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Chrysler dealers run out of time

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For 789 Chrysler dealers, today is D-day.

Less than a month ago, the troubled automaker sent notice to about a quarter of its dealerships that it would reject their franchise agreements in Bankruptcy Court, forcing them to close.

That has led to a mad scramble among dealers to unload their inventory, as well as accusations of unfair or arbitrary treatment by the company. Yet despite protests from dealers and some members of Congress, Chrysler has refused to budge, insisting that the dealerships must go as part of the company’s efforts to restructure.

Today the judge overseeing the bankruptcy proceedings, Arthur Gonzalez, is expected to rule on a last-ditch effort by the dealers to prevent the contract cancellations. That means those 789 dealers could be out of business as of tonight.

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“They don’t care what happens, they’re going to cut us all off,” said Richard Carpenter, vice president of Oroville Motors, a Dodge, Chrysler and Jeep dealership in Oroville, Calif. He’s unloaded 80% of his inventory in the last four weeks but still has a few vehicles left.

Chrysler contends that it must reduce its dealer ranks to return to viability, pointing out that competitors such as Toyota have far fewer dealers yet sell more cars. Reducing its number of dealers, the automaker says, will allow the remaining locations to operate more profitably and provide better customer service.

Gonzalez called Chrysler’s position a “very strong argument” in court last week.

Dealer advocates feel otherwise.

“No dealer agreement should be rejected,” said Mike Charapp, an attorney representing the National Automobile Dealers Assn.

The group contends that dealers -- who operate as independent businesspeople -- don’t cost Chrysler any money to operate, and that cutting them could reduce the automaker’s revenue. Further, they argue, the move violates state franchise laws protecting dealers and could set a dangerous precedent going forward.

“Why is this necessary?” said Bailey Wood, a spokesman for the national dealers group.

The group testified before a Senate panel on the matter last week and will return to the Capitol Hill on Thursday, Wood said, adding that the group expects the matter to come up in other testimony before both the House and Senate this week.

Meanwhile, dealers slated for termination have been trying to unload inventory before today’s deadline, sometimes at fire-sale prices. They feared being stuck with cars they would no longer be able to sell once they lost their franchises.

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To address that concern, Chrysler sent a letter to dealers Friday asking them to sign a contract providing for disposal of their inventory. The closing dealers would lose no more than $350 a vehicle, and the vehicles would be purchased by some of the roughly 2,400 Chrysler dealers the company has elected to maintain. Chrysler shut down its plants May 1, so the plan provides a way for surviving dealers to obtain more inventory.

“We appreciate the efforts of everyone involved in this redistribution process and are very pleased everyone will be made whole,” said the letter, signed by Steven Landry, Chrysler’s executive vice president of North American sales.

In online message groups, many of the Chrysler dealers to be closed mocked that language, pointing out that they could lose tens of thousands of dollars on the deal. “Didn’t he mean ‘hole’?” one quipped.

Although most signed, about 220 had not, Chrysler said. Their alternative is to sell the cars on their own, without access to Chrysler’s warranties or sales incentives such as cash rebates and reduced financing.

Arty Khan, a manager at Union Chrysler Jeep Dodge in Garden Grove, said the dealership had sold off about 40% of its vehicles since receiving notice, including its entire stock of Chrysler and Jeep vehicles to a surviving store in Placentia. But with a day left, he still had about 100 unsold Dodges, including dozens of pricey Sprinter vans.

“We’d really like some more time to be able to get rid of this inventory without taking a big loss,” Khan said.

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Although the dealership’s owner signed the redistribution agreement, Khan said he’s still trying to find alternative buyers for the vehicles to reduce the losses.

The cuts are not limited to Chrysler. Last week, General Motors Corp. sent new contracts to all 6,000 of its dealers.

About 1,350 dealers received “wind-down” letters offering cash settlements for them to close up shop by October of next year. The others were asked to sign “participation agreements” that impose new requirements on their operations. Those who decline to sign by Friday, the automaker said, would have their franchises canceled in Bankruptcy Court as well.

Dealers objected to many of the terms, such as increased performance standards and the obligation to close or relocate franchises of non-GM brands on the same property. The dealers group met with GM executives to review the contract Friday. Late Monday, GM said it would send letters to dealers with modified terms.

“We now have a better collective understanding of the issues,” said Mark LaNeve, head of sales, service and marketing.

With the fate of so many dealerships in the balance, even dealers who were spared appear chastened by events.

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Jon Gray, owner of Orange Coast Chrysler Jeep Dodge in Costa Mesa, said he avoided buying up inventory from area dealers that are on the chopping block, despite the chance to get vehicles at lower prices.

“It was a lot of friends, a lot of people I knew,” Gray said. “I chose to step back and not play the vulture.”

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ken.bensinger@latimes.com

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