Local Chrysler dealer loses franchise


Local Chrysler dealership owner Jeff Carr spent last week in New York testifying before bankruptcy court.

And at midnight on Tuesday, his dealership was officially orphaned from the Chrysler family.
“I’ve been in such fight mode for the past three weeks,” he said. “Once this all comes to a head, then I have to pull back and say, ‘What am I going to do?’ ”

On May 14, McGurk Meyers, 404 Second St., Coralville, and 21 other Iowa Chrysler dealers received notification of their June 9 contract termination from Chrysler.

Iowa City’s McEleney Autoplex, 1600 Highway 1 W., also received news. Its owner was informed of its continued agreement with General Motors.

Franchise agreement or not, McGurk Meyers and McEleney Autoplex agree on one thing: Cutting dealerships from their parent franchise is unjustifiable financially.

“Ninety percent of manufacturers’ money comes from car dealers,” said Carr, the owner of McGurk Meyers.

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And local dealerships are responsible for paying their own way.

Local dealers are responsible for paying their employees, purchasing vehicles and parts directly from the manufacturer, and buying their own car lots, Carr explained.

And the signs, logos, and brochures dealerships displayed with the Chrysler and GM names were all purchased by local dealers.

Now, nearly 2,000 Chrysler and GM dealerships nationwide are left to fend for themselves during this tough time for the automobile industry.

Patrick Eads, the vice president of McEleney Autoplex, said cutting dealerships will end up affecting more than just the GM and Chrysler dealers. Car dealerships are the backbone to entire communities, supporting local groups, such as Little League teams, Ead said.

As of midnight on Tuesday McGurk Meyers is just one of the 789 Chrysler dealerships nationwide that is stuck with already purchased Chrysler vehicles that must now be sold without company incentives.

This could make them less competitive against other dealers, who receive manufacturer rebates and can sell their vehicles at a reduced price, Carr said.

Also, Iowa City residents who have purchased new Chrysler vehicles cannot get warranty work done at McGurk Meyers.

Carr believes his dealership’s contract was terminated because Chrysler is trying to merge its ‘dealerships’, which also include Dodge and Jeep under one roof during Chrysler’s reorganizational period.

Contrary to what the dealership owners believe, UI finance Professor Erik Lie said combining the brands makes financial sense — to an extent. On average, companies plunge into bankruptcy facing 70 percent debt and emerge with only 40 percent debt.

Lie, who studied Chapter 11 bankruptcy between 1990 to 2003, said that while bankruptcy seems like an easy way to “start from scratch,” many companies find it hard to survive and compete with debt hanging over them.

Furthermore, he warned even a mention of bankruptcy can set off a “vicious cycle” for companies.

When people begin talking about GM and Chrysler bankruptcy, consumers are more hesitant to buy cars, potentially accelerating bankruptcy for dealerships.

He stresses that it is important for companies to regain their strength quickly and systematically so they can be seen as a healthy dealership buyers can count on.

It may be too soon to tell exactly what the future holds for McGurk Meyers on only its first day without the backing of the Chrysler franchise.

Still, Carr is optimistic, saying, after surviving flood devastation of last June, “this is just a speed bump.”

Correction: In the June 10 article “Dealers see troubled waters” the DI incorrectly quoted UI finance Professor Erik Lie saying Chrysler’s move to combine brands makes financial sense. Lie never spoke specifically about Chrysler’s plans.

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