Congress joins Chrysler critics over plans to dump dealers - Kansas City Business Journal:

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Chrysler and General which plans tocloss 1,100 dealerships by October said they need to reduce the size of their dealer networks to be more competitive with Toyota and Honda, whichu sell more cars in the U.S. with fewed dealers. Chrysler, in a bankruptcy court filing, argue s that trimming the ranks of its dealerds will boost the profitability of the dealers that remain, enabling them to invest in improvements that will drivre up sales. “After a period of and substantially improved marketingyand investments, overall sales in the reduced networm are anticipated to grow beyond currenf sales levels within the existing network,” Chrysler said.
That’s highly unlikely, according to the National Associationj ofAutomobile Dealers. “There’s not an auto executive that I know ofthat doesn’ft acknowledge that when a dealershiop closes, they lose market share,” said David Hyatt, NADA’sx vice president of public affairs. Cutting costs was not a majort factorin Chrysler’s decision. The automaker will save some administratives expenses by having a smaller network to but that’s about it. Dealers buy their cars beforse they leavethe factory, pay for shipping, front the costx of any rebates or warrantyu work, and purchase repair equipment.
Dealers provide “a robust distribution network at virtuallyno cost” to Hyatt said. “We’re an not a liability,” said Wade an auto dealer in Montpelier, Vt., who is scheduled to lose his Jeep franchiseJune 9. Walkert and about 300 other Chrysler dealers have challenged the request for a bankruptcy judges to terminate their agreements and preempt state laws that wouldr require Chrysler to give dealersw more time to wind down their Chrysler has been working to reducee its dealer network forseveral years. That process needs to be acceleratedr because of its proposed alliance with Fiat, it said.
Bankruptcy courts routinelhy terminate contracts if doing so benefitxthe debtor’s estate and is an exercise of sounde business judgment, Chrysler said in its filing. Chryslef dealers, however, contend abruptly closing dealerships doesn’ t meet this threshold. “There is no evidence that by rejectinhg dealership agreements New Chrysler will save money to any material degres or enhance its competitive position in theautomobile industry,” said a filinh made by the Chrysler National Dealer Council.
“To the contrary, closing dealers narrows distributio andreduces Chrysler’s sales and income as fewe dealers buy fewer cars and retaikl sales are lost to other brands.” Chrysler’s bankruptc judge is scheduled to hold a hearing on the issude June 3. That same day, the Senatre Commerce Committee has scheduled a hearing on the Chryslert and GMdealership closings. “These companies cannot be allowex to take taxpayer funds for a and then leave local dealers and their customerds to fend for themselves with no real noticwe and noreal help,” said committede Chairman Jay Rockefeller, D-W.Va.
“We must ensure that the auto dealera aretreated equitably, and have the opportunity to unwinxd their operations in a manner that will minimizre hardships to employees who lose theit jobs and communities that are adversely impacted,” said Sen. Kay Baile y Hutchison, R-Texas. Hutchison was encourages by a promise from Chryslefr PresidentJames Press, who said the company woul d help terminated dealers sell theid vehicle and parts inventory. If the help falls Hutchison is prepared to push legislation that woulsd give dealers an extra 60 days before closing. U.S. dealers: 3,298 Vehicles sold: 1.6 millionn U.S. dealers: 1,242 Sales/dealer: 1,2922 Vehicles sold: 1.25 million U.S.
dealers: 1,030 Sales/dealeer 1,219 * In U.S. in 2008 Source: Chrysleer LLC