UPDATE 1-Anger, sadness as ax falls on Chrysler dealers

Thu May 14, 2009 5:28pm EDT

Related Topics

* 789 Chrysler dealers losing franchise agreements

* 25 percent of the automaker's dealers affected

* Many have been family-owned business for generations (Adds estimate of number of workers idled, comment from New York dealer)

By James B. Kelleher and Kyle Peterson

CHICAGO, May 14 (Reuters) - Dealers across the United States reacted with a mixture of anger and sadness on Thursday to word that bankrupt automaker Chrysler LLC plans to eliminate franchise agreements with them as part of its restructuring efforts.

But most, even those surprised by the news, entertained little hope they could stop Chrysler from following through on the proposed closures, the latest chapter in the decline of a company that was -- for a brief period in the 1990s -- the most profitable car manufacturer in the world.

As a result, the dealers said they were already taking the sad but necessary preliminary steps to close or consolidate businesses that, in many cases, had carried their family names as well as those of the automaker for generations.

"Today is a tough day for a lot of people," said Alex Planas, the general manager of the Tamiami Chrysler Jeep Dodge in Miami, Florida, which employs 100 workers.

Chrysler notified all its dealers on Thursday about its plans to eliminate 25 percent of its retail showrooms and is seeking permission from a U.S. bankruptcy court to terminate franchise agreements. [ID:nN14484143]

One Chicago dealer, Stanley Balzekas, characterized the notification as a "screw you" letter because it was "cold and very factual."

The automaker sought approval in a bankruptcy court filing to terminate franchise agreements with 789 of 3,181 dealerships as of June 9.

Chrysler, which filed for bankruptcy on April 30, and larger rival General Motors Corp (GM.N), have faced pressure to cut struggling dealerships to bring their large sales networks in line with those run by more successful automakers like Toyota Motor Corp (7203.T) which has only 1,200 dealers.

The National Automobile Dealers Association, which represents the country's 20,000 new car dealers, estimated that each Chrysler dealership employs about 48 people on average. That would mean that the cuts by Chrysler could lead to a potential loss of almost 38,000 jobs.

Mark Calisi, 47, who owns Eagle Auto-Mall in Riverhead, New York, says he was "devastated" to learn that his dealership would be closed. He said Chrysler accounts for a third of his business, which also sells Volvo, Mazda and Kia, and that on Thursday he had to sack 30 of his 100 employees.

"I can't even give severance because Chrysler's not taking back my parts," he said.

Calisi, who said he'd just invested $8 million in a new dealership, blamed the federal task force overseeing auto industry restructuring for his plight and said he was weighing his legal options.

"I have been with Chrysler for 13 years and my father was with Chrysler for 30 years," he said. "No matter which way you cut the cake it's devastating."

HARD TIMES

Regina Alexander, service and parts manager of the family-owned Arnold Motor Sales Inc, which has sold Chrysler cars in a little town east of Phoenix, Arizona, since 1971 and employs seven workers, called the news "difficult" but a reflection of the grim economic climate.

"We've been selling to generations of families here ..., we've been through all the mine shutdowns and the mines reopening," she said. "So we've been through some hard times, but this is probably by far the worst."

Alexander said the dealership, which had no clear indication from Chrysler the ax was going to fall, had no plans to sue Chrysler and would continue to operate, servicing vehicles already on the road and selling used ones.

Chrysler said that more than 80 percent of the dealers being eliminated sell more used cars than new and could look to stay in that business. Almost half of the rejected dealers sell less than 100 new vehicles per year.

"They want every dealer to be a huge dealer," said Balzekas, whose Chrysler-Jeep dealership on the South side of Chicago has carried his family's name since 1926.

"In an urban area, that doesn't work because of the cost of land."

Some dealers, like Curtis Benson, the part-owner of Benson Motor Inc, which has served Ames, Iowa, for 39 years and also sells Buicks and GM trucks, will stay in the new vehicle business, which is going through one of its worst downturns in decades.

But now that he is no longer selling Dodge products, Benson said he will have to rein in sponsorship of community organizations and events by about 50 percent.

"I was a dealer in the late '70s and early '80s, when we went through the recession back then and I thought that was the worst I'd ever see in my lifetime," Benson said. "But this is a whole other cat."

ACHING HEART

Not everyone was taking word of the closures lying down.

Planas in Miami said his dealership was lobbying Chrysler to reverse its decision to revoke the franchise.

"I truly believe that at the end of the day we are going to be a Chrysler Jeep Dodge dealership," he said. "If not, maybe we'll have another franchiseship. Who knows? It's all speculation right now. But we will stay viable and we will be in business."

Chuck Eddy, an owner of Bob and Chuck Eddy Chrysler-Dodge-Jeep in Youngstown, Ohio, was in Washington D.C., where he met with members of the Obama administration's autos task force and urged it to "review this dealer network issue and how it impacts the employees -- the person with his name on a shirt."

"Although we realize that the network has more capacity than it needs, a fair and balanced and organized wind-down, with dignity, is much better than shoving guys off the cliff today," Eddy said.

Eddy, who learned earlier on Thursday that his dealership was spared the ax, expressed concern for the terminated dealers.

"My heart's aching for them. There's a lot of dealers and this is all they knew, their lives revolved around their dealership," he said, adding that his father first became a Chrysler dealer in 1957.

(Reporting by James B. Kelleher and Kyle Peterson; Additional reporting by David Lawder in Washington, D.C., Tim Gaynor in Phoenix, Pascal Fletcher in Miami, Michelle Nichols in New York and Poornima Gupta, Kevin Krolicki and Soyoung Kim in Detroit; Editing by Richard Chang)

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