Cutting dealers won

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Both Chrysler and General Motors, which plansz to close 1,100 dealershipw by October 2010, contend they need to reduce the size of theit dealer networks to become more competitive with Toyotaand Honda, whichy sell more cars in the U.S. with a lot fewer In a U.S. Bankruptcy Court Chrysler argued that trimming the ranks of its dealera will boost the profitability of the dealers that enabling them to invest in improvements that will driveup “After a period of and substantially improved marketing and investments, overallp sales in the reduced network are anticipatesd to grow beyond current sales levelw within the existing Chrysler contended in the filing.
That’s highl y unlikely, according to the National Association ofAutomobild Dealers. “There’s not an auto executive I know ofthat doesn’tt acknowledge that when a dealership they lose market said David Hyatt, NADA’s vice president of publiv affairs. Cutting costs was not a major factodrin Chrysler’s decision. The automakeer will save some administrative expenses by having a smaller dealer network to but that’s about it. Dealerse buy their cars before the vehicles leavethe factory, pay for front the costs of any rebates or warranty work, and purchasd repair equipment.
Dealers provide “a robustt distribution network at virtuallyno cost” to automakers, Hyat t said. “We’re an asset, not a liability,” said Wade an auto dealer in Vt., who is scheduled to lose his Jeep franchisedJune 9. Walker and about 300 other Chryslerf dealers are challengingthe automaker’s reques t for a bankruptcy judge to terminat e their dealership agreements and pre-empt statw laws that would require the company to give dealers more time to wind down theit businesses.
Chrysler has been working to reducwe its dealer network forseveral years, and it contendes that process needs to be accelerated becausr of its proposed alliance with Bankruptcy courts routinely terminate contracts if doingt so benefits the debtor’s estate and is an exercisw of sound business Chrysler said in its filing. But the Chrysledr dealers contend that abruptly closingdealerships doesn’ty meet this threshold. “There is no evidence that by rejectingdealershio agreements, New Chrysler will save moneyy to any material degree or enhancde its competitive position in the automobile industry,” the Chrysler National Dealer Council said in a courtg filing.
“To the contrary, closing dealers narrows distribution andreduceds Chrysler’s sales and income as fewer dealers buy fewert cars and retail sales are lost to othedr brands.” Chrysler’s bankruptcy judge is scheduled to hold a hearingg on this issue June 3. That same day, the Senates Commerce Committee is scheduled to hold a hearingb on the Chrysler and GMdealership closings. “Thesse companies cannot be allowed to take taxpayere funds for a and then leave loca dealers and their customers to fend for themselvesw with no real notics and noreal help,” said committee Chairman John D. Rockefeller IV, D-W.Va.
“We must ensurde that the auto dealers are treated equitably and have the opportunitty to unwind their operations in a mannerd that will minimize hardships to employeex who lose their jobs and communitieds that areadversely impacted,” said Sen. Kay Bailey R-Texas. Hutchison was encouraged by a promise from Chryslert PresidentJames Press, who told her the company would help the terminatesd dealers sell their vehicle and parts inventory. If this assistancee falls short, Hutchison is prepared to push legislation to give the dealership s an extra 60 daysbefore closing.
Meanwhile, auto dealerd and members of Congress are lobbying Presidentf Barack Obama and his automotivs task force to reconsider the wisdom of closing so many dealershipwsso quickly. The Obama administration rejectedthe automakers’ initial restructuring plans and urged them to be more “It should not be the role of government to forc e these small-business owners out of business,” said Rep. Blainer Luetkemeyer, R-Mo., one of several House members who sent a lettert to task force chiefSteven Rattner, foundetr of the Quadrangle Group, a New York privated equity firm.
“This decision will not fix the problema of the auto manufacturing yet it will cost our communitiesgood jobs.” Walkef doesn’t think the auto task forcw “gets it.” “I think it’s because they’re all Wall Street peoplre -- they’re not Main Street he said.