Chrysler Moves to Eliminate 789 of 3,200 Dealers
May 14, 2009Chrysler LLC wants to eliminate roughly a quarter of its 3,200 U.S. dealerships by early next month, saying in a bankruptcy court filing Thursday that the network is antiquated and has too many stores competing with each other.
The company, in a motion filed with the U.S. Bankruptcy Court in New York, said it wants to shed 789 dealerships by June 9. Many of the dealers' sales are too low, the automaker said, with just over 50 percent of dealers accounting for about 90 percent of the company's U.S. sales.
Dealers were told Thursday morning through United Parcel Service letters if they would remain or be eliminated. The cuts are likely to devastate cities and towns across the country as thousands of jobs are lost and taxes are not paid.
Chrysler Vice Chairman Jim Press called the cuts difficult but necessary. He said the list of dealers is final and there will be no appeal process.
"This is a difficult day for us and not a day anybody can be prepared for," Press told reporters during a conference call.
A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York for the judge to determine whether to approve Chrysler's motion. Judges often rely on companies in bankruptcy to help determine what is in their best business interest, such as the closure of dealerships or cancellation of contracts.
Chrysler executives said the company is trying to preserve its best-performing dealers and eliminate ones with the weakest sales. More than half of the dealerships being eliminated sell less than 100 vehicles per year, they said, and account for 14 percent of U.S. sales.
The company is also trying to reduce the number of single-brand dealerships to bring all three Chrysler brands - Jeep, Chrysler and Dodge - under a single roof, they said. It also wanted to limit competing dealerships.
"We recognize in the short term we will see some loss of sales," Press said. "But based on the long term ... the dealer (network) is key and it's going to be very strong, powerful, with a much better financial viability."
The 3.5 million customers who purchased vehicles from the affected dealers will be notified about the closures and their warranties will still be honored, said Vice President Steven Landry.
Don Burk, co-owner of Heritage Chrysler Jeep in Ozark, Mo., said he found out that Chrysler plans to get rid of his dealership when he opened his UPS letter Thursday morning.
"Right now I'm processing the information," he said shortly after reading the letter. "I'm sure I'm going to get with my partner and we'll decide what to do from here."
The dealership, in a city of about 10,000 near Springfield, Mo., is involved in the community, sponsoring sports teams and even buying championship rings for the Ozark High School girls basketball team when it won the state championship several years ago, Burk said.
"If you're a good-sized business, kind of by default you're involved a lot," he said.
Chrysler dealerships aren't the only ones scheduled to get bad news this week. General Motors Corp. says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September of 2010.
In its motion, Chrysler said it has many dealerships that sell one or two of its brands, with Chrysler-Jeep dealerships competing against Dodge dealers as well as other automakers' stores across the country.
"We understand there's going to be a consolidation of dealers, said John McEleney, a Clinton, Iowa, auto dealer who serves as chairman of the National Automobile Dealers Association. "We just think the process needs to be slowed down."
He said about 187,000 jobs could be lost from the closing of GM and Chrysler dealerships.
Even for dealers that were not included on the list, Thursday's news was not easy to handle.
"It's heart-wrenching," said Chuck Eddy, a Youngstown, Ohio, Chrysler dealer that was not cut. "I've grown up in this business. My dad's been with Chrysler since '57. I've grown up with a lot of these families. That's all I've ever known - Chrysler."
Chrysler said in its filing that dealers are not competitive enough with foreign brands. Chrysler sold an average of 303 vehicles per dealer in 2008, according to its filing. By contrast, Honda Motor Co. sold about 1,200 vehicles per dealer, while Toyota Motor Corp. sold nearly 1,300 per dealer.
Chrysler said its dealer network "needs to be reduced and reconfigured in a targeted manner to strengthen the network and dealer profitability and to achieve optimal results for the dealers and consumers."
Chrysler has received $4 billion in federal loans and has been operating in bankruptcy protection since April 30. Its sales this year are down 46 percent compared with the first four months of last year and it reported a $16.8 billion net loss for 2008.
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