Chrysler LLC wants to eliminate roughly a quarter of its 3,200 U.S. dealerships by early next month, saying in a bankruptcy court filing Thursday that the network is antiquated and has too many stores competing with each other.
The company, in a motion filed with the U.S. Bankruptcy Court in New York, said it wants to eliminate 789 dealerships by June 9. Many of the dealers’ sales are too low, the automaker said. Just over 50 percent of dealers account for about 90 percent of the company’s U.S. sales, the motion said.
Dealers were told Thursday morning through United Parcel Service letters if they would remain or be eliminated. The move, which the dealers can appeal, is likely to cause devastating effects in cities and towns across the country as thousands of jobs are lost and taxes are not paid.
Chrysler spokeswoman Kathy Graham would not comment 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.
Judges often rely on companies in bankruptcy to help determine what is in their best business interest, such as the closure of dealerships or cancellation of contracts.
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 UPS letter Thursday morning.
“Right now I’m processing the information,” he said 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.”
The dealership, in a city of about 10,000 near Springfield, Mo., is involved in the community, sponsoring sports teams and even buying championship rings for the Ozark High School girls basketball team when it won the state championship several years ago, Burk said.
“If you’re a good-sized business, kind of by default you’re involved a lot,” he said.
Chrysler dealerships aren’t the only ones scheduled to get bad news this week. General Motors Corp. says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September of 2010.
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 Motor Co. sold about 1,200 vehicles per dealer, while Toyota Motor Corp. 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.”
Chrysler has received $4 billion in federal loans and has been operating in bankruptcy protection since April 30. 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.