Chrysler LLC announced today that they are planning on eliminating 789 of their 3,200 U.S. dealerships by early next month. They will formally petition the bankruptcy court...they indicated that the dealership network is antiquated and has too many stores competing with each other.
The issue with Chrysler is that these are the smaller dealers...they probably have done cost accounting and determined that it costs them more to support the dealers than they make from the sales of those dealers. Chrysler indicated that 50 % of the dealers accounted for 90 % of the the companies U. S. Sales.
Dealers were informed this morning via United Parcel Service letters...the letter notified all dealers if they if they would remain or be eliminated. A hearing is scheduled for June 3 in U.S. Bankruptcy Court in New York, at that time the judge will approve or deny the motion. In most business bankrupcy cases, judges rely on the bankrupt corporations input to determine if contract cancellations are necessary.
Chrysler Vice Chairman Jim Press called the cuts difficult but necessary. He said the list of dealers is final and there will be no appeal process. Eliminating dealer will cut down on the cross town competition in many cases, which will increase dealer profits.Chrysler is trying to cut the number of single brand dealers, so that Chrysler, Dodge and Jeep can be one dealership. Chrysler averages of 300 vehicles per dealer in 2008, meanwhile Honda sells 1,200 and Toyota sells 1,300 respectively.
The dealership cuts will cut also cut deep into the city budgets, as thousands of employees will be laid off and the city will loose sales tax revenue from vehicle sales.
My take is that this is one of the necessary steps to get Chrysler back in the game! It will be very painful to the employees, the dealers and the cities impacted. Chysler has done this so it can change the dealer contracts at will....outside of bankrupcy they would have been hit with a barrage of lawsuits.
I do feel that giving these small businesses less than a months notice is highly unfair! Many of these dealers have been with Chrysler for many years, then to tell them they don't have a contract under a month is very cold. The dealers should be notified and given time to take appropriate steps to wind down the business. Actually, this action will probably throw many of the dealers and employees impacted into bankrupcy themselves.
It is estimated that approximately 190,000 jobs would be lost from the GM and Chrysler bankrupcies.