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The effects of Chrysler cutting dealers

A Chrysler sign outside of a dealership in Los Angeles.

TEXT OF STORY

Kai Ryssdal: The pieces that might keep Chrysler out of bankruptcy are slowly falling into place. The company has convinced its biggest creditors to take billions less than they're owed. It has reached tentative agreement with the United Auto Workers Union. And there are reports this afternoon that a deal to partner up with Fiat is all but signed on the dotted line. All of that might come to naught, though, if Chrysler can't figure out how to get rid of some of its 3,200 dealerships. As Marketplace's Jennifer Collins reports.


JENNIFER COLLINS: Now that Chrysler's downsizing, it has to downsize dealerships, too. The dealers are fighting that, but...

JIM CASHMAN: They are the least strong of the partners in this emerging deal.

Jim Cashman teaches management at the University of Alabama.

CASHMAN: And so it looks to me as though there are going to be hundreds of dealers put out of business.

Regardless of whether Chrysler and Fiat link up. State franchise laws protect many dealers from a shut down without some assistance from car makers.

The problem is, if Chrysler goes bankruptcy that could trump those state laws. Quite often the dealerships pay for the cars on their lots with loans, and they'd be stuck holding the bag. Chuck Eddy has about 500 new cars at his Chrysler dealership in Youngstown, Ohio.

CHUCK EDDY: Where can someone show me a business model that says less dealers makes the supplier healthy? You need sales.

And bankruptcy doesn't exactly help sell cars. If dealers go out of business, Eddy says many communities across the country could lose a major source of revenue.

EDDY: In some small townships when a car dealership is the largest tax collector and largest tax base, it could shut a township down; you could lose police and fire service.

Fewer dealerships also means fewer TV ads, fewer donations to charities and religious groups, not to mention less money for local Little League teams.

I'm Jennifer Collins for Marketplace.

About the author

Jennifer Collins is a reporter for the Marketplace portfolio of programs. She is based in Los Angeles, where she covers media, retail, the entertainment industry and the West Coast.
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I thought this story was somewhat superficial and naive. There are several reasons why Chrysler and the other auto manufacturers want to reduce the number of dealers. Here are two. (1) Any dealer needs to sell a minimum level of cars to make money. It does Chrysler no good to have a bunch of dealers sitting on the brink of insolvency. (2) The contracts that Chyrsler signed with dealers impose a lot of obligations on Chrysler that no longer make sense today. Similarly, many states have laws that impose a lot of obligations on auto manufacturers to protect their dealers. A reconstituted Chrysler cannot be successful without a smaller dealer network and reduced obligations to support those dealers.

The coverage of the demise of Chrysler and General Motors has been so matter of fact and lacking it is pathetic.

A total lack of analysis of the impact, in any meaningful way, has left the public without a clear understanding of just what the loss of these "icons" means.

The near death of the American automobile industry, along with the death of other "heavy manufacturing" companies has resulted in the demise of the "working middle class", jobs and wages the likes of which never return.

Marketplace, along with nearly every other media outlet is culpable, not doing any in-depth reporting or examination of the issues, short of two or three minute mini-stories with no real analysis. Swallowing, hook line and sinker that American workers are overpaid and under-worked and that we cannot possibly compete in the "global economy" without cutting wages by half or more, reducing or eliminating benefits, cutting pensions, defaulting on debt owed to creditors and on and on and on.

Not once did I hear anyone question instead of American workers at the "Big Three" taking cuts, establishing a requirement for the foreign transplants to raise their wages and benefits. Not once did I hear a story talking about the foreign manufacturers taking advantage of labor in traditionally poor communities in Kentucky, Alabama, or South Carolina where they were lured by tax abatements, sweetheart land deals and support for construction and facilities.

Thank you to all media for allowing this to happen without any real analysis.

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