Chrysler Wins Plea to Shutter 789 Dealerships

Judge makes dealer closings and Fiat sale a done deal

Fiat gained ownership of most of Chrysler L.L.C.’s assets Wednesday, a day after a bankruptcy judge approved Chrysler’s plan to terminate 789 of its franchises and the U.S. Supreme Court declined to rule on objections to the sale by a group of Indiana state pension funds, who argued that the bankruptcy favored unsecured creditors over secured lenders.

“Chrysler is making decisions on whose life savings and business is going to dissipate with no value and who is going to benefit from other people’s work and business-building over the years,” says Randolph Henderson, who closed the doors of his Webster Chrysler/Jeep dealership Monday after running the business for 11 years.

In court Tuesday, Chrysler promised to extend the original June 9 deadline requiring dealers to sign an agreement to transfer their vehicles to unaffected Chrysler dealers to June 15. Chrysler’s downsizing will reduce the manufacturer’s dealer network of some 3,181 franchises by 25%.

Lawyers representing Chrysler dealers voiced their objections in court with the hope that U.S. Bankruptcy Judge Arthur Gonzalez would uphold dealer protection laws that have been passed in all 50 states. Chrysler would have been subject to these laws had they not filed for Chapter 11 bankruptcy. Dealers argued that Chrysler had not shown how the elimination of dealers was in the best interest of the estate.

“Chrysler’s rejection could have a ruinous impact on minority dealers,” said H. Todd Bullard, an attorney representing several minority dealerships, including Henderson, the only African American dealer of the 300 dealers in Chrysler’s Northeast business region.

Bullard argued that unlike majority-owned dealerships, minority dealers have less access to generational wealth to keep the loss of their dealerships from eating into their personal finances.

“To eliminate dealers and dealerships and leave huge gaping holes in demographic areas such as the Northeast business region where African Americans are heavily [represented is] the exact opposite of what they should be doing,” Bullard added.

As a result of Chrysler’s decision, minority dealers will be disproportionately impacted since they only account for less than 4% of Chrysler dealerships. When Chrysler’s former Chairman and CEO Lee Iacocca managed the Chrysler bailout of the 1980s, he implemented a minority dealer program that built the minority dealer network from seven dealerships in 1980 to 178 at the beginning of 2008. That number fell to 158 in May before the bankruptcy and will be 120 after the dealer terminations, equaling a 33% decrease in minority-owned dealerships this year alone, according to Bullard.

Both Henderson and Bullard consider Chrysler’s move to be shortsighted. “From a business standpoint, why would you take out experienced minority dealers who know the car business, have been in it for 25 years, developed a certain degree of wealth and expertise, when you are trying to penetrate markets that could be a third of your consumer base?” says Bullard. “It simply makes no business sense.”

Henderson says that the reduction in dealerships will come back to haunt Chrysler because the company isn’t taking into account how community relationships impact the bottom line.

“The [fewer] dealerships they have will mean less market share for them,” says Henderson. “I never would have thought that they would terminate that many dealers when there is no cost to the manufacturer.”

The Obama administration’s auto task force orchestrated the Chrysler bankruptcy by demanding that the company make severe operational changes or risk liquidation.

Members of the auto task force, including  Edward Montgomery, director of the White House’s recovery for auto communities and workers testified before the Senate Banking Committee today about the use of funds from the Troubled Asset Relief Program that was used to usher GM and Chrysler through the Chapter 11 bankruptcy process.
Now known as Chrysler Group L.L.C., the automaker is no longer in bankruptcy protection and is free of the billions in debt that hurt the old Chrysler L.L.C.

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