95 dealers per 1 point of market share in the U.S., while Chrysler has 256 and GM will have 172 (at the end of 2010). This means that, effectively, Toyota is able to sell more vehicles per dealership. AOL Autos: Fate of the GM brands

Can dealers do anything about this?

Typically, dealers would have protection under state franchise laws against such events. However, in Chrysler's case, those franchise laws are not applicable since the company declared Chapter 11 bankruptcy.

Chrysler dealers can (and likely will) protest the process by which they were chosen (sales volume, number of brands in the store, the area in which the dealership operated). But after June 9, the selected Chrysler, Jeep and Dodge dealers will have to take down their signs.

GM dealers will likely organize their own group, but details of that are unclear at this time. AOL Autos: Are extended warranties worth it?

Even after cuts, do the big three still have too many U.S. dealers?

Some companies need fewer dealers to sell the same amount of cars:

Chrysler LLC
Number of dealers: 2411
Market share: 9.4
Dealers per 1 pt. market share: 256

Ford Motor Co.
Number of dealers: 3723
Market share: 15.7
Dealers per 1 pt. market share: 237

General Motors
Number of dealers: 3600
Market share: 20.9
Dealers per 1 pt. market share: 172 AOL Autos: Six cars to save the big three

Honda Motor Co.
Number of dealers: 1304
Market share: 12.4
Dealers per 1 pt. market share: 105

Toyota Motor Corp.
Number of dealers: 1470
Market share: 15.4
Dealers per 1 pt. market share: 95

Market data shown reflective of April 2009, courtesy of Autodata. Chrysler dealer total is effective June 9; GM dealer total is estimate for end of 2010.

© 2009 AOL, LLC. All Rights Reserved.

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