NEW YORK, May 26 (Reuters) – A lawyer for Chrysler dealers facing closure as part of the automaker’s bankruptcy reorganization said on Tuesday he believes Chrysler executives do not support a plan to eliminate a quarter of its retail outlets. Lawyer Leonard Bellavia, of Bellavia Gentile & Associates, who represents some of the terminated dealers, said he deposed Chrysler President Jim Press on Tuesday and came away with the impression that Press did not support the plan.
“It became clear to us that Chrysler does not see the wisdom of terminating 25 percent of its dealers,” Bellavia said. “It really wasn’t Chrysler’s decision. They are under enormous pressure from the President’s automotive task force.”
He added the government task force, which he criticized for having no members with retail experience was, in effect, attacking U.S. entrepreneurs.
“What is the next task force? Shoe stores? Pizzerias?” Bellavia said at an event in Manhattan to publicize the dealers’ concerns ahead of a bankruptcy court hearing.
Chrysler [CBS.UL] notified its dealers this month it plans to eliminate 25 percent of its retail showrooms and is seeking permission from a U.S. bankruptcy judge to terminate franchise agreements with 789 of 3,181 dealers as of June 9. [ID:nN25534875]
A spokeswoman for Chrysler said the decision to cut a quarter of the dealers was “not coming from the task force.”
“Our position is that the market can’t support the number of dealers that are out there,” said spokeswoman Carrie McElwee. “This has been our plan for more than 10 years to combine Chrysler, Dodge and Jeep under one roof.”
The decision about cutting dealers took into consideration factors like location, customer satisfaction, and sales potential, she said. Nearly half of the terminated dealers also carry non-Chrysler brands, and most rely on used vehicles for the bulk of their sales.
The dealers will seek to stop the sale of Chrysler assets to a new company — owned by its union, Italy’s Fiat SpA (FIA.MI), and the U.S. government — at the bankruptcy court hearing on Wednesday.
“The problem we have is the free enterprise system is not run by the government, it’s run by business entrepreneurs,” Bellavia said. “The dealers themselves will decide if it’s not productive to go forward.”
Chrysler has more than double the number of dealers of rivals Toyota, Nissan and Honda, which each have about 1,200 retail outlets, while General Motors (GM.N) has about 6,000. But it should be up to owners to decide when to exit the business if there is not enough demand, Bellavia said.
Dealers argue closing dealerships will devastate local communities, with some 50,000 direct job losses nationwide, and as many as 200,000 indirect job losses. Part of their legalargument rests on the Fifth Amendment of the U.S. Constitution, which guarantees due process before government can take away a person’s property.
“We feel there has been a denial of constitutional due-process rights,” Bellavia said.
“I think it’s unconstitutional,” said Jim Anderer, owner of Island Jeep in Lindenhurst, New York.
“The Fifth Amendment clearly states you cannot take another person’s property without due process or compensation. Even in eminent domain, there is an appraised price on the property being taken by the state.”
Anderer said he has been in business for 22 years and employs 48 workers. He intends to fight the plan.
“My business is being stolen from me under the guise of the bankruptcy laws, given to another dealer down the street,” Anderer said.
Chrysler has argued it needs a smaller dealer network to return to profitability. In 2008, it sold about 1 million new cars at some 3,300 dealers.
“They’ve given me no time to sell off (my inventory),” said Robert Engel, who runs two dealerships in Tenafly and Wyckoff, New Jersey. Both dealerships, which employ about 60 people, are profitable, he said.
Engel estimates two-thirds of his dealership revenue comes from service, and said he intends to stay open.
“Bankruptcy laws are being manipulated to carry out a marketing plan,” he said. “If they’re going to terminate dealers, it should only be severely underperforming dealers.”
Chrysler wants fewer but bigger dealers in central locations near highways that would carry Dodge, Chrysler and Jeep vehicles under one roof, Engel added, but the decision about who survives was “random” and set a precedent of government interference in free markets.
“We’re not giving up,” Engel said.