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Chrysler to cut 800 dealers, source says

Chrysler LLC plans to fire up to 800 of its 3,200 dealers on Thursday, a lawyer seeking to represent the dealers said on a conference call.
/ Source: The Associated Press

Chrysler LLC plans to fire up to 800 of its 3,200 dealers on Thursday, a lawyer seeking to represent the dealers said on a conference call.

The lawyer, Stephen Lerner, who heads the bankruptcy and restructuring practice of the law firm Squire Sanders, told dealers on the Tuesday call that the automaker plans to reject at least 800 franchise agreements, according to a dealer who listened to the call.

Chrysler will file a list of dealers it wants to retain with the U.S. bankruptcy court, said the dealer, who asked not to be identified because the call was confidential.

A Chrysler spokeswoman said Tuesday that the automaker is working to reduce the number of dealerships along with other restructuring actions. Spokeswoman Kathy Graham said the 800 number was just speculation.

“We do not have any finalized list as of this point in time,” she said. Asked if the company would soon have a list, she said: “It’s too early for us to say. We’re not through that process yet.”

Chrysler, which has received $4 billion in government loans, filed for Chapter 11 bankruptcy protection on April 30. The company has asked a bankruptcy judge to approve the sale of all its assets to a new Chrysler controlled by Italy’s Fiat Group SpA.

With Fiat as a partner, the U.S. government has said it will provide up to $6 billion more in financing to help Chrysler get through the bankruptcy process.

A message was left for Lerner.

The dealer said the law firm asked the dealers who think they might lose their franchises to post $4,000 each so the lawyers could begin the legal fight.

Despite losing 400 dealers since early last year, Chrysler still has too many showrooms too close together, especially within metro areas. Merging them would leave nicer and better-staffed franchises which would be more profitable. Industry analysts say there still will be plenty of competition between dealers, from other automakers, and on the Internet.

Dealers say the company is picking which franchises to keep based on whether they have met sales goals, their profits, how well capitalized they are, the condition of their facilities and whether they have all three brands, Chrysler, Dodge and Jeep.

Chrysler for several years has been trying to consolidate its dealerships so all its brands are under one roof, but still many dealers remain with just one or two brands.

David Kelleher, who owns two Chrysler dealerships in the Philadelphia area, said he is trying to stay optimistic amid the uncertainty. He said he has built as strong a business as he could, and hopes that will be enough to keep him going.

One dealership sells only the Dodge brand, while the other sells Chrysler and Jeep.

“This is craziness,” he said. “You’re talking about 800 or 1,000 small-business owners being knocked out of business, I guess to serve the greater good.”

Nonetheless, he said his sales have gotten a boost in May, which he suspects may be because of all the publicity surrounding Chrysler and the deals on its cars.

“We’re actually having a wonderful month, relative to the market,” he said. “Maybe it’s the old axiom, all press is good press.

The federal government’s auto task force mandated dealership cuts in exchange for loans to Chrysler, but the National Automobile Dealers Association has begun lobbying in Washington against the cuts.

Dealers will meet with members of Congress on Wednesday and with the auto task force on Thursday, the NADA said in a statement.