DC To KO Ad Money To Local Car Dealers
GRAND RAPIDS — A few local new car dealers had a roller-coaster emotional ride last week. The excitement of the third annual Michigan International Auto Show was tempered somewhat for Chrysler, Dodge and Jeep dealers as DaimlerChrysler AG revealed its plans to stop its financial bleeding and its tumbling stock price.
Part of the turnaround plan, as DaimlerChrysler executives referred to it, reportedly calls for the automaker to slash $600 million from its advertising budget and showroom subsidies account. The retail portion of the plan has the Auburn Hills-based carmaker cutting back funds for co-op ads with dealers and the cost of prepping new vehicles at the dealerships. The company is also considering lowering the profit margin it pays dealers for selling accessories, like sun roofs and chrome wheels.
Changing the game plan could be a big deal for local dealers, as DaimlerChrysler provides upwards of $1 million a year in marketing support.
John Flikkema III, of Van Andel & Flikkema Chrysler Jeep at 3844 Plainfield Ave. NE, estimated the company spends about $400,000 a year on advertising Chrysler and Jeep products in West Michigan.
"I'm sure that there is another $400,000 spent on Dodge, maybe even more," he said. "So maybe $1 million out of western Michigan just in advertising."
Flikkema made his comments prior to meeting with DaimlerChrysler officials last week.
Other local dealers expected to be affected by the company's apparent advertising cuts include Highland Chrysler Jeep at 1350 28th St. SE, Courtesy Dodge at 440 28th St. SE and K&M Northfield Dodge at 4100 Plainfield NE.
But cuts in advertising and showroom perks might not be the dealers' biggest concern. The company also may change its bonus system to dealerships. Usually dealers get cash bonuses for selling certain models regardless of overall sales. DaimlerChrysler is looking at paying bonuses only when dealers met monthly sales quotas that will be set by the company.
GR New Car Dealers Association Executive Director Bill Gill told the Business Journal that if DaimlerChrysler cuts its ad budget, it doesn't necessarily follow that General Motors and Ford would do the same here.
"No. As a matter of fact, I think it's unlikely. What we've got with DaimlerChrysler, if I'm reading it right, is a situation where they are in dire straits because of actions they took or didn't take over the last few years. And they have to find a way out of their dilemma or they are liable to lose the whole company," said Gill.
In fact, Gill felt just the opposite might be the case.
"I think it's probably to the contrary — that GM or Ford would want to maybe up their advertising at that point in order to take advantage of these guys being down," he added.
The local dealers will know a lot more about their fate on Feb. 26 when DaimlerChrysler executives present the details of their turnaround plan. Another element of the company's plan is to request a 5-percent price cut from parts suppliers. Orders from DaimlerChrysler make up about 20 percent of that business locally.
"No one wants this to happen. I personally wish it didn't have to happen," said Dieter Zetsche, Chrysler president and CEO, last week. "Today is our turning point."