22 May 2009

Chrysler To Place 25% Of U.S. Dealerships On Chopping Block

Story from CNN Money / Dow Jones Newswires

DETROIT -(Dow Jones)- Chrysler LLC (C.XX) revealed plans Thursday to cut a quarter of its U.S. dealer network, though some outlets vowed to fight the proposal in court.

The company has requested a June 3 court hearing to approve the planned cull of 798 of its 3,188 dealers nationwide.

The dealer restructuring is being driven by Fiat SpA (FIATY), the Italian group that plans to take an initial 20% stake in Chrysler when it emerges from bankruptcy protection.

In a court filing, Chrysler said the move was needed to restore competitiveness with rivals boasting leaner distribution networks.

Chrysler said its dealers sold an average of 303 cars last year, compared with the 1,292 sold by each Toyota Motor Co. (TM) outlet.

Some Chrysler dealers questioned the methodology used by the company and Fiat in their deliberations, and have vowed to battle the planned cuts.

Leo Jerome, owner of Story Chrysler Jeep in Lansing, Mich. and targeted for closure, said he has about $2 million in inventory and Chrysler informed him that the company will not buy any of the cars or parts back.

Chrysler, which filed for bankruptcy protection April 30, warned that it would need to trim its dealerships to cut costs and boost profitability.

The auto maker said all of its dealer contracts allow the company to terminate its relationship for any reasons with 30-days written notice.

Chrysler said it sold 1 million cars and trucks through its 3,298 dealers in 2008.

General Motors Corp. (GM), attempting to avoid bankruptcy protection, is also planning to cut dealers. About 1,000 GM dealers will receive letters Friday notifying them of their status. GM is planning to cut about 2,600 of its 6,246 outlets.

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