Wednesday, 13 May 2009 08:39

Chrysler to Cut Dealearships by more than 25%

Sources close to the bankruptcy are reporting that Chrysler will announce cuts to its dealership base on May 14. Between 800-1000 dealers will no longer be "on the list"

Chrysler filed for bankruptcy on April 30. It will tell up to 1,000 of its 3,189 U.S. dealers it is terminating their franchise agreements. Remaing dealers will work with GMAC, not Chrylsel Financial.

More than 100 members from the National Automobile Dealers Association, a group representing the country's 20,000 new car dealers, met members of the House of Representatives and Senate in Washington on May 13, asking them to intervene with the federal auto task force on planned reductions.

"A rapid cut of dealers is a bad idea," NADA Chairman John McEleney said. McEleney said his organization does not oppose dealer consolidation, but believes the administration and the companies are moving too fast.

In separate developments, the company will not have to worry about union action until 2015. Any changes to the UAW contract will be handled by binding arbitration. The contract says the UAW had agreed to accept $4.59 billion in cash plus a 55 percent stake in the Chrysler-Fiat partnership in place of the $10.6 billion that Chrysler owes a union retiree health care fund.  Chrysler's 26,000 U.S. workers ratified the contract changes by a 4-1 ratio. All new workers Chrysler hires until Sept. 14, 2015, can be paid entry-level wages.

Fiat's initial 20 percent stake would rise to 35 percent after meeting three milestones for bringing its vehicle technology to the United States.

The U.S. Treasury Department will maintain a 10 percent stake in the new Chrysler.

The health care fund, or Voluntary Employees' Beneficiary Association, will nominate one Chrysler board member approved by the UAW, the contract says. Independent directors will vote the VEBA's Chrysler shares.

The Chrysler-Fiat partnership will seek to avoid compensation restrictions by making the most senior management Fiat employees. Chrysler will also retain its corporate headquarters in Auburn Hills Michigan.