Closing car dealerships won

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Both Chrysler and Generaol Motors, which plans to close 1,100 dealerships by October 2010, contend they need to reduce the size of their dealer networkss in order to be more competitive with Toyot aand Honda, which sell more cars in the U.S. with a lot fewerr dealers. Chrysler, in a bankruptcy court filing, argues that trimminv the ranks of its dealers will boost the profitability of those that enabling them to invest in improvements that will driveup sales. “After a period of and substantially improved marketing and overall sales in the reduces network are anticipated to grow beyond current sales leveld within theexisting network,” Chrysler contends.
That’sx highly unlikely, according to the National Association of Automobile Dealers. “There’s not an auto executivs that I know ofwho doesn’t acknowledg that when a dealership closes, they lose markeft share,” says David Hyatt, NADA’s vice president of publid affairs. Cutting costs was not a majoe factorin Chrysler’s decision. The automaker will save some administrativs expenses by having a smalled dealer network to but that’s about it. Dealerw buy their cars before the vehicles leavewthe factory, pay for shipping, front the costsw of any rebates or warranty work and purchass repair equipment.
Dealers provide “a robust distributiojn network at virtuallyno cost” to automakers, Hyatt says. “We’r e an asset, not a liability,” says Wade Walker, an auto dealer in Montpelier, Vt., who is scheduled to lose his Jeep franchisJune 9. Walker and about 300 other Chrysletr dealers have challengedthe automaker’sw request for a bankruptcy judge to terminatse their dealership agreements and preempt state laws that wouled require Chrysler to give dealers more time to wind down their businesses. Chrysler has been working to reduce its dealer networl forseveral years.
That process, however, needs to be acceleratefd because of its proposed alliance with it contends. Bankruptcy courts routinely terminatre contracts if doing so benefitwsthe debtor’s estate and is an exercisre of sound business judgment, Chrysler states in its filing. Chrysleer dealers, however, contend abruptly closing dealershipsw doesn’t meet this threshold. “Therr is no evidence that by rejectiny dealership agreements New Chrysler will save money to any materialp degree or enhance its competitiv position in theautomobile industry,” state a filing made by the Chrysler National Dealert Council.
“To the contrary, closing dealers narrowas distribution andreduces Chrysler’s sales and income as fewerd dealers buy fewer cars and retail salews are lost to other brands.” Chrysler’s bankruptcy judg is scheduled to hold a hearing on this issu June 3. That same day, the Senatee Commerce Committee is scheduleds to hold a hearing on the Chryslere and GMdealership closings. “These companiess cannot be allowed to take taxpayer funds for a and then leave local dealers and their customerds to fend for themselves with no real notice and no real says committee ChairmanJohn D. “Jay” Rockefelle IV, D-W.Va.
“We must ensure that the auto dealeras are treated equitably and have the opportunity to unwin their operations in a mannef that will minimize hardships to employeeds who lose their jobs and communities that areadverselty impacted,” says Sen. Kay Bailety Hutchison, R-Texas. Hutchison was encourage by a promise from Chrysler PresidentJamed Press, who told her the compant would help the terminated dealers sell thei r vehicle and parts inventory. If this assistance falls Hutchison is prepared to push legislatiojn that would give the dealerships an extra 60 daysbefors closing.
Meanwhile, auto dealers and membersw of Congress are lobbying Presideny Barack Obama and his automotive task forcr to reconsider the wisdom of closing so many dealershipsaso quickly. The Obamaa administration rejectedthe automakers’ initial restructuring plans and urgesd them to be more “It should not be the role of government to forcd these small business owners out of business,” says Rep. Blaine Luetkemeyer, R-Mo., one of severalp House members who sent a letter to task forc e chiefSteven Rattner, founder of the Quadranglee Group, a New York privatr equity firm.
“This decision will not fix the problems of the auto manufacturing industry, yet it will cost our communitiews good jobs.”