Chrysler to end contract with 5 regional dealers

5/15/2009

Five northwest Ohio dealers of Chrysler LLC vehicles were notified yesterday that their contracts with the automaker are to be terminated in less than four weeks, a move that is part of 789 dealer cuts by the bankrupt company.

Chrysler filed the list yesterday in U.S. Bankruptcy Court and sent letters by special delivery to the dealers whose contracts will end by June 9 and to the 2,392 dealers who will continue to sell Chrysler products as the firm restructures and merges with Fiat SpA.

The five to be eliminated in the region are Ed Schmidt Jeep Eagle in Perrysburg; Bowling Green Jeep in Bowling Green; Integrity Motor Sales Inc. in Defiance; Lima Auto Mall Inc., a Jeep dealer in Lima, and Spangler Motor Sales, Inc. in Oak Harbor.

Specific factors used to compile the elimination were not disclosed, but underperformance in sales and having only one or two Chrysler brands instead of all three seemed to be considered.

Those to be eliminated, however, won't necessarily go out of business. Most have other vehicle brands they sell.

During a national telephone press conference, Chrysler Vice Chairman and President Jim Press said yesterday was "a difficult day for us and not a day that anybody can be prepared for.

"There are no winners or losers," Mr. Press said. "This is the way it is. We are a company that is working its way out of a Chapter 11 situation."

The automaker, which has received $4 billion in federal aid, filed for bankruptcy protection April 30 and needs to make substantial cost cuts to receive additional federal aid. Its sales this year are down 46 percent compared with the first four months of last year, and it reported a $16.8 billion net loss for 2008.

The motion to cancel its relationships with the dealers awaits approval by bankruptcy Judge Arthur Gonzalez. That approval is expected, and a hearing is scheduled June 3.

In all, 47 of the targeted dealers are in Ohio and 40 are in Michigan. No dealers in southeast Michigan are affected.

Some dealers who received cancellation letters showed a brave face over the decision. Others weren't so stoic.

B.J. Fischer, a spokesman for Ed Schmidt, said the owners viewed the change as "an opportunity for Ed Schmidt to pursue new opportunities and allow Chrysler to reposition itself in the Toledo market."

"Obviously, we wish it had gone down differently but Ed Schmidt is not going anywhere, even at its Perrysburg location," Mr. Fischer said.

The dealership, which has about 250 employees and does not expect to reduce its work force, will lose its Jeep franchise, but also sells Volkswagen, Volvo, Chevrolet, Pontiac, GMC Truck, Hummer, and Saab vehicles.

The suburban Toledo dealership sold 223 Jeeps last year, along with 780 vehicles from the other makes, according to Toledo Auto Dealers Association figures.

Officials at Integrity Motors in Defiance were surprised to learn they will lose their Chrysler, Jeep, Dodge, and Dodge truck franchises

Randy Shirkey, Integrity sales manager, said "They pretty much kept everybody in the dark. We didn't know what to expect."

Mr. Shirkey would not give sales figures, but said Integrity had "moderate" sales volume compared to other dealers.

"We thought we had met their expectations," he added.

Officials at Integrity Motors, which also has Ford and Chevrolet dealerships and a large used-car operation, are looking at options, but they aren't sure yet what course they will pursue.

At the Lima Auto Mall Jeep franchise, Chrysler's decision wasn't surprising to company vice president Rodger McClain, who said he doesn't expect to lay off workers.

Chrysler, he said, had been trying to get Lima Auto Mall to sell its Jeep franchise.

"Jeep is the smallest franchise we have. We sell two or three Jeeps a month at the most. It's not much," he said. "They had been trying to get us to sell for a while. Now they've used bankruptcy to cancel our franchise."

The Auto Mall still has Cadillac, Chevrolet, Pontiac, and Nissan franchises, Mr. McClain said.

"This decision is not going to close the Lima Auto Mall," Mr. McClain said.

Officials with Bowling Green Jeep and Spangler Motors, which sells Chrysler, Jeep, and Dodge brands, did not return calls seeking comment. Bowling Green Jeep, which also is a Lincoln-Mercury dealer, sold 109 Jeeps last year, according to the local auto dealers association. It also sold 50 Lincolns and 61 Mercuries.

Two law firms have been hired to represent dealers. Squire Sanders of Cleveland will represent dealers who will not be kept by Chrysler, while Arnold and Porter LLP of Washington will represent in bankruptcy court dealers who will become part of the new Chrysler-Fiat alliance.

The combination of Fiat and Chrysler presents no anti-trust issues and will get early clearance from the U.S. Federal Trade Commission, an agency official said yesterday.

Mr. Press, the Chrysler president, said the company was arranging to have the dealers who will lose their franchises sell remaining vehicles - estimated at 44,000 - and parts to franchises that will continue. He said the company expects many workers who lose their jobs at the franchises that will close will find jobs at remaining dealers.

The company used a rigorous process that was thoroughly vetted to decide which dealers to keep and which to let go, Mr. Press said. The process was designed to maximize existing dealer profits, streamline distribution, and improve customer satisfaction.

The dealers who are to be eliminated represent just 14 percent of Chrysler sales, he added.

The problem wasn't that Chrysler had too many dealers, "it is we don't have enough industry," he said. Auto industry sales that once topped 16 million annually are now projected to reach just 10.5 million, he added.

Chrysler's decision received strong criticism from the National Automobile Dealers Association.

"These dealers and their more than 40,000 employees have done nothing but proudly represent the Chrysler brand through good times and bad, and today find themselves left behind as the company reorganizes itself in bankruptcy court," the organization said.

Fiat, not Chrysler, decided which dealers will be brought along to the new company to be formed under the U.S. automaker's bankruptcy process, according to people familiar with the situation. Trimming the bulk of dealers from urban areas will increase profitability at the remaining dealers, lawyers for Chrysler said.

Chrysler dealerships aren't the only ones scheduled to get bad news this week. General Motors Corp. says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September, 2010.

Chrysler said in its filing that dealers are not competitive enough with foreign brands. Chrysler sold an average of 303 vehicles per dealer in 2008, according to its filing. By contrast, Honda Motor Co. sold about 1,200 vehicles per dealer and Toyota Motor Corp. sold nearly 1,300 per dealer.

Denny Amrhein, managing partner of Grogan's Towne Chrysler Dodge in Toledo, said he was pleased to get a notice from the automaker that his dealership would become part of the new Chrysler-Fiat company. His dealership sold about 1,160 Chrysler and Dodge vehicles last year, local trade group figures show.

"We were pretty sure we knew we'd not be one of the ones not being around," he said.

But he admitted being surprised at some of the targeted dealers, saying some had "strong sales," so it was unclear to him what the reasons were. He expected more smaller dealers than there were to be on the list.

Yark Automotive Group in Sylvania Township also got a congratulatory letter yesterday stating it would be part of a new Chrysler, but Yark general manager Doug Kearns said the letter said very little more.

"It doesn't get into any detail on how things will play out," he said. "I don't know when we will see Fiat products. They are still talking like they'll be a year or two away," he said.

Contact Jon Chavez at:

jchavez@theblade.com

or 419-724-6128.