Chrysler Warns Entire Retail Network at Risk Should Fiat Deal Fail
By Ward’s Staff WardsAuto.com, May 21, 2009 1:51 PM

Faced with a potential court battle from rejected dealers, Chrysler LLC is defending its move to close nearly a third of its U.S. showrooms, warning its entire retail network faces elimination if the sale to Fiat Auto Group is not approved.

Chrysler last week notified 789 dealers of plans to end their franchise agreements next month as part of its Chapter 11 bankruptcy reorganization. The process is leading to a May 27 hearing, when U.S. Bankruptcy Judge Arthur Gonzalez will determine whether most of the auto maker’s assets can be sold to a new company controlled by Fiat.

"It was not an easy decision to ask the court to reject a portion of our dealer contracts, but the reality is Chrysler's viability depends on a vibrant, profitable dealer network,” says Steven J. Landry, Chrysler executive vice president-North American Sales and Marketing, Service and Parts, in a company statement outlining the current condition of the auto maker’s dealers.

“As presently configured, Chrysler's dealer network does not meet that test,” he says. “If the sale to Fiat is not approved by the bankruptcy court, the stark reality is all 3,181 dealers will face elimination.

Landry also says the industry can’t support the number of dealers currently in the marketplace. “From 1990 until 2007, the industry averaged roughly 16 million new vehicles sold each year,” he says. “In 2009, new vehicles sold are expected to be 10.5 million units.”

Landry says Chrysler is treating the recently rejected dealers fairly by assisting in the redistribution of remaining vehicle and parts inventory, paying incentives and covering warranty losses.

However, it doesn’t mean the 789 rejected dealers will close if the court approves the new company under Fiat.

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He says 44% of the "rejected" dealers are dualed with another (competing) new-vehicle franchise and can continue to sell those makes of vehicles, while 83% sell more used than new vehicles. Many of these dealers will continue selling and servicing pre-owned vehicles.

"Chrysler began the process to consolidate dealerships and locate all three brands under one roof more than 10 years ago,” Landry says. “The company made the decision it was cost prohibitive to continue to manufacture and market overlapping products.

“Going forward, we will not do that, so it is critical the majority of our dealers offer customers all three brands under one roof."