Chrysler teaches the industry another lesson

April 30, 2009

Mark the day, April 30, 2009. Chrysler Corporation declares bankruptcy, a watershed moment in the history of the American automobile industry. There will be countless tragedies, personal and financial that will result from this event. I find deep sorrow and remorse for all who are affected, and know that brighter days lie ahead.There will be many lessons learned from the Chrysler experience, but one most poignant for dealers is the need for their used car department to have primacy. My premise is based on the reality that all franchises rise and fall in fortune. Dealers that invest their capital and livelihood have no control whatsoever in the destiny of their business. What vehicles are produced, how they’re designed, their quality and pricing are decisions that are made outside of their control. One needs to seriously question why a business person should ever again fall victim to having their entire past, present and future tied to any single brand that they do not control. It’s like hitching your wagon to a rollercoaster.

Historically used car operations have been a secondary adjunct to the dealer’s new car franchise. Proof can be found in the composition of their used vehicle inventory. For most every dealer 70% or more of their used inventory reflects the make of their franchise brand. This is a powerful testament to the fact that the used car operation has only played second fiddle.

With today’s bankruptcy filing, and more to possibly come soon, it is time for dealers to make their used car department the primary source of their livelihood – present and future. The new car department should now take the back seat. This is because the used car business is one that is historically consistent and exclusively under the control of the dealer. It is the dealer’s own decision what to buy, what to sell, and how to price. Moreover, there is an inherent diversity that insulates the investment risk based on a variety of makes and models. If one day Honda’s are no longer hot, and Kia’s grow in popularity, the dealer can quickly adjust.

Everyone knows that it would be unwise to invest 100% of their wealth in any single stock, even if it’s red hot. A wise investor will always diversify and thereby insulate themselves against the risk of a catastrophic event such as the one that has occurred today. Let today be the beginning of a new recognition among dealers that the used car department has primacy.