For Many Chrysler Dealers, Bankruptcy 'A Relief'

Chrysler dealership in Martinez, Calif. i i

hide captionA Chrysler PT Cruiser on display at a dealership in Martinez, Calif. Many dealerships are greeting Chrysler's announced bankruptcy with relief.

Justin Sullivan/Getty Images
Chrysler dealership in Martinez, Calif.

A Chrysler PT Cruiser on display at a dealership in Martinez, Calif. Many dealerships are greeting Chrysler's announced bankruptcy with relief.

Justin Sullivan/Getty Images

The Chrysler bankruptcy deal announced by the White House Thursday will require sacrifices from all sides: the company's creditors, unionized workers and even Chrysler's prospective new sister company, Fiat.

What is not entirely clear yet is the fate of Chrysler's dealers. Some pain is likely, and yet a lot of dealers have greeted this bankruptcy with relief.

There are some pretty motivated salesmen at Town and Country Chrysler-Jeep-Dodge, on the northern end of Seattle. A gleaming black Dodge Challenger sits on the showroom floor, and if you so much as glance at it, Jeff Asmundson leaps into action.

"It's black, it's sexy, it goes like a bat out of hell," Asmundson says.

But as the exhaust fumes dissipate, the fact remains that this is a Dodge — a brand that's now officially in bankruptcy. So how does Asmundson sell that?

"What we say is we have the No. 1 spokesman in the country — President Obama —saying, 'Buy a Chrysler product,' " Asmundson says.

Chrysler dealers were singing the praises of this bankruptcy Thursday, saying it's a whole lot better than the sales-killing uncertainty of the past four months. But they also know it means some of Chrysler's 3,222 dealerships will be closed or consolidated with sister brands.

Both Chrysler management and a senior official in the Obama administration confirmed Thursday that this process will result in fewer dealers. American car companies have long had more dealers than the foreign makers, and some say that's been a problem.

"If you think about it, if you have an excess of number of outlets to sell your vehicles, then that means there's a smaller piece of the pie for each of the dealers, and if the dealers are less profitable, they'll be less vigorous competitors against other lines and makes," says Dan Goldberg, a Boston lawyer who represents car companies in their relations with dealers.

But much as the carmakers would have liked to shut down the excess showrooms, they've been stymied over the years by state franchise laws that are usually passed in state capitals at the urging of big local car dealerships. But now with Chrysler, those protections may disappear.

"The dealers' rights with respect to that issue will be governed by bankruptcy law, rather than by the state laws," Goldberg says. "The bankruptcy court will be able to determine which dealer agreements are going to be accepted and continue in effect and which are not."

The dealers do not seem to have a lot of legal options — even John McEleney, chairman of the National Automobile Dealers Association, admits that the closure of franchises will now be up to the bankruptcy judge. But he hopes the court won't close dealerships "capriciously."

"Dealers did not cause the problem — they do not represent any cost to the manufacturer," McEleney says.

Still, this bankruptcy has actually been greeted as good news by Chrysler dealers like Jim Arrigo of Florida, who got his staff together Thursday to watch the president announcing the deal on TV.

"If you could've seen the relief in their faces, you would understand that this was a big piece to us going forward," Arrigo says. "I mean, just a week ago it could have been that we were closing for good."

Since this recession started, at least 1,300 car dealerships have folded — the vast majority of them American brands like GM and Chrysler. Bankruptcy may mean the end of some of Chrysler's weaker dealerships in certain overcrowded markets — but it will also give stronger dealerships like Arrigo's another lease on life.

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