Chrysler Looks to Slim Down Dealership Network

In a motion filed with the U.S. Bankruptcy Court in New
York, the company said it wants to eliminate 789 dealerships by June 9 because
many of their sales are too low.

Just over half of the company’s dealers account for about 90
percent of U.S. sales, the motion said.

Chrysler, which filed for bankruptcy on April 30, and larger
rival General Motors Corp have faced pressure to cut struggling dealerships to
bring their large sales networks in line with ones run by more successful automakers,
namely Toyota.

The automaker said it would not repurchase any new vehicles,
tools or parts inventory from terminated dealers but will assist in finding
buyers for stock, according to a memo to dealers that was obtained by Reuters.

The news comes as dealer representatives stepped up lobbying
in Washington to try to slow down closures they estimate would cost 200,000
dealership jobs.

More than 100 members from the National Automobile Dealers
Association, a group representing the country’s 20,000 new car dealers, met
Wednesday with members of the House of Representatives and Senate in
Washington, asking them to intervene with the Obama administration’s autos task
force on planned reductions.

Chrysler dealers learned of the news Thursday morning via United
Parcel Service letter if they would remain or be eliminated. The move, which
the dealers can appeal, is likely to cause devastating effects across the
country as thousands of jobs are lost and taxes are not paid.

Chrysler spokeswoman Kathy Graham would not comment to media
organizations other than to say the company will notify dealers before speaking
publicly.

A hearing is scheduled for June 3 in U.S. Bankruptcy Court
in New York to determine whether to approve Chrysler’s motion.

Don Burk, co-owner of Heritage Chrysler Jeep in Ozark, Mo.,
said he found out that Chrysler plans to get rid of his dealership when he
opened his letter Thursday morning.

“Right now I’m processing the information,” he told
the Associated Press shortly after reading the letter. “I’m sure I’m going
to get with my partner and we’ll decide what to do from here.”

In its motion, Chrysler said it has many dealerships that
sell one or two of its brands, with Chrysler-Jeep dealerships competing against
Dodge dealers as well as other automakers’ stores across the country.

“In addition, as suburbs grew and the modern interstate
system continued to evolve, longstanding dealerships no longer were in the best
or growing locations,” the company said in its filing. “Many rural
locations also served a diminishing population of potential consumers. Some
dealership facilities became outdated. Other locations faced declining traffic
count and declining populations.”

Chrysler said in its filing that dealers are not competitive
enough with foreign brands. Chrysler sold an average of 303 vehicles per dealer
in 2008, according to its filing. By contrast, Honda sold about 1,200 vehicles
per dealer, while Toyota sold nearly 1,300 per dealer.

Chrysler said its dealer network “needs to be reduced
and reconfigured in a targeted manner to strengthen the network and dealer
profitability and to achieve optimal results for the dealers and
consumers.”

The company has received $4 billion in federal loans. Its
sales this year are down 46 percent compared with the first four months of last
year and it reported a $16.8 billion net loss for 2008.

Other dealers are expected to receive some bad news this
week as well. By Friday, GM will notify 1,100 dealers that it will not renew
their franchise agreements when they expire at the end of September of 2010,
the AP reported.

GM recently finished an evaluation of its dealers that
determined which dealerships should go, spokeswoman Susan Garontakos said
Wednesday, according to Dow Jones Newswires.

Meanwhile, Ford Motor Co. executives told stockholders Thursday
that the company’s restructuring is on track to be completed without the
automaker seeking emergency government bridge loans and to bring a profit as
soon as 2011.

Ford shareholders also approved the company’s funding plan
for a healthcare trust for United Auto Workers union retirees and knocked down
shareholder requests to change the voting structure and allow a smaller
percentage of stockholders to call for special meetings.