Chrysler Dealers Strike Back

The Chrysler Corporation faces an unlikely challenger in its attempt to move quickly through U.S. bankruptcy court... its own dealer network. In a Sunday article posted at the Financial Times website, Chrysler's dealers are planning a challenge to try to stop the North American automaker from slashing nearly 800 underperforming dealers from carrying its products nationwide.

Chrysler filed for bankruptcy earlier this month in an effort to re-emerge in a partnership with the Italian-based automaker, Fiat. Chrysler announced the dealership cuts shortly after the filing. As part of its bankruptcy, Chrysler proposed the elimination of 789 dealership contracts. Dealerships are insisting that applicable non-bankruptcy law, specifically state franchise laws, would prevent Chrysler from eliminating the contracts.

In a filing before U.S. bankruptcy court, the dealers argue that the bankruptcy court should consider two factors about the move which may harm Chrysler more than it helps. First, there are the thousands of layoffs which will occur in the dealership closings as part of its examination of Chrysler's re-organization. Second, that the dealerships help Chrysler sell vehicles, and by cutting dealerships, Chrysler is cutting itself off from a potential source of revenue.

Let's consider the dealers' point on the second argument. If the Fiat partnership develops, as seems likely today, it will need to access as many dealers as possible. Chrysler currently has approximately 3200 dealers nationwide. By losing nearly 800 dealers, Fiat will have access to 800 fewer locations to introduce its cars into the American marketplace.

When the U.S. government first supplied loan guarantees to the Chrysler Corporation, the idea was that it was helping a solid American company make it through unique economic circumstances to emerge stronger on the other side. As bankruptcy loomed as an option, the U.S. government looked to help Chrysler emerge from bankruptcy as quickly as possible, possibly into the arms of a buyer like Fiat.

What wasn't considered, at least not at first, was the impact the loss of tens of thousands of jobs would have outside of the manufacturing chain, at the retail and supplier level. The dealers are asking the court to consider the the widespread economic impact the closures would have on an already suffering economy.

When considering the impact the auto industry has on the economy, the manufacturer is only part of the picture. Consider so-called foreign manufacturers like Toyota, Honda, Mercedes or BWM. Sure, each of these is based overseas; however, they employ thousands or tens of thousands of workers at dealership networks throughout the United States, purchase parts from U.S. based suppliers as well as employ people at their U.S. based manufacturing plants.

Chrysler's manufacturing jobs are just the tip of the iceberg when it comes to the impact its bankruptcy will have on jobs in thousands of U.S communities. Dealers across the nation hope the bankruptcy court sees this social perspective in deciding whether the U.S bankruptcy code will permit the slashing of dealerships.