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With older inventory lower than years past, dealers gladly jump at selling new models.

Eric Morath / The Detroit News

Chrysler LLC dealers are focusing on selling next year's models -- something they weren't able to do the past two autumns because a glut of older vehicles sat on their lots.

By contrast, vehicles rolling off dealer lots this week are overwhelmingly 2008 models, Chrysler said. Overall vehicle inventory at the end of October was down 8 percent from the same time period last year, according to the automaker.

While less inventory makes it harder for consumers to find end-of-model-year bargains, having fewer 2007 vehicles in stock is better business for dealers.

"It's a much better situation to be in," said Bob Shuman, operator of Shuman Chrysler Jeep in Walled Lake. "People want to buy newer models. We got to '08s early and are off and running selling them."

Under the new ownership of Cerberus Capital Management LP, the automaker has improved the pacing of production and inventory, one of several potential moves to reshape its dealer network.

Last year, dealers complained, at times loudly, about the overstock of 2006 vehicles that they felt the Auburn Hills automaker forced them to accept.

When current-year models stack up, dealers must deeply discount them, which cuts into profits and hinders sales of next model year vehicles.

Dealers credit new management with taking steps to reduce inventory levels and improve the strained relationships with the automaker's retail network.

Cerberus, among other moves, recruited former Toyota Motor Corp. executive Jim Press, well known in the industry for building a strong relationship with dealers.

"They are a breath of fresh air," said Jon Myers, owner of Naples Dodge in Florida and a member of the Dodge National Dealer Council. "They have to clean up and make right the sins of the past they are certainly making a lot of headway, but it was a wreck."

Myers has noticed the difference. He has about 50 percent fewer current-year models on his lot than he did the past two Novembers.

Putting dealers in a better year-end position was a goal for the automaker, said Chrysler spokeswoman Christina Biache.

"The sell-down of 2007 model year product is on target. We are now focusing on our 2008 models," she said.

"The company is moving its attention to 2008 vehicles a month earlier this year than a year before, based on sales and production alignment."

Better pacing avoids fire sale

With a focus on pushing next year's models, Chrysler is offering incentives, including zero-percent financing, on nearly all 2008 vehicles. It isn't marketing an incentive program for 2007 vehicles like other automakers; General Motors Corp., for instance, is pitching discounts on 2007 models.

An overstock of current-year vehicles is damaging to both dealers and the automaker, industry analysts said. Unsold vehicles are costly to warehouse and lose value as they sit on lots.

"Last year (Chrysler) was stockpiling cars like cordwood," said Erich Merkle, vice president of forecasting for Grand Rapids-based IRN Inc.

He said that while companywide inventory levels remain unacceptably high, they are much better than they were a year ago.

In recent years, dealers felt pressure from the automaker to accept those stockpiled vehicles. Several dealers said those vehicles were outfitted with trim levels and options that buyers didn't want.

Not only did discounted 2006 vehicles stunt dealers' efforts to sell newly released cars and trucks, but also it forced them to lower prices on 2007 models.

"Dealers now have better margins and build up equity in their vehicles," said Haig Stoddard, a Troy-based analyst with Global Insight Inc. "When you have a fire sale on old models, it has an effect on new models, and dealers ended up having to discount those vehicles to move them as well."

Stoddard said he expected Chrysler to produce about the same number of vehicles this year as in 2006; however, he said the automaker paced its production better so dealers have more "high quality" 2008 inventory and fewer old models this month.

Building good will with dealers is key for the newly private company as it looks to trim -- and maybe reorganize -- its dealer network.

Chrysler remains committed to reducing its 3,700 dealers by 10 to 15 percent, a goal Vice Chairman Tom LaSorda set earlier this year.

No time frame has been set on LaSorda's plan to eliminate up to 550 dealers, spokeswoman Biache said.

"Chrysler wants to ensure that we have a dealer network that is optimized and provides adequate coverage for customers who are interested in our products," she said. "This optimization process is mainly market driven."

Such plans are difficult to implement because dealers are independent businesses and Chrysler does not have direct control over them. State franchise law favors dealer rights over those of manufacturers.

A competitive equation

While many analysts said the company needs to trim its number of dealers, Chrysler must act carefully.

Loyal customers could be angered if a dealer, many of whom are big supporters of community charities and events, closes down. And if customers have to drive to find a new Chrysler dealership, they may be more likely to shop at competitors closer to home.

Still, more could be done with fewer dealers, said Mike Jackson, director of North American vehicle forecasts at CSM Worldwide.

He said Chrysler has more than double the number of dealers Toyota has, but the Japanese automaker outsells Chrysler in the United States.

As market share falls for Detroit's Big Three, their dealers have less money to spend on investing in new facilities and advertising.

"Some dealers, who are not healthy, are willing to discount vehicles to the point where it's detrimental to the whole brand," Jackson said.

Talk of dealer restructuring is a hot topic among dealers across the country.

Michael Riehl, president of Roseville Chrysler Jeep, said it's a "good-sized challenge" for the new management.

"There might be a couple too many dealers in some markets and some might be too close together," he said. "But they need to make changes that meet each dealer's personality because (the dealers) are the ones molded into society and the community."
 

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"It's a much better situation to be in," said Bob Shuman, operator of Shuman Chrysler Jeep in Walled Lake. "People want to buy newer models. We got to '08s early and are off and running selling them."
Very true. This year versus last year is like apples versus oranges. We were out of '07 Rams a month ago, with the exception of a few stragglers brought in from other locations. This time last year there were probably close to a hundred '06 Rams on our lot, many of which came from Chrysler's "sales bank" and had an unusual combination of options.

As with anything there is a down side to this - a lot of folks wait until this time of year to find a bargain on "last year's model" - and right now if they visit the average Chrysler, Dodge, or Jeep store they are likely to find only 2008 models.
 
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