Chrysler moves to eliminate 789 of its 3,200 dealers

Doug Wilson, a Dodge dealer in Jackson, Miss., was stunned Thursday when he opened the mail.

After 21 years in business — 15 of them as the state's best Dodge dealer — a letter came via UPS telling him he'd be out of business by June 9. Meanwhile, in the building next door, his brother Alan also got a letter, but his was good news: Alan Wilson's Chrysler/Jeep store would stay open.

"I'm shocked," said Doug Wilson, admitting the situation could cause some family friction. "After 21 years in business, I just get a letter in a UPS envelope that tells me I have less than 30 days to liquidate all of my Dodge inventories."

Chrysler, which owns all three brands, announced Thursday it's dropping 789 dealers by June 9. Dealers in every state except Alaska are on the list. The automaker, which filed for bankruptcy this month, is using the Chapter 11 reorganization to shed a quarter of its 3,200 dealers after struggling for years to gradually shrink the network.

About 1,000 General MotorsGM dealers could get bad news Friday. GM, which is operating on federal loans and faces a June 1 government deadline to show progress or also end up in bankruptcy court, is expected to inform underperforming dealers that their franchises may be revoked.

Steve Landry, executive vice president of North American sales for Chrysler, says the automaker has been trimming its dealer ranks since 2000. But the process has been slow because strong state franchise laws protect dealers from being cut off, even if the automaker's sales are falling. Bankruptcy law gives the automaker more freedom to end dealer franchise agreements.

On a conference call to discuss the closings, Landry stopped short of calling bankruptcy an opportunity. "It's a situation where we can fix some things inside the company, and a situation where we can fix some things in our dealer network, as well," he said.

There will be a bankruptcy court hearing June 3 for dealers who appeal. But Scott Silverman, an attorney with Boston-based McCarter & English, says he fears the cutoffs will "be crammed through" and dealers will not have time to make their cases.

Chrysler Vice Chairman Jim Press called the cuts difficult but necessary. He said the list of dealers is final and there will be no appeal process.

"This is a difficult day for us and not a day anybody can be prepared for," Press told reporters during a conference call.

Many of the dealers' sales are too low, the automaker said, with just over 50% of dealers accounting for about 90% of the company's U.S. sales.

Chrysler executives said the company is trying to preserve its best-performing dealers and eliminate ones with the weakest sales. More than half of the dealerships being eliminated sell less than 100 vehicles per year, they said.

The company is also trying to reduce the number of single-brand dealerships to bring all three Chrysler brands —Jeep, Chrysler and Dodge— under a single roof, they said. It also wanted to limit competing dealerships.

"We recognize in the short term we will see some loss of sales," Press said. "But based on the long term ... the dealer (network) is key and it's going to be very strong, powerful, with a much better financial viability."

The 3.5 million customers who purchased vehicles from the affected dealers will be notified about the closures and their warranties will still be honored, said Vice President Steven Landry.

Chrysler has received $4 billion in federal loans and has been operating in bankruptcy protection since April 30. Its sales this year are down 46% compared with the first four months of last year and it reported a $16.8 billion net loss for 2008.

Contributing: Associated Press