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Chrysler Dealers Likely to Learn Their Fate Friday

In a motion filed with the bankruptcy court earlier this week, Chrysler says it will pay incentives “to those dealers that they believe have value to the acquiring company.”

Chrysler LLC dealers likely will learn Friday if they are part of the auto maker’s future after the company files a document with the New York bankruptcy court detailing a list of creditors it intends to pay.

Chrysler received permission from the court Tuesday to pay $753 million in sales incentives owed to dealers. The auto maker originally wanted $1 billion to pay its dealers but was instructed by the U.S. Treasury Dept. to reduce that figure.

The money is part of the $4.1 billion in debtor-in-possession financing being funded by the U.S. and Canadian governments that was approved by the court early Tuesday.

Judge Arthur Gonzalez also ruled yesterday Chrysler can auction off most of its assets by May 27 with Fiat Auto Group as the lead, if not only bidder. The ruling shoots down an objection from a group of secured lenders that reportedly will be identified today.

The lenders have argued the government has unfairly stacked the deck in favor of the United Auto Workers union.

In a motion filed with the court earlier this week, Chrysler says it will pay incentives “to those dealers that they believe have value to the acquiring company.”

Chrysler also says in the DIP budget filed with the motion it assumes 25% of its dealers will not receive incentive payments for sales already made. That amounts to roughly 800 dealers.

Dealers tell Ward’s they are being told they have 10 days to petition the court to be included on the list.

Chrysler informed its national dealer council Tuesday in a meeting in Auburn Hills, MI, the company is evaluating the viability of its 3,200 dealerships based on geographic location, financial health, customer satisfaction, condition of facilities and whether they are meeting their minimum sales responsibility.

One dealer-council member tells Ward’s he expects the list to be fluid, with dealers moving on and off.

One reason is because GMAC Financial will begin its own vetting of dealership health once it receives permission from the court to begin providing floorplan financing to Chrysler dealers, replacing Chrysler Financial.

Chrysler told its dealers in a conference call last week the process will take about six months. Dealers say they expect the process to move much faster and think GMAC will know within 60 days which dealers it will finance.

For now, 2,500 dealers who were floorplanning with Chrysler Financial have no access to financing, as the firm ceased providing financing to dealers last Thursday.

Chrysler Financial also filed an objection in court Tuesday to slow down the speed with which GMAC is taking over the financing of Chrysler dealers. Chrysler Financial wants the court to provide it access to the sealed agreement between GMAC and Chrysler.

Chrysler Financial says it holds the liens on most of Chrysler’s product sitting on dealer lots and its agreement with dealers prohibit them from financing with other sources.

The longer dealers go without financing, the more difficult it will be to continue doing business, according to several motions filed with the court last Friday.

Officials from the National Automobile Dealers Assn. and state dealer association directors are scrambling to get information from both Chrysler and General Motors Corp. about their dealer-reduction plans.

Dealers say GM has pushed back to late May the time it plans to send letters informing as many as 1,200 dealers their franchise agreements will not be renewed. However GM spokeswoman Susan Garontakos says she is not aware of any change in the timing of the letters.

NADA is organizing a fly-in of dealer state association directors and dealers into Washington next week to put pressure on President Obama to stand with Main Street and not Wall Street. They plan to lobby Congress on Wednesday and meet with the president’s automotive task force on Thursday.

Dealers who already have met with the task force believe it is forcing GM and Chrysler to reduce their dealer counts to improve vehicle sales per store.

Dealers say the task force is not taking into account the human toll closing nearly 3,400 stores will cause. An estimated 170,000 dealership jobs will be lost in addition to the millions of dollars in tax revenue created by vehicle sales.

NADA’s message is that Wall Street’s forced rapid reduction of dealerships will do irreparable damage across the country.

Meanwhile, Arnold & Porter LLP, the law firm NADA has retained to represent Chrysler dealers in the bankruptcy case, tells the trade association it will not be able to continue defending dealers slated for termination, because their interests will conflict with surviving dealers.

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TAGS: Dealers Retail
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