Nardelli: A Need to 'Rightsize' Dealers

Chrysler says a smaller network will be stronger and more profitable, but at least one dealer says he'll fight his termination in court

By Phil Mintz

Chrysler, which is undergoing a drastic reorganization and downsizing under Chapter 11 bankruptcy protection, said on Thursday, May 14, that it is ending franchise agreements with 789 dealers, about one-quarter of the company's dealership roster. The terminations, which can be appealed by the dealers, are to take effect on June 9.

"As an important part of our creation of a new company with Fiat, today we took a major step toward rightsizing our U.S. dealer network and aligning it with the realities of a smaller overall market," Chrysler CEO Robert Nardelli said in a letter to employees published on the company's Web site. "Our goal is to create a dealer network that is stronger, more profitable, and better able to meet and exceed the high expectations of today's car and truck buyers."

According to a motion filed in the U.S. Bankruptcy Court in New York, Chrysler has 3,181 dealers, approximately 62% of which sell all three Chrysler brands: Chrysler, Jeep, and Dodge. The remaining sell only one or two of the brands. According to the filing, approximately 25 of the domestic dealers account for about 50% of U.S. sales and just over 50% account for about 90% of U.S. sales.

"In addition, as suburbs grew and the modern interstate system continued to evolve, longstanding dealerships no longer were in the best or growing locations," the company said in its filing. "Many rural locations also served a diminishing population of potential consumers. Some dealership facilities became outdated. Other locations faced declining traffic count and declining populations." Chrysler said the decision to close dealers was difficult and based on data, including brand affiliations, raw sales volume, location, type of market, facilities, customer service, and market share.

"We plan to maintain 'business as usual' with all of our dealers through this transition, including honoring warranty and incentive payments," Nardelli said. "We are committed to working with all dealers to ensure an ongoing positive relationship with customers. To ease the burden on dealers whose agreements have not been assumed, Chrysler will work to assist in the redistribution of new vehicles and parts currently held in their inventories." General Motors (GM), which is facing a June 1 deadline from the White House to restructure or also be forced into bankruptcy, is expected to announce dealer closings as well.

Dealers Assn. Blames Wall Street

The closings are being opposed by the National Automobile Dealers Assn., which argues that the cuts are unnecessary. "Cutting dealers at this time would do absolutely nothing to make either GM or Chrysler more viable," the group says on its Web site. "The idea that dealer numbers should be rapidly and drastically reduced apparently comes from Wall Street."

One Long Island (N.Y.) Chrysler dealer said he learned he was being terminated Thursday morning in a call from his regional manager. Jim Anderer told Long Island's Newsday that he plans to fight the termination in court. "I want to know how this happened in America," Anderer said. "I am a business that makes more than $1 million a year. I employ 50 people on Long Island. I've been terminated for no reason."

Mintz is news editor for BusinessWeek.com in New York.

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