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Chrysler Can Fire Dealers Says Bankruptcy Court

However, Chrysler must take their vehicle inventory back.

by on Jun.09, 2009


The sales challenge confronting Chrysler as it emerges from bankruptcy is gargantuan.

The judge in the Chrysler bankruptcy case  late this afternoon granted Chrysler’s wish to fire 789 dealers. Judge Arthur Gonzalez of the Federal Bankruptcy Court for the Southern District of New York overruled the objections of the terminated dealers.

Gonzalez also rejected the notion that he should wait to see if the Supreme Court will even consider dealer and bondholder objections to the sale of Chrysler to Fiat.

The order is effective immediately, and barring an appeal, the “rejected” dealers have no claims against the New Chrysler Group when it emerges from bankruptcy. 

The judge also agreed to a modified deal negotiated between Chrysler LLc and the dismissed dealers, which has Chrysler taking back their inventory and placing it with continuing dealers. This is likely in Chrysler’s best interest anyway, since closed dealers could and are dumping the vehicles at distress prices on the market, hurting the remaining dealers that Chrysler needs going forward. Half of  the continuing dealers account for 90% of Chrysler, Dodge and Jeep sales.

A large, potentially fatal, issue remains with Chrysler’s currently depressed sales levels, and as a result how long it takes to sell off the current inventory. All Chrysler plants have been idled since its bankruptcy filing and it is uncertain when they will resume production.

Since January of 2008 an “unprecedented ” number of Chrysler dealers , totaling 397 and rising,  have filed for bankruptcy. Its suppliers are also living on the ragged edge of solvency.

The sales challenge confronting Chrysler as it emerges from bankruptcy is gargantuan. Before the Chrysler bankruptcy filing in March, the company had an average of $5,566 of incentives in play – roughly 20% to 25% of the wholesale cost of a vehicle — and sales declined almost 50% anyway.