Chrysler targets 800 dealers in reorganization
By TOM KRISHER and KIMBERLY S. JOHNSON, AP, May 14, 2009
DETROIT – In tiny Millerstown, Pa., the owner of the only car dealership in town found out Thursday he was on Chrysler's hit list — one of 789 across the nation that the troubled automaker wants to eliminate.
"It's really, really a blow," Jeff Potter, whose family owns the dealership, said after hearing the news from a customer who spotted the closing list on the Internet. "When you talk about being here 34 years, it's my life."
Chrysler disclosed in a bankruptcy filing Thursday that it wants to close a quarter of its dealers in a matter of weeks, a strategy that might help save the company but would wipe out thousands of jobs.
With General Motors Corp. expected to announce it will close about 1,100 dealerships, the crisis in the auto industry is reaching the front doors of Americans who live far from Detroit.
Millerstown Chrysler will try to survive by selling used cars. Otherwise, the town of 700 will lose one of its largest employers and a major source of tax revenue. And in other communities that depend on dealers for everything from newspaper advertising to Little League sponsorships, the ripple effect could be devastating. Dealerships on the closing list are in every state but Alaska.
The National Automobile Dealers Association says about 40,000 people work at the affected dealerships. Many will keep their jobs, but their dealerships will be left to sell only the other brands in their showrooms, or used cars.
Chrysler said in its filing that sales are too low at many of the dealerships. Half its dealers account for 90 percent of its sales, and the company is trying to cut poor performers that compete for the same customers.
Dealers learned their fates in letters Thursday morning. The effects will go much further than their bottom lines.
Bart Wolf, the general sales manager at Wolf's Motor Car Co. in Plymouth, Wis., estimated he donated an average of $10,000 per year for local high school and middle school events, supporting band trips and athletic activities.
"The way things are going now, that could be cut down to under $2,000," he said. "It's hard to say no to anyone, but this could make things tough."
Local media will feel the pinch, too. The average car dealer spent $341,000 on advertising last year, said Paul Taylor, NADA's chief economist. About a quarter went to newspapers, which are already in a struggle for survival.
The average dealer spends $16.5 million per year in the community, including sales, payroll taxes and charitable contributions, Taylor said. On top of that, laid-off workers will spend less, and towns will suffer from lost tax revenue.
Braintree, Mass., will lose the $24,000 it collects every year from South Shore Chrysler.
"We hate to see businesses close up shop," said Christine Stickney, the town's director of planning and community development. "Anytime that we see a business close like this, there is a trickle-down effect. Those 25 employees may have had lunch in town, bought gas."
NADA's chairman, John McEleney, himself an Iowa auto dealer, said the group understands that dealers have to be consolidated. "We just think the process needs to be slowed down."
Chrysler Vice Chairman Jim Press called the cuts difficult but necessary. He said the list of dealers is final.
"This is a difficult day for us and not a day anybody can be prepared for," Press told reporters during a conference call.
A hearing is scheduled for June 3 for the bankruptcy judge to determine whether to approve Chrysler's motion. Chrysler said it wants to shed the dealerships by June 9.
Chrysler executives said the company is trying to preserve its best-performing dealers. More than half the dealerships being eliminated sell fewer than 100 vehicles per year.
The company is also trying to reduce the number of single-brand dealerships to bring all three Chrysler brands — Jeep, Chrysler and Dodge — under one roof.
The 3.5 million customers who bought cars and trucks from the affected dealers will be notified about the closures, and their warranties will still be honored, said Vice President Steven Landry.
Both Chrysler and GM have dealership networks that were built when they had a much larger share of the U.S. market. As both lost market share to Japanese and other overseas brands, GM and Chrysler ended up with too many dealers. Many are barely getting by and can't afford to upgrade their facilities or hire the best personnel.
Still, some dealers say the firings make no sense because they will ultimately cost the company sales. Some have hired lawyers to fight the decision.
Millerstown, on the east bank of the Juniata River west of Harrisburg, would be devastated if the Potter family had to close up shop, said Billy Roush, the longtime borough council president.
The borough, which provides fire, ambulance and other services to the area, had an annual operating budget of $158,805 last year, a big chunk of it from the Potter dealership.
"In our town," Roush said, "we have very little employment."
Associated Press Writers Dan Strumpf in New York, Jacob Adelman in Los Angeles, Deborah Yao in Philadelphia, Rodrique Ngowi in Boston, Ken Thomas in Washington, D.C., and Dinesh Ramde in Milwaukee contributed to this report.