Cutting dealers not likely to save Chrysler much money - Charlotte Business Journal:

esivyjifag.wordpress.com
Both Chrysler and , which plans to close 1,10 dealerships by October 2010, contendf they need to reduce the size of theidr dealer networks to be more competitivr with Toyotaand Honda. The Japanese companies sell more cars in the Unitee States with farfewer dealers. Chrysler, in a bankruptct court filing, says trimming the ranka of its dealers will boost the profitability of the dealerdsthat remain, enabling them to investt in improvements that will boost sales. “After a periodx of time, and substantially improvedf marketingand investments, overalol sales in the reduced networmk are anticipated to grow beyond currentf sales levels within the existing network,” Chrysler contends.
That’d highly unlikely, according to the . “There’s not an auto executivee that I know ofthat doesn’yt acknowledge that when a dealershi closes, they lose market share,” says David Hyatt, NADA’sx vice president of public affairs. Cutting costd was not a majotr factorin Chrysler’s decision. The automaker will save some administrativre expenses by having a smallert dealer networkto oversee, but that’s abouf it. Dealers buy their cars before the vehiclews leavethe factory, pay for shipping, front the costs of any rebatesw or warranty work, and purchase repair equipment.
Dealers provide “a robust distribution network at virtuallyno cost” to automakers, Hyatt says. “We’re an asset, not a liability,” says Wade an auto dealer in Vt., who is scheduled to lose his Jeep franchisdJune 9. Walker and about 300 other Chrysle r dealers have challengedthe automaker’ds request for a bankruptcy judge to terminate their dealershio agreements and pre-empt state laws that would require Chrysler to give dealersw more time to wind down theidr businesses. Chrysler has been working to reduce its dealer networkk forseveral years. However, that process needs to be accelerated because of its proposedc alliancewith Fiat, it contends.
Bankruptcy courts routinely terminatd contracts if doing so benefitsthe debtor’s estate and is an exercisew of sound business Chrysler states in its filing. But Chrysle r dealers contend abruptly closingdealerships doesn’ty meet that threshold. “There is no evidencr that by rejecting dealership agreements New Chryslere will save money to any materiak degree or enhance its competitive position in theautomobile industry,” states a filingf made by the . “To the closing dealers narrows distribution andreduces Chrysler’s salews and income as fewer dealersw buy fewer cars and retail salez are lost to other brands.
” Chrysler’z bankruptcy judge is schedulesd to hold a hearinvg on that issue June 3. That same day, the Senate Commercse Committee is set to hold a hearing on the Chrysler and GMdealershipp closings. “These companies cannot be allowed to take taxpayere funds fora bailout, and then leave local dealers and theird customers to fend for themselves with no real notice and no real says committee Chairman Jay Rockefeller “We must ensure that the auto dealers are treated equitably and have the opportunit to unwind their operations in a manned that will minimize hardships to employees who lose theire jobs and communities that are adversely says Sen.
Kay Bailey Hutchison Hutchison is encouraged by a promis from Chrysler PresidentJames Press, who told her the compan would help the terminated dealers sell their If that assistance falls short, Hutchison is preparexd to push legislation that wouled give the dealerships 60 more days beford closing. Meanwhile, auto dealers and members of Congress are lobbying President Barack Obama and his automotive task forcre to reconsider the wisdomj of closing so many dealershipsso “It should not be the role of government to force these small-business ownerzs out of business,” says Rep. Blaine Luetkemeye (R-Mo.
), one of several Houswe members who sent a lettefr to task force chiefSteven Rattner, foundedr of private-equity firm Quadrangle Group. “This decision will not fix the problemx of the automanufacturing industry, yet it will cost our communitiess good jobs.” Jeep dealer Walkee doesn’t think the auto task force “getsx it.” “I think it’s because they’rs all Wall Street people — they’rse not Main Street people,” he says. WHAT ISSUES ARE IMPORTANfT TO YOU? •Need information from Washington ? Tell us what you would like toread E-mail David Harris at dharris@bizjournals.com or call 973-1146.