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Chrysler Starts Dealer Payments

MAY 7, 2009

Chrysler Starts Dealer Payments
Some of the Auto Maker's Outlets Say They Have Yet to Receive the Funds

Chrysler LLC on Wednesday began paying some of the hundreds of millions of dollars it owes its dealers, although some said they hadn't yet received payments.

The payments started after the U.S. Bankruptcy Court in Manhattan approved a request by Chrysler to spend $753 million to reimburse dealers for pricing discounts and other sales incentives. While several dealers reported money they were owed was deposited in their bank accounts, the owners of some smaller dealerships said their payments haven't arrived.

In court documents, Chrysler said it intended to withhold payments to dealers it doesn't plan to keep. As part of its reorganization, Chrysler aims to drop about 800 dealers, shrinking its network to about 2,400 stores from 3,200. Trimming Chrysler's network is a key element in its restructuring plan, but the move is expected to cause job losses and hardship in towns and cities that lose franchises. General Motors Corp. next week is expected to notify 2,600 of its more than 6,000 dealers that it plans to drop them from its retail network.

"On Monday, the court granted interim approval of Chrysler's request for Debtor in Possession financing," a Chrysler spokeswoman said. "Payment to 100% of active dealers was processed overnight, as we previously communicated to our dealers earlier this week."

Lynn Blevins, who with his brother owns two Chrysler franchises in New York state, one in Ogdensburg and another in Gouverneur, said on Wednesday that the Gouverneur store hasn't yet received the $40,000 to $50,000 it is owed. He's concerned Chrysler will want to keep only one of the two stores.

"Absolutely it's a big concern out there for dealers," Mr. Blevins said. "I know one thing for sure -- we're not in control of that situation anymore."

In Lansing, Mich., Leo Jerome, owner of Story Chrysler Jeep, said he was due $10,000 for rebate costs and $1,200 for warranties by Wednesday, but by the afternoon, he hadn't received anything. "It sounds like they have selectively decided to pay some and not others -- and so am I on the short end of the straws? That's what I'm wondering," he said.

On Tuesday, Chrysler executives briefed a select group of dealers on its plans, people familiar with the matter said. The company is reviewing each dealership's location, the condition of its facilities, finances and sales, and it aims to have the weakest stores close, these people said. T.R. Sayles, general manager of Lewis Goodman Chrysler-Plymouth in Syracuse, N.Y., was one dealer who did get reimbursed. "I talked with some other dealers, and they are also receiving their money," he said. "Sales have slowed down, but I like the incentives and I think they are aggressive."

Separately, Chrysler late on Tuesday was given clearance by the U.S. Bankruptcy Court in Manhattan to move forward with a plan to sell its assets in bankruptcy and forge an alliance with Fiat SpA. A group of lenders fighting Chrysler's restructuring urged the court to reject the bidding process. They said the rules are designed to squash competitive bidding and ensure the Fiat deal goes through by forcing a sale in a matter of weeks.

"We think they are intuitively restrictive and confusing and will not facilitate bids coming in," said Thomas Lauria, a lawyer for the lender group.

Rival buyers have just two weeks to put together a bid, but Chrysler countered that the company is losing value and needs to pull off a swift sale. Corinne Ball, Chrysler's bankruptcy lawyer, told Judge Arthur Gonzalez that time "is not our friend here."

"The most important uncontroverted fact established by this record is Chrysler is a wasting asset. Every day we're talking about hundreds of millions of dollars," she said.

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