CORRECT: 2nd UPDATE: Chrysler Aims To Cut 25% Of Dealers
May 14 2009 - 3:10PM
Dow Jones News
Chrysler LLC said Thursday it would take a short-term sales hit
after announcing plans to cull a quarter of its U.S. dealer network
by early June.
The auto maker is using bankruptcy protection to push through
the move, which drew protests from some affected dealers who are
not being compensated for cars or spare parts left on their
lots.
Chrysler said remaining dealers are expected to take the bulk of
the 44,000 cars left with those targeted for closure.
Leo Jerome, owner of Story Chrysler Jeep in Lansing, Mich., and
targeted for closure, said he has about $2 million in inventory and
Chrysler informed him that the company will not buy any of the cars
or parts back.
The company had pleaded with dealers to order more cars earlier
this year in an effort to generate revenue and demonstrate its
viability to the U.S. government and Fiat SpA (FIATY), its
prospective partner.
Chrysler has requested a June 3 court hearing to approve
dropping 789 of its 3,188 U.S. dealers by June 9. They account for
about 14% of its total sales by volume, and vice chairman Jim Press
admitted on a conference call that sales will be affected in the
short term, though the move will improve its competitive
position.
Chrysler and General Motors Corp. (GM) are both looking to
reduce distribution networks that sell fewer cars per location than
overseas rivals. GM is expected to tell some dealers Friday that
they face closure.
"We will have a more profitable network going forward," added
Press. He said there is no appeal process, despite warnings from
some dealers that they may take legal action to challenge their
selection for closure.
A patchwork of state laws had made trimming the distribution
network more difficult outside of Chapter 11. Chrysler said the
dealer decisions were its own and not driven by Fiat or the U.S.
Treasury, which is providing the company with emergency loans.
Some Chrysler dealers questioned the methodology used in the
process. "Chrysler's analysis is wrong," said attorney Scott
Silverman of McCarter & English in Boston. He is representing
about a dozen Chrysler dealers, some of whom are on the closure
list.
"They established a blue-print for the network a long time ago.
This is a function of Chrysler changing its mind. This analysis
wasn't performed in anything but a tight constrained time frame
that often leads to mistakes."
Urban dealers are particularly hard hit by the planned cuts,
reflecting demographic changes that have reduced inner-city
business.
Press said the goal is to ensure that all of its dealerships
carry the Chrysler, Dodge and Jeep brands under one roof. Currently
about 60% carry all three.
-By Jeff Bennett; Dow Jones Newswires;
jeff.bennett@dowjones.com; 248-204-5542
(Alex P. Kellogg of the Wall Street Journal contributed to this
story.)