Chrysler is Playing Hardball With Ex-Dealers, and Winning So Far

Last Updated May 28, 2010 6:10 AM EDT

Chrysler is having more success than not in arbitration against auto dealers who are fighting termination notices -- and it's doing its best to spook others who are inclined to push their arbitration claims, too.

For instance, Chrysler is taking the unusual step of putting out a press release each time it wins a case. That's bound to have a chilling effect on dealers who are waiting their turn for arbitration. According to Automotive News, Chrysler is 5-1 in arbitration -- that is, five wins and one loss.

Chrysler terminated 789 dealers, or 25 percent of its total, last year as part of its bankruptcy restructuring. General Motors similarly cut about 2,600 dealerships, or 40 percent if its U.S. dealers. GM's cuts were deeper than Chrysler's in part because GM dropped the Saab, Saturn, Pontiac and Hummer brands. Not all of the terminated dealers are appealing their cases.

The car companies argued that they had far too many dealers, because their dealer networks were appointed when the domestic companies had a much bigger share of the U.S. market. Having too many dealers forced their dealers to compete against each other, instead of against competing dealers for different brands.

However, dealer-friendly state franchise laws made it next to impossible to terminate dealers. Bankruptcy gave Chrysler and GM a way around the franchise laws -- or so they thought. Dealer groups appealed to Congress. Faced with the threat of legislation, the automakers agreed to submit to arbitration for dealers who appeal their terminations.

Since then, the two companies seem to have taken a different attitude. Under new top management, GM has reinstated 661 dealers, which Mark Reuss, president of GM North America, characterized as "doing the right thing."

Chrysler also said it offered to reinstate 86 dealers. However, Chrysler seems to be taking a harder line with its remaining ex-dealers. Chrysler's take on the dealers is that the sooner Chrysler can get on with its five-year business plan -- that is, minus the terminated dealers -- the sooner it can repay its government bailout.

The company said in a recent statement announcing its success in three arbitration cases: "Chrysler is confident the difficult decisions made during bankruptcy will continue to position the company for sustainable success and, ultimately, will enable the company to repay the U.S. taxpayer in a timely manner."

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