updated 1/26/2010 3:33:37 PM ET 2010-01-26T20:33:37

More than half of the nearly 2,800 dealers General Motors Co. and Chrysler Group LLC want to close are appealing those decisions, the group handling the appeals said Tuesday.

The American Arbitration Association said 1,550 dealers filed the paperwork needed to contest the closures by the midnight Tuesday deadline. The group said that number could go higher as more appeals arrive in the mail.

Meanwhile, Chrysler is weighing a federal lawsuit to stop the appeals, with sources close to the automaker saying the appeals process could cost it hundreds of millions of dollars. The sources asked not to be identified because a decision hasn't been made.

The association didn't give a breakdown of the number of dealers appealing at each automaker. GM and Chrysler said they won't have exact numbers until later this week. Arbitration hearings are expected to begin in late February or early March and are supposed to be wrapped up by June 14.

Chrysler shut down 789 dealers in June in an effort to make the remaining dealers more profitable, although around 80 percent of them remain in business selling used cars or vehicles from other brands. GM has told 2,000 dealers it will revoke their franchises in October.

Congress passed a law last month requiring an appeals process for dealers.

Both companies say they need to make the cuts to keep the remaining dealers healthy. That way, they can invest in better showrooms and more advertising and do less discounting. The automakers also argue that the federal government signed off on the dealer closures when they were included in the viability plans that automakers submitted to get federal bailout money.

But affected dealers say the automakers have acted unfairly. Ethel Cook's family owned a Chrysler Jeep dealership in Little Rock, Ark., for five generations before it was forced to close in June. The family still runs a parts and service operation but is appealing to reopen the dealership.

Cook said Chrysler gave her 25 days to unwind her operations. After Congress passed the law, she had another 25 days to decide whether to appeal.

"It's been chaos, but good things can come out of chaos," she said.

According to the sources close to the automaker, half of the 789 dealers Chrysler wants to close sell fewer than 100 new cars per year, and the majority sell more used cars than new. Dealers in a rural area typically need to sell 800 to 900 cars per year to maintain a service business, while those in larger markets need to sell between 1,200 and 1,500.

The negotiations could be more complicated for Chrysler than for GM, since GM hasn't closed its dealerships yet. Potentially, dealers who remained with Chrysler and were given the franchise agreements of dealers who were shut down could sue if the arbitrator decides to reverse Chrysler's decision.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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