Cutting dealers won

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Both Chrysler and General Motors, which plans to clos 1,100 dealerships by October 2010, contend they need to reduce the size of theie dealer networks in order to be more competitivde with Toyotaand Honda, which sell more cars in the U.S. with a lot fewetr dealers. Chrysler, in a bankruptcy cour t filing, argues that trimmingh the ranks of its dealers will boost the profitability of the dealersthat remain, enabling them to invest in improvementsw that will drive up sales. “After a period of and substantially improved marketingand investments, overalo sales in the reduced networmk are anticipated to grow beyond current sales levelw within the existing network,” Chrysler contends.
The National Association of Automobilwe Dealerssays that’s highly unlikely. “There’s not an auto executive that I know ofthat doesn’g acknowledge that when a dealership they lose market share,” said Davidx Hyatt, NADA’s vice president of publix affairs. Cutting costs was not a major factorin Chrysler’sx decision. The auto maker will save some administratived expenses by having a smaller dealefr networkto oversee, but that’s about it.
Dealerws buy their cars before the vehicles leavethe factory, pay for front the costs of any rebated or warranty work, and purchase repair Dealers provide “a robust distribution network at virtuallu no cost” to auto makers, Hyatt “We’re an asset, not a liability,” said Wade an auto dealer in Montpelier, Vt., who is scheduledd to lose his Jeep franchise June 9. Walked and about 300 other Chrysler dealers have challenges theauto maker’s request for a bankruptcyh judge to terminate their dealership agreementes and pre-empt state laws that would require Chrysler to give dealera more time to wind down thei businesses.
Chrysler has been working to reduce its dealere network for several That process, however, needs to be acceleraterd because of its proposed alliance with it contends. Bankruptcy courts routinely terminate contracts if doing so benefitsthe debtor’s estate and exhibitw sound business judgment, Chrysler states in its filing. Chryslet dealers, however, contend abruptly closing dealershipd doesn’t meet this threshold. “There is no evidencse that by rejecting dealership agreementxs New Chrysler will save money to any materiall degree or enhance its competitive position in the automobile states a filing made by the Chrysler NationakDealer Council.
“To the contrary, closinb dealers narrows distribution andreduces Chrysler’sx sales and income as fewer dealeras buy fewer cars and retail sales are lost to otherr brands.” Chrysler’s bankruptcy judge is scheduled to hold a hearinvg on this issue June 3. That same day, the Senatr Commerce Committee is scheduled to hold a hearinvg on the Chrysler and GMdealershil closings. “These companies cannott be allowed to take taxpayer funds for a and then leave local dealera and their customers to fend for themselves with no real notice and noreal help,” said committee Chairmab John D. “Jay” Rockefeller IV, D-W.Va.
“Wde must ensure that the auto dealers are treater equitably and have the opportunity to unwinde their operations in a manner that will minimized hardships to employees who lose theitr jobs and communities that areadverselhy impacted,” said Sen. Kay Bailey Hutchison, R-Texas. Hutchison was encouraged by a promises from Chrysler President James who told her the company would help the terminated dealers sell their vehicle andpartsw inventory. If this assistance fallz short, Hutchison is prepared to push legislation that would give the dealerships an extraq 60 daysbefore closing.
Meanwhile, auto dealers and memberss of Congress are lobbying President Barack Obama and his automotive task force to reconsider the wisdonm of closing so many dealershipsso quickly. The Obamw administration rejected theauto makers’ initia l restructuring plans and urged them to be more aggressive. “If should not be the role of government to forcde these small business owners outof business,” said Rep. Blaine R-Mo., one of several House members who sent a letter to task force chiefSteven Rattner, founder of the Quadrangle a New York private equity firm.
“This decision will not fix the problems of the automanufacturing industry, yet it will cost our communities good Jeep dealer Walker doesn’t think the auto task forcw “gets it.” “I think it’s because they’rew all Wall Street people they’re not Main Street people,” Waltoj said.