Chrysler is closing 789 dealerships around the country as the beginning stages of a bankruptcy restructuring plan has begun. Chrysler had been suffering a number of financial woes, and when they declared bankruptcy it didn’t come as a huge shock, but it has nevertheless had a huge impact on the country. Primarily of concern with the high number of dealerships being closed is that it means quite a few people will become unemployed due to the restructuring. This is a huge move by the car company, and a direct result of sluggish car sales.
Chrysler made the announcement that they would be seeking to close 789 dealerships on Thursday morning, but it isn’t quite as easy as simply saying that they are “closed.” There are a couple of steps that Chrysler has to take first, and the primary statement will come in Chrysler seeking to reject 789 automotive dealership agreements. They are also looking to cancel seven contracts with AutoNation Inc. as well, and all of this is appearing in court papers that Chrysler has filed with the U.S. Bankruptcy Court in Manhattan. Rejecting the contracts is the first major step in trying to save the company as it deals with bankruptcy.
To put it in a little perspective, there are 3,188 retail outlets for Chrysler car sales in the United States, and that would make these closures account for about a quarter of total dealerships. The thought process behind closing dealerships is that it will increase the profit margins for those dealerships that do remain open, and basically will trim a lot of costs from the bottom line. It’s a bold move in an industry like this, but it is also a risky one, because it could limit where the brand name of Chrysler actually appears around the country. It also runs the risk of alienating quite a few employees who need their jobs in these rough economic times.
Chrysler has even given a name to this new set of moves that they will be undertaking, calling it “Project Genesis”, and envisioning that this will save the company money in the long term. The dealerships also won’t necessarily be completely out of business, as some could end up being service centers, or could switch to dealing with other car makers from around the country. Chrysler won’t be the only car company cutting costs in this fashion either, as General Motors is also planning on cutting many of their dealerships, reportedly to the tune of 3,600 reductions in the number of dealerships they operate.