- The Washington Times - Friday, May 15, 2009

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.”

Treasury added that it “played no role in deciding which dealers, or how many dealers, were part of Chrysler’s announcement today.”

General Motors, which is not in bankruptcy, is expected soon to announce plans to close as many as 2,600, or 40 percent, of its 6,300 dealerships. But those dealers will be able to continue operating until the end of 2010.

Jeremy Anwyl, chief executive officer of the auto rating site Edmunds.com, said there was some merit to the dealers’ argument that they are not a burden to the manufacturer.

“The tricky part is no one’s ever done this before,” he said. “No one’s really talking about the risk. There’s the assumption that this is the right thing to do.”

Chrysler’s action will also probably raise car prices for consumers - which in turn could dampen sales, auto analysts said.

But Mr. Anwyl said Chrysler needs a “healthy dealer body” that can renovate dealerships, spend money on advertising and hire better sales people.

“Chrysler has been less successful than Toyota in getting dealers to invest in facilities,” he said.

Donald A. Danner, president of the National Federation of Independent Business, faulted the government for bailing out large automakers without forcing tough decisions about “gold-plated benefits” for management and unions.

“We haven’t seen anybody help [small auto-related business] and we are concerned about rewarding some of the decisions made by large auto companies that gave away things we never did because we couldn’t afford to,” he told editors and reporters at The Washington Times.

The dealer closings will have a major impact on the towns where they are located, both in terms of lost tax revenue and reduced spending by displaced employees.

“They are huge employers and a lot of jobs and a lot of income will just disappear,” said John B. Townsend II, a spokesman for AAA Mid-Atlantic.

The average car dealer in Maryland has 67 employees and an annual payroll of $3.31 million, he said. Virginia dealerships employ 60 workers on average and maintain a payroll of $2.82 million.

Darcars Chrysler in Fairfax is also losing its agreement with the automaker.

Tammy Darvish, vice president of Darcars Automotive Group, a 26-dealer company based in Silver Spring, said she is focusing more on her employees right now rather than on the business implications of Chrysler’s decision.

“Right now our top priority is the people,” said Mrs. Darvish, whose father opened his first dealership in Wheaton in 1977. “We are going to pull out all the stops to make sure our employees and their families are protected.

“I’m pretty sure that the domino effect was not thought out,” she said. “What about the communities, the vendors, what about the taxes we pay? What about the health care? How many people are not going to have jobs?”

The fate of the cars on lots such as hers and Mr. Shaub’s is uncertain.

Chrysler is encouraging closed dealers to sell their inventory to the remaining dealers, said Gerry Murphy, president of the Washington Area New Automobile Dealers Association.

Auctions on the wholesale market also are an option for dealers that are closing. In those cases, a dealer could nearly break even, he said.

But the closings also could lead to inventory-dumping going-out-of-business sales.

“The time frame is draconian,” Mr. Murphy said. “You’re in totally uncharted waters here.”

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