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.