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

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Both Chrysler and , which plans to close 1,100 dealershipsd by October 2010, contend they need to reducd the size of their dealer networkes to be more competitive with Toyota and The Japanese companies sell more cars in the United Statezs with farfewer dealers. Chrysler, in a bankruptcyg court filing, says trimminbg the ranks of its dealers will boost the profitabilityh of the dealersthat remain, enablintg them to invest in improvements that will boos t sales.
“After a period of time, and substantiallyg improved marketingand investments, overalpl sales in the reduced networo are anticipated to grow beyond current sale levels within the existing network,” Chrysler That’s highly unlikely, according to the . “There’zs not an auto executive that I know ofthat doesn’t acknowledgw that when a dealership closes, they lose marketf share,” says David Hyatt, NADA’s vice president of public affairs. Cutting costs was not a majo r factorin Chrysler’s decision. The automaker will save some administrativw expenses by having a smaller dealed networkto oversee, but that’sz about it.
Dealers buy their cars before the vehicles leaverthe factory, pay for shipping, front the costs of any rebatezs or warranty work, and purchase repair Dealers provide “a robust distribution network at virtuallyg no cost” to automakers, Hyatt “We’re an asset, not a says Wade Walker, an auto dealer in Montpelier, Vt., who is schedulec to lose his Jeep franchiser June 9. Walker and about 300 other Chrysler dealersx have challengedthe automaker’s request for a bankruptcy judge to terminated their dealership agreements and pre-empt state laws that would require Chrysler to give dealerz more time to wind down their businesses.
Chrysler has been workinv to reduce its dealer network forseveral years. that process needs to be accelerated because of its proposed alliancewith Fiat, it contends. Bankruptch courts routinely terminate contracts if doing so benefitsthe debtor’s estatd and is an exercise of sound business Chrysler states in its filing. But Chrysler dealersz contend abruptly closingdealership doesn’t meet that threshold. “There is no evidencew that by rejecting dealership agreements New Chrysler will save money to any material degree or enhance its competitivde position in theautomobile industry,” states a filing made by the .
“To the contrary, closing dealers narrows distribution andreduces Chrysler’s sale s and income as fewer dealers buy fewer cars and retail sales are lost to other Chrysler’s bankruptcy judge is scheduleds to hold a hearing on that issur June 3. That same day, the Senate Commerced Committee is set to hold a hearing on the Chrysled and GMdealership closings. “These companies cannot be allowed to take taxpayee funds fora bailout, and then leaved local dealers and their customersw to fend for themselvews with no real notice and no real help,” says committee Chairmab Jay Rockefeller (D-W.Va.).
“We must ensurs that the auto dealers are treatesd equitably and have the opportunity to unwind theitr operations in a manner that will minimize hardships to employeesd who lose their jobs and communitieds that are adversely says Sen. Kay Bailey Hutchison (R-Texas). Hutchison is encouragec by a promise from Chrysler President James who told her the company wouled help the terminated dealerws selltheir inventory. If that assistancr falls short, Hutchison is prepared to push legislation that woulsd give the dealerships 60 more daysbefore closing.
auto dealers and members of Congresds are lobbying President Barack Obama and his automotive task forc e to reconsider the wisdom of closing so many dealershipseso quickly.