Automaker, still trying to mend relationship with dealers, makes it easier for them to get bonuses.
Josee Valcourt / The Detroit News
DaimlerChrysler AG's Chrysler Group, which has made improving dealer profitability a priority, lowered its June sales targets, making it easier for its dealers to collect bonuses.
The Auburn Hills automaker reduced its "Volume Purchase Allowance" goals by 10 percent this month, according to a recent letter to retailers from Steven Landry, Chrysler's executive vice president for North American sales, global marketing, service and parts.
Once dealers hit their targets, they get bonuses for any additional vehicles they sell. The program has been a source of friction with some dealers, who say it often calls for unrealistic targets, as well as creates an uneven playing field that benefits larger, profitable dealerships and hurts those that are smaller and less profitable.
Chrysler spokesman Markus Mainka confirmed the reduced June's sales target.
"We try to ensure that the target-setting process is reasonable, transparent and also reflects how we think the industry will develop," Mainka said. "And we constantly continue to review the effectiveness of the program and make potential changes as necessary in consultation with the dealer council."
Since late last year, Chrysler has been trying to mend its tattered relationship with dealers after the automaker overestimated the market and crammed overbuilt vehicles onto retailers' lots.
In his "mid-year review" letter, Landry summarized measures taken in the first six months of the year and plans for the remainder of 2007. He wrote that one area in which the automaker has made progress is in setting "realistic retail sales targets."
Under Chrysler's revised targets for June, dealers will earn $500 for each vehicle they sell over their goal. For every vehicle they sell over the original target, they will earn $650.
The change motivates dealers who may have been discouraged because it appeared they weren't going to hit their targets, said Ron Kutz, general manager at Dallas Dodge Chrysler Jeep dealership. "It makes it obtainable," he said.
The lowered June goals also give dealers a shot at reaching their quarterly targets and getting those bonuses, Kutz said.
"It's not just a reduction for June, but it's a reduction for April and May, which therefore means if I missed April, then wow! I have a chance to catch up on the all the money from April. It's a double win for a dealer."
Doug Wilson of Wilson Dodge in Flowood, Miss., said the new targets show the automaker is paying attention to "what's going on in the marketplace and with our sales. This shows that their numbers were unrealistic to begin with and out of touch with the current market conditions."
For the month of June, vehicle sales are expected to reach about 16.2 million units on a seasonally adjusted annual rate, said Erich Merkle, an analyst with IRN Inc. in Grand Rapids. That compares to a 16.3 million annual rate last June.
"We're seeing some weakness in the market in terms of sales," Merkle said. "It's slight, but it's there."
Higher gas prices and interest rates have impacted consumer spending habits. However, Chrysler's lower June targets may have more to do with how its vehicles are being received in the marketplace, Merkle said.
"They're going to have to tread water for a while until they get their new minivans," he said. "That will be their next big hit. A lot of the stuff that they've had just hasn't performed very well outside of the Wrangler four-door."
In the letter, Landry urged dealers to sell more Dodge Caliber and Nitro vehicles, among other newer models.
"We can sell more Caliber," the letter reads. "It is perfect for the U.S. market. Sebring and Avenger are great vehicles, and we need your help to advertise them locally Compass and Nitro need a push from both of us."
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