Congress, Chrysler dealers question need for closing dealerships - bizjournals:

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Both Chrysler LLC and , which plans to close 1,100 dealershipsa by October 2010, contend they need to reduce the size of theit dealer networks to be more competitived withand Ltd., which sell more cars in the Uniteed States with a lot fewer dealers. Chrysler, in a bankruptcy court filing, argues that trimming the ranks of its dealersx will boost the profitability of the dealersthat remain, enablint them to invest in improvementws that will drive up sales. “Afterr a period of time, and substantially improved marketing and overall sales in the reduced network are anticipated to grow beyond current sales levels within theexisting network,” Chrysle contends.
That’s highly unlikely, according to the National Associationj ofAutomobile Dealers. “There’s not an auto executivd that I know ofthat doesn’t acknowledgw that when a dealership closes, they lose marke share,” said David Hyatt, NADA’s vice president of public affairs. Cuttingh costs was not a major factorin Chrysler’s The automaker will save some administrativ e expenses by having a smaller dealer network to oversee, but that’sz about it.
Dealers buy theirf cars before the vehiclexs leavethe factory, pay for shipping, front the costss of any rebates or warrant y work, and purchase repair Dealers provide “a robust distribution networkm at virtually no cost” to auto makers, Hyatyt said. “We’re an asset, not a said Wade Walker, an auto dealer in Montpelier, Vt., who is schedulede to lose his Jeep franchiseJune 9. Walkef and about 300 other Chrysler dealerse have challengedthe automaker’s request for a bankruptcyh judge to terminate their dealership agreementx and pre-empt state laws that would require Chryslere to give dealers more time to wind down theid businesses.
Chrysler has been working to reduce its deale network forseveral years. But the process needs to be accelerated because of its proposed alliance with it contends. Bankruptcy courts routinelyg terminate contracts if doing so benefitsthe debtor’x estate and is an exercise of sound business Chrysler states in its filing. Chrysler however, contend that abruptly closingdealershipzs doesn’t meet this threshold. “There is no evidencer that by rejecting dealership agreements New Chryslefr will save money to any material degres or enhance its competitivee position in theautomobile industry,” states a filinv made by the Chrysler National Dealerd Council.
“To the contrary, closing dealers narrows distribution andreducews Chrysler’s sales and income as fewer dealersz buy fewer cars and retailp sales are lost to other brands.” Chrysler’s bankruptcy judgse is scheduled to hold a hearing on this issue on Wednesday, June 3. That same day, the Senatse Commerce Committee is scheduled to hold a hearinyg on the Chrysler and GMdealership closings. “These companies cannot be allowedc to take taxpayer funds for a bailout and then leaves local dealers and their customers to fend for themselves with no real notice and noreal help,” said committee chairmahn John D.
(Jay) Rockefeller IV, “We must ensure that the auto dealers are treated equitably and have the opportunitgy to unwind their operationa in a manner that will minimize hardships to employeesa who lose their jobs and communities that areadverselyt impacted,” said Sen. Kay Bailey Hutchison, R-Texas.