Chrysler Seeks to Break 789 Dealership Contracts

bankruptcy-court

May 14 (Bloomberg) — Chrysler LLC asked a bankruptcy judge to let it reject 789 automotive dealership agreements by June 9, many located in the suburbs of major U.S. cities.

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., according to a filing today in Manhattan with U.S. Bankruptcy Judge Arthur Gonzalez, who must approve the cuts.

Fiat SpA, not Chrysler, decided which dealers will be brought along to a new company to be formed with the company’s best assets and run by the Italian carmaker, according to people familiar with the matter. Trimming the bulk of dealers from urban areas will increase profitability at the remaining dealers, lawyers for 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 in a statement today.

Steven Landry, Executive Vice President for North American Sales, said the decision on which dealer contracts to reject “was based on a data-driven matrix that assessed a number of key metrics.” The 25 percent of its dealers Chrysler wants to drop account for 14 percent of sales, he said in the statement.

“We are in the process of revitalizing Chrysler’s business to succeed as a viable enterprise under new ownership in the future,” Press said. “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.”

Shrink the Network

Chrysler said it would shrink its dealer network under “Project Genesis,” which cost $216 million over eight years. Rejected dealers won’t necessarily go out of business, as some may be able to get by with service operations, or make a switch to dealing used cars or other brands.

General Motors Corp., the largest U.S. automaker, said last month it plans to reduce its dealer network to about 3,600 from the 6,200 outlets it operated at the end of last year. The U.S. government, which provided emergency financing to both automakers, found that target insufficient.

Seeking to shed further costs in the face of a U.S.-imposed June 1 bankruptcy deadline, Detroit-based GM is expected to notify 1,000 to 1,200 dealers that their franchises won’t be renewed.

Auburn Hills, Michigan-based Chrysler had previously proposed cutting dealerships in metro areas by as much as 50 percent.

Chrysler said in court that it wouldn’t make incentive payments to dealers it wouldn’t keep, which lowered its budget for such payments by 25 percent.

Medford, Oregon-based Lithia rose 4 cents to $4.58 at 10:36 a.m. in New York Stock Exchange composite trading. Fort Lauderdale, Florida-based AutoNation rose 14 cents to $15.20. Duluth, Georgia-based Asbury Automotive rose 18 cents to $8.51.

The case is In re Chrysler LLC, 09-50002, U.S. Bankruptcy Court, Southern District of New York (Manhattan)

To contact the reporter on this story: To contact the reporter on this story: Christopher Scinta in New York Bankruptcy Court at cscinta@bloomberg.net and; Tiffany Kary in New York Bankruptcy Court at tkary@bloomberg.net.

Last Updated: May 14, 2009 12:05 EDT
By Christopher Scinta and Tiffany Kary

Source: Bloomberg

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