Chrysler set to chop 25 per cent of dealers

THE culling of American motor vehicle dealerships has started in earnest with Chrysler seeking bankruptcy court approval to tear up dealer agreements with 789 dealers – a quarter of its US retail force.

General Motors is also warming up to slash its dealer network, sending warning letters to almost 1000 “underperforming” dealers, telling them that their franchise agreements will not be renewed when they expire in October 2010, according to Automotive News.

Chrysler, which has filed for Chapter 11 bankruptcy in an effort to pave the way for an alliance with Italy’s Fiat SpA, wants to hurry the dealer terminations through by June 9 under protection of its bankruptcy status.

It says the terminated dealers account for 14 per cent of its sales volume, and that about 80 per cent of its remaining 2392 dealerships will be able to carry the company’s three brands – Chrysler, Dodge and Jeep – under the same roof.

About four million “orphan” customers of the terminated dealers will get a letter from Chrysler explaining the situation, which it said it had initiated “with a deep sense of sadness”.

Left: Chrysler Aspen.

Chrysler said the move would “help improve the landscape of the Chrysler dealership network following the sale (to Fiat) and enhance the full-line portfolio of Dodge, Jeep and Chrysler products for customers”.

Chrylser LLC vice-chairman and president Jim Press said the dealer network had to be downsized in line with reduced production levels and sales volumes.

“We appreciate the support of our dealers and regret this painful action,” he said. “We wish market conditions made it possible to keep everyone.” Chrysler said it would be "business as usual" with all of its dealers through the transition.

However, the Detroit Free Press reported that Chrysler faced the problem of unloading 44,000 vehicles sitting in the lots of the axed dealerships in just a few weeks without driving prices down to firesale levels.

Chrysler has told the dealers it will not buy back the stock and provide no compensation to dealers who owe money to Chrysler Financial for the inventory.

However, it says it will work to assist in the redistribution of new vehicles and parts to the remaining dealer network.

Chrysler said the bankruptcy court had approved the motion regarding Chrysler LLC's agreement with GMAC Financial Services to provide automotive financing products and services to its remaining dealers and customers.

“A stronger dealer network supported by GMAC’s long-term finance options provides an advantage to consumers, and that is what will ultimately drive the creation of a significantly stronger global competitor,” Mr Press said.

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