Automaker Chrysler ditches local dealers

When Chrysler dropped the ax Thursday on 789 dealers across the country, it fell hardest on guys like Rick Shaub, third-generation owner of Montrose Dodge in Germantown.

Nearly three-quarters of the 14 Washington-area dealerships losing Chrysler business are parts of larger chains or sell other automakers’ brands. The rest are out of the new-car business, at least for now.

Mr. Shaub, 53, owns one dealership and he sells one brand: Dodge. He has $2.5 million in debt on the cars on his lot, three weeks before he has to repay it, and just one likely option: bankruptcy.

He will try to stay open by selling used cars.

“I have yet to figure out how bad it’s going to make things,” Mr. Shaub said after learning of his dealership’s fate. “They are not going to back my inventory, which means I’ll probably have to declare bankruptcy.

“The killer is that they only gave us until June 9” to repay the loan on his inventory.

In the short run, the move could lead to fire sales of excess Chryslers, Dodges and Jeeps, but in the long run less competition among dealers could raise prices for consumers.

In its filing, Chrysler asked the U.S. Bankruptcy Court to reject dealer agreements with 25 percent of its 3,181 dealerships. The move requires court approval, which is considered likely.

Acting through bankruptcy allows Chrysler to get around state franchise laws that favor dealers. Breaking the agreements is designed to leave Chrysler with a smaller but more profitable dealer network.

“We have a once-in-a-lifetime opportunity to right-size and realign the dealer body,” said Jim Press, Chrysler vice chairman and president.

In the bankruptcy filing, Peter M. Grady, president of the company’s dealer operations, noted that Chrysler sold 303 vehicles per store last year compared with 1,292 for Toyota and 1,030 for Honda.

The Obama administration has pressed both Chrysler LLC and General Motors Corp. to undertake more aggressive restructurings than they first proposed as a condition for receiving government loans.

Italian automaker Fiat, which plans to take a 20 percent stake in Chrysler, is also playing an influential role in the dealer cutback.

“A month ago, Chrysler faced the real prospect of liquidation, which would have eliminated all 3,200 of the company’s dealers,” the Treasury Department said. “As a result of the successful Chrysler-Fiat partnership and the backing of the president’s Auto Task Force, Chrysler is now positioned to move forward with a plan that retains 75 percent of its dealers - representing 87 percent of Chrysler sales.”

Story Continues →