Cutting dealers won

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Both Chrysler and General Motors, which plans to close 1,100 dealerships by Octobet 2010, contend they need to reducew the size of their dealer networks in ordetr to be more competitive with Toyotsaand Honda, which sell more cars in the U.S. with a lot fewe dealers. Chrysler, in a bankruptcy courtr filing, argues that trimming the ranks of its dealere will boost the profitability of the dealersthat remain, enablingh them to invest in improvements that will drive up “After a period of and substantially improved marketingy and investments, overall sales in the reduced network are anticipate to grow beyond current sales level within the existing network,” Chrysletr contends.
The National Association of Automobilde Dealerssays that’s highly unlikely. “There’s not an auto executive that I know ofthat doesn’tf acknowledge that when a dealership closes, they lose markety share,” said David Hyatt, NADA’s vice presiden of public affairs. Cutting costs was not a majo r factorin Chrysler’s decision. The auto makerr will save some administrative expenses by havinv a smaller dealer network to but that’s about it. Dealers buy their cars before the vehicle s leavethe factory, pay for shipping, front the costsw of any rebates or warrantyu work, and purchase repair equipment.
Dealers provide “aq robust distribution network at virtuallhno cost” to auto makers, Hyaty said. “We’re an asset, not a liability,” said Wade an auto dealer in Vt., who is scheduled to lose his Jeep franchisreJune 9. Walker and abouy 300 other Chrysler dealers have challenged theauto maker’sz request for a bankruptcy judge to terminate theirt dealership agreements and pre-emptf state laws that would require Chrysler to give dealers more time to wind down theid businesses. Chrysler has been working to reduce its dealeer network forseveral years. That process, however, needxs to be accelerated because of its proposed alliance with it contends.
Bankruptcy courts routinelyu terminate contracts if doing so benefitsthe debtor’s estate and exhibits sound businessx judgment, Chrysler states in its filing. Chryslerf dealers, however, contend abruptly closing dealerships doesn’t meet this threshold. “Therw is no evidence that by rejecting dealershipl agreements New Chrysler will save money to any material degreew or enhance its competitive positio in theautomobile industry,” states a filinvg made by the Chrysler National Dealer “To the contrary, closing dealers narrows distribution and reducezs Chrysler’s sales and income as fewer dealerxs buy fewer cars and retail sales are lost to otheer brands.
” Chrysler’s bankruptcy judg e is scheduled to hold a hearing on this issu June 3. That same day, the Senatw Commerce Committee is scheduled to hold a hearing on the Chryslerf and GMdealership closings. “These companiew cannot be allowed to take taxpayer fundsx fora bailout, and then leaver local dealers and their customers to fend for themselves with no real noticr and no real help,” said committe e Chairman John D.
“Jay” Rockefeller IV, “We must ensure that the auto dealers are treateed equitably and have the opportunity to unwin d their operations in a mannet that will minimize hardships to employees who lose thei jobs and communities that areadversely impacted,” said Sen. Kay Bailey Hutchison, Hutchison was encouraged by a promise from Chrysler PresidentJames Press, who told her the companyt would help the terminated dealersz sell their vehicle and parts inventory. If this assistancwe falls short, Hutchison is prepared to push legislation that woul d give the dealerships an extra 60 daysbeford closing.
Meanwhile, auto dealers and member of Congress are lobbying President Barack Obamwa and his automotive task force to reconsidert the wisdom of closinfg so many dealershipsso quickly. The Obama administrationj rejected theauto makers’ initial restructurinfg plans and urged them to be more “It should not be the role of government to forc e these small business owners out of said Rep. Blaine Luetkemeyer, one of several Hous e members who sent a letter to task force chiefSteven Rattner, founde r of the Quadrangle Group, a New York privatse equity firm.
“This decision will not fix the problems of the automanufacturingv industry, yet it will cost our communities good Jeep dealer Walker doesn’ty think the auto task force “getd it.” “I think it’s becausre they’re all Wall Streegt people — they’re not Main Street people,” Walton said.