NOTICIAS DE LA INDUSTRIA AUTOMOTRIZ: Chrysler cancels 789 Dealer Agreements

Chrysler LLC asked court permission to cancel 789 car dealership agreements, many in the suburbs of major U.S. cities, a step it called critical to its future.

The company wants to break contracts with about a quarter of its estimated 3,188 retail outlets, including seven dealers with AutoNation Inc., two with Lithia Motors Inc. and the Atlanta unit of Asbury Automotive Group Inc., it said today in a filing in U.S. Bankruptcy Court in New York. Chrysler called the move essential to its viability and sale to Fiat SpA.

Fiat, not Chrysler, will have the final say on which dealers are brought to new company to be formed with the company’s best assets and run by the Italian carmaker, and some that are cut might be restored, people familiar with the situation said. The dealerships will stop operating as Chrysler outlets on or about June 9, the company said.

“Over time, the market for new motor vehicles has changed dramatically,” Peter Grady, Chrysler director of dealer operations, said in the request to Judge Arthur Gonzalez. “Numerous other competitors selling a wide variety of vehicles, including Toyota, Honda, Hyundai and Kia, have entered the market and captured a larger share.”

Trimming dealers from urban areas will increase profitability at the rest Chrysler said.

“With the downsizing of operations after the sale and reduction of plants and production, similar reductions must be made to the size of the dealer body.” Jim Press, vice chairman and president, said today in a statement.

Matching the Market

“The unprecedented decline in the industry has had a significant impact on our sales and forced us to reduce production levels to better match the needs of the market,” Press said.

The 25 percent of dealers Chrysler wants to drop account for 14 percent of sales, Steven Landry, executive vice president for North American sales, said today in a statement.

“Is there a more humane we could do it? No,” Press said today in a call with reporters. “There is no way to say anything but that it is a sacrifice that is for the good of the total.”

There is no appeal process for dealers that are cut, the company said, and Chrysler is offering them no compensation.

Rejected dealers will transfer their inventory and loans on vehicles to other dealerships, it said. They won’t necessarily go out of business. Some may survive with service operations or switch to dealing used cars or other brands.

A Dealer’s Plan

Andrew Riexinger, who has been at Barry Dodge Inc. in Brockport, New York, for 20 years, said he was notified by phone this morning of the plan to reject his Chrysler dealership. He intends to start selling used cars after the June deadline and eventually switch to another brand, he said.

“Chrysler is the loser in this deal,” Riexinger said by phone. “I’m a loyal dealer, and our location has been with them since 1964.”

Donald Butts, a fourth-generation car dealer in Seaside, California, said his Jeep-Eagle dealership sells 75 to 150 vehicles a year. After June 9, the nearest dealership will be more than 60 miles away in San Jose, he said.

“I cannot see how this will help them recover, walking away from entire markets,” Butts said by phone. “It’s going to have a terrible impact on the community. There are thousands of people who bought Jeeps from us who won’t be able to get service from us.”

Butts employs 39 people and sells other vehicle makes, he said. Dropping Chrysler products will cost at least three service technicians their jobs, he said.

Court Fight Planned

Jeff Duvall, co-owner of Duvall Chrysler Dodge Jeep Inc., a dealership in Clayton, Georgia, said he’ll oppose Chrysler’s request with other dealers. A hearing is set for June 3.

“I’m furious. I’m beyond furious,” said Duvall, 50. “You mark my word, I’m going to fight it tooth and nail. We just opened less than a year ago, and we’ve spent thousands and thousands of dollars on architecture plans and engineering plans and we were about to start construction on a new facility.”

The U.S. Treasury Department called the sacrifices by Chrysler’s dealers and other stakeholders “necessary for this company and the industry to succeed.”

The administration is trying “to help ensure that financing is available to creditworthy dealers and pursuing efforts to help boost domestic demand for cars,” the department said in a statement.

Eight-Year Effort

Chrysler said it would shrink its dealer network under its Project Genesis, an effort started in 2001 to combine separate brand dealerships into single locations.

Many longstanding Chrysler dealers suffered due to Interstate highways and dwindling rural communities, Grady told the court. Companies new to the U.S. had no such legacy network.

In 2008, Chrysler’s dealers sold 1 million vehicles through 3,298 dealers, or 303 per dealer. By comparison, Toyota sold 1,292 per dealer and Honda 1,219, the company said.

Planning for Project Genesis focused on metropolitan areas and analyzed factors including sales volume, brand affiliations, locations, customer service, the facilities and market share. Including ancillary agreements for contracts like software licensing, data exchange and electronic commerce, there will be more than 1,000 rejected agreements, Chrysler said