Chrysler to Shutter 789 U.S. Dealerships

Chrysler plans to eliminate a quarter of its showrooms, some 789 dealerships, in an effort to cut costs and keep existing dealers from competing with one another, the automaker revealed in bankruptcy documents filed today.

Chrysler, which filed for Chapter 11 at the end of April to begin a merger with Italian automaker Fiat, told the bankruptcy court Thursday that its dealer network was inefficient, expensive and antiquated.

The network of 3,200 dealers currently operating across the country "substantially increases expenses and inefficiencies in the distribution system," the company said in a motion filed in the U.S Bankruptcy Court in New York.

Pending approval by the court, the company plans to shutter underperforming dealerships by June 9.

The company said it targeted poor performing dealers, those that sold a single brand -- Chrysler, Dodge or Jeep -- and those in areas, particularly cities, where dealers competed with one another. Though the company is losing 25 percent of its dealers, those dealers provided only 14 percent of sales volume, Jim Press, Chrysler's vice chairman and president, told reporters Thursday.

Chrysler, which took a $4.1 billion loan from the government, has seen a 46 percent drop in sales compared with the first four months of last year. It reported a $16.8 billion net loss for 2008.

"The bankruptcy process allows us a once in a lifetime chance to realign the dealership body," Press said. The company, he said, would have a "more profitable and powerful distribution going forward." Chrysler for several years has been trying to consolidate its dealerships so all its brands are under one roof, but many dealers continue to just sell one brand. Wade Walker, a Jeep dealer from Montpelier, Vt., whose family has been selling Chrysler-made cars since 1964, said news that he would have to close his dealership would cost him a quarter of his business and lead to layoffs.

Walker, like the other dealers, was notified by a letter sent by UPS Thursday morning that his business would be closed.

"I have been notified that I am one of the affected dealers, and I won't have a future with Chrysler," Walker told ABC

"I'm not happy. We've put so much into it. We've been a dealer since 1964. It hurts that they would do this after 45 years of dedicated service," Walker said. "I feel a little abandoned by them. I'm more worried about my employees and my customers.

Walker, who also sells Ford and Volkswagen vehicles, said his Jeep sales made up a quarter of his business. He said he would have to lay off workers and said he believes the company targeted his showroom because he shared his showroom with competing companies.

"We can't continue to employ these people," he said. "It was a profitable business for years. When you're off 40 percent from where you were four years ago and now you lose 25 percent of your business, it hurts."

Walker was on Capitol Hill Wednesday, along with more than 100 other dealers, to convince lawmakers to stop the automaker from shuttering their stores.

In addition to the 789 planned closures, Chrysler has lost 400 dealers since early last year. The U.S. Treasury Department said in a statement that the move to close dealerships was "one of several steps the company is taking to restructure to achieve financial viability."

In its statement, Treasury said it had no role in deciding which dealers would be shut down. The government said dealers, like autoworkers, had to make sacrifices to keep the industry viable.

"The sacrifices by the dealer community -- alongside those of autoworkers, suppliers, creditors and other Chrysler stakeholders -- are necessary for this company and the industry to succeed. … A stronger Chrysler, supported by an efficient and effective dealer network, will provide more stability for current employees and the prospect for future employment growth."

General Motors dealers are bracing for similarly bad news. GM said it would notify 1,100 dealers Friday that it would not renew their franchise agreements when they expire at the end of September 2010.