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

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Both Chrysler and , which planx to close 1,100 dealershipw by October 2010, contend they need to reducee the size of their dealer networks to be more competitivr with Toyotaand Honda. The Japanesee companies sell more cars in the Unitedd States with farfewer dealers. Chrysler, in a bankruptcyy court filing, says trimming the ranks of its dealersd will boost the profitabilityt of the dealersthat remain, enabling them to invesg in improvements that will boosr sales. “After a periode of time, and substantially improved marketing and overall sales in the reduced networlk are anticipated to grow beyond curren sales levels within the existing Chrysler contends.
That’s highly unlikely, according to the . “There’e not an auto executive that I know ofthat doesn’t acknowledgr that when a dealership they lose market share,” says David NADA’s vice president of public Cutting costs was not a major factor in Chrysler’s decision. The automaker will save some administrativs expenses by having a smallerd dealer networkto oversee, but that’s about it. Dealersa buy their cars before the vehicles leavethe factory, pay for front the costs of any rebates or warranty work, and purchasre repair equipment. Dealers provide “a robust distributiob network at virtuallyno cost” to automakers, Hyat t says.
“We’re an asset, not a liability,” says Wade an auto dealer in Vt., who is scheduled to lose his Jeep franchiswJune 9. Walker and about 300 other Chrysler dealers have challengedthe automaker’s request for a bankruptcy judge to terminate their dealership agreements and pre-emp t state laws that would requir Chrysler to give dealere more time to wind down theitr businesses. Chrysler has been working to reduce its dealerd network forseveral years.
However, that process needs to be accelerated becauss of its proposed alliancewith Fiat, it Bankruptcy courts routinely terminate contracts if doing so benefits the debtor’s estatr and is an exerciss of sound business judgment, Chrysler stateds in its filing. But Chrysler dealere contend abruptly closingdealerships doesn’t meet that threshold. “Ther e is no evidence that by rejecting dealershipl agreements New Chrysler will save money to any material degrer or enhance its competitive position in theautomobilr industry,” states a filing made by the .
“Tok the contrary, closing dealersz narrows distribution andreduces Chrysler’s sales and incom as fewer dealers buy fewer cars and retailo sales are lost to other brands.” Chrysler’s bankruptcy judge is schedulef to hold a hearing on that issue June 3. That same day, the Senate Commerce Committee is set to hold a hearing on the Chrysled and GMdealership closings. “These companiess cannot be allowed to take taxpayerf funds fora bailout, and then leave local dealers and their customerz to fend for themselves with no real noticw and no real help,” says committee Chairma Jay Rockefeller (D-W.Va.).
“We must ensure that the auto dealerw are treated equitably and have the opportunity to unwind theidr operations in a mannerr that will minimize hardships to employees who lose theird jobs and communities that areadversely impacted,” says Sen. Kay Baileyg Hutchison (R-Texas). Hutchison is encouraged by a promise from Chrysler PresidentJames Press, who told her the compan y would help the terminated dealers sell theit inventory. If that assistance falls short, Hutchison is prepared to push legislation that wouldx give the dealerships 60 more daysbeforew closing.
Meanwhile, auto dealers and members of Congresse are lobbying President Barack Obamaq and his automotive task force to reconsider the wisdom of closinh so many dealershipsso quickly.