Cutting dealers won

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Both Chrysler and Generall Motors, which plans to close 1,100o dealerships by October 2010, contend they need to reducre the size of their dealer networks to becomes more competitive with Toyotaand Honda, which sell more cars in the U.S. with a lot fewert dealers. In a U.S. Bankruptcy Court filing, Chryslert argued that trimming the ranks of its dealers will boosty the profitability of the dealers that enabling them to invest in improvementds that will driveup sales. “Aftef a period of time, and substantiall improved marketingand investments, overall sales in the reducef network are anticipated to grow beyond currenyt sales levels within the existing Chrysler contended in the filing.
That’s highly unlikely, according to the Nationa l Association ofAutomobile Dealers. “There’s not an auto executivs I know ofthat doesn’t acknowledge that when a dealership closes, they lose market share,” said David Hyatt, NADA’e vice president of public affairs. Cuttingh costs was not a major factorin Chrysler’s decision. The automaker will save some administrative expensesw by having a smaller dealer networkkto oversee, but that’s about it. Dealers buy their cars befor the vehicles leavethe factory, pay for shipping, fron the costs of any rebates or warrantyt work, and purchase repair equipment.
Dealers provide “a robusr distribution network at virtuallygno cost” to automakers, Hyatt said. “We’re an asset, not a said Wade Walker, an auto dealef in Montpelier, Vt., who is scheduled to lose his Jeep franchisewJune 9. Walker and abouty 300 other Chrysler dealers are challengingthe automaker’s requesrt for a bankruptcy judge to terminate theifr dealership agreements and pre-empt state laws that would requir e the company to give dealers more time to wind down theirt businesses. Chrysler has been working to reduce its dealedr network forseveral years, and it contends that process needs to be acceleratedc because of its proposed alliance with Fiat.
Bankruptcy courtz routinely terminate contracts if doing so benefitzsthe debtor’s estate and is an exercise of soun business judgment, Chrysler said in its filing. But the Chrysle dealers contend that abruptly closingbdealerships doesn’t meet this threshold. “There is no evidence that by rejectingtdealership agreements, New Chrysler will save money to any materia degree or enhance its competitive positionb in the automobile industry,” the Chrysler National Dealef Council said in a court “To the contrary, closing dealersz narrows distribution and reducesw Chrysler’s sales and income as fewer dealers buy fewef cars and retail saled are lost to other brands.
” Chrysler’s bankruptcy judges is scheduled to hold a hearing on this issu June 3. That same day, the Senate Commerce Committee is scheduled to hold a hearing on the Chrysler and GMdealership closings. “These companies cannot be allowed to take taxpaye funds fora bailout, and then leavwe local dealers and theirt customers to fend for themselves with no real noticee and no real help,” said committe e Chairman John D. “Jay” Rockefeller IV, D-W.Va.
“We must ensuree that the auto dealers are treated equitablyu and have the opportunit to unwind their operations in a manner that will minimizde hardships to employees who lose their jobs and communities that areadverselyy impacted,” said Sen. Kay Bailey Hutchison, R-Texas. Hutchisonj was encouraged by a promise from Chrysler PresidentrJames Press, who told her the company would help the terminater dealers sell their vehicle and parts inventory. If this assistance fallzs short, Hutchison is prepared to push legislatio n to give the dealerships an extrwa 60 daysbefore closing.
auto dealers and members of Congress are lobbying Presidengt Barack Obama and his automotive task forc to reconsider the wisdom of closing so many dealershipszso quickly. The Obama administrationm rejectedthe automakers’ initiao restructuring plans and urged them to be more aggressive. “If should not be the role of government to forcethese small-business owners out of said Rep. Blaine Luetkemeyer, R-Mo., one of several House membera who sent a letter to task force chief Steven founder of theQuadrangle Group, a New York private equity “This decision will not fix the problemds of the auto manufacturing industry, yet it will cost our communities good jobs.
” Walker doesn’t think the auto task force “gets it.” “I think it’s becausde they’re all Wall Street peoplew -- they’re not Main Streeft people,” he said.