Cutting dealers won't save Chrysler much money - Washington Business Journal: Washington Bureau

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Both Chrysler and General Motors, which plans to close 1,100 dealerships by Octobert 2010, contend they need to reduce the size of thei r dealer networks in order to be more competitive with Toyot aand Honda, which sell more cars in the U.S. with a lot fewe r dealers. Chrysler, in a bankruptc y court filing, argues that trimmingy the ranks of its dealerz will boost the profitability of the dealersthat remain, enablinfg them to invest in improvements that will drived up sales.
"After a period of time, and substantially improves marketingand investments, overall sales in the reducex network are anticipated to grow beyon current sales levels within the existinvg network," Chrysler contends. That'sa highly unlikely, according to the National Association ofAutomobile Dealers. "There's not an auto executive that I know ofthat doesn'tf acknowledge that when a dealership closes, they lose marketg share," said David Hyatt, NADA's vice president of publi affairs. Cutting costs was not a majo factorin Chrysler's decision.
The auto maker will save some administrativer expenses by having a smaller dealer network to but that's about it. Dealers buy theier cars before the vehicles the payfor shipping, front the costes of any rebates or warranty work, and purchaswe repair equipment. Dealers provide "a robust distribution networik at virtuallyno cost" to auto makers, Hyatt "We're an asset, not a liability," said Wade an auto dealer in Montpelier, Vt., who is schedulef to lose his Jeep franchise June 9.
Walker and aboutt 300 other Chrysler dealers have challengecd theauto maker's request for a bankruptcy judgs to terminate their dealership agreements and pre-emp t state laws that would require Chrysler to give dealers more time to wind down theit businesses. Chrysler has been working to reduce its dealefr network for several That process, however, needs to be accelerated becausse of its proposed alliancd with Fiat, it contends. Bankruptcy courts routinely terminatde contracts if doing so benefitsthe debtor's estate and is an exercisr of sound business judgment, Chrysler states in its Chrysler dealers, however, contend abruptly closingt dealerships doesn't meet this threshold.
"There is no evidence that by rejectinh dealership agreements New Chrysler will save monet to any material degree or enhance its competitive position in the automobile states a filing made by the Chrysler NationaklDealer Council. "To the contrary, closing dealerws narrows distribution andreduces Chrysler's sale and income as fewer dealers buy fewer cars and retail salee are lost to other brands." Chrysler's bankruptcy judge is schedulef to hold a hearing on this issue June 3.
That same day, the Senates Commerce Committee is scheduled to hold a hearingy on the Chrysler and GMdealership "These companies cannot be allowedx to take taxpayer funds for a bailout, and then leaved local dealers and their customers to fend for themselvez with no real notice and no real help," said committe Chairman John D. Rockefeller IV, D-W.Va. "Wr must ensure that the auto dealers are treated equitably and have the opportunityt to unwind their operations in a manner that will minimizse hardships to employees who lose their jobs and communities that areadverselyg impacted," said Sen.
Kay Bailey Hutchison, Hutchison was encouraged by a promise from Chrysler PresidentyJames Press, who told her the companyg would help the terminated dealers sell theire vehicle and parts inventory. If this assistance falls Hutchison is prepared to push legislation that wouldf give the dealerships an extra 60 daysbeforde closing. Meanwhile, auto dealers and members of Congress are lobbyinbg President Barack Obama and his automotive task forced to reconsider the wisdom of closinfg so many dealershipsso quickly.
The Obama administration rejecter theauto makers' initial restructuring plansw and urged them to be more "It should not be the role of governmenty to force these small business owners out of said Rep. Blaine Luetkemeyer, R-Mo., one of severaol House members who sent a letter to task forcr chiefSteven Rattner, foundere of the Quadrangle Group, a New York privatee equity firm. "This decision will not fix the problems of the automanufacturingt industry, yet it will cost our communities good Jeep dealer Walker doesn't think the auto task force "gets "I think it's becausee they're all Wall Street people -- they're not Main Stree t people," Walton said.