Chrysler Dealers Fight Termination in Court

Just under 20 dealers were sworn in at the beginning of what was expected to be a lengthy day of testimony from both dealers and Chrysler LLC executives.

It's not clear when Judge Arthur Gonzalez will rule on Chrysler's motion, or how this will effect Chrysler's plans to terminate the dealer franchises effective Tuesday.

James Tarbox broke down while testifying about learning that the franchises for his pair of dealerships in Rhode Island and Massachusetts were included on Chrysler's list of the 789 it plans to terminate.

"I was flabbergasted, to say the least," said a flushed Tarbox. After a long silence, the judge suggested a drink of water to help Tarbox regain his composure.

Tarbox suggested the company's decision to close his business was payback for his protest to state authorities over Chrysler plans to grant a franchise near his. Tarbox said his dealership would have turned a profit in 2008, but for the $70,000 he spent on the legal protest.

A dealer from Arkansas suggested his similar complaint led to the termination of his business, which he described as "more profitable than both Chrysler and GM combined."

On cross-examination, many of the dealers said they were located near competing Chrysler dealers offering all three Chrysler brands or admitted a sharp drop-off in performance in recent years.

Auburn Hills, Mich.-based Chrysler claims that it needs to reduce its dealer base by about 25% to a leaner network of about 2,400 dealers in order to emerge from bankruptcy protection as a stronger company.

But the dealers argue that they don't cost the automaker anything. They say that if Gonzalez approves Chrysler's motion it will result in the shut down of hundreds of dealerships and thousands of workers will lose their jobs.

A group representing about 300 of the dealers have filed an objection. They also earlier opposed Chrysler's sale to Fiat, saying it was tied to the plan to eliminate the dealerships. Several attorneys for individual dealers also have filed objections.

Alan Spitzer of Medina, Ohio, an auto dealer since 1970, said he spent $3.5 million in 2003 on a new building to combine two of his Ohio Dodge dealerships under one roof.

The plan was to put Chrysler and Jeep dealerships eventually at the same location — a move in line with the automaker's stated goal of having all three of its brands located together at dealerships.

But all of Spitzer's Chrysler franchises, including others in Ohio and one in Florida, were included in Chrysler's list of those it plans to terminate. Spitzer also owns other dealerships that sell a variety of other brands of vehicles.

Spitzer said he thinks his dealerships may have been singled out because he didn't take part in Chrysler's advertising campaigns or increase his inventory enough when the company was pushing dealers to buy additional vehicles.

He said he wouldn't have invested millions in his dealerships if he thought he wasn't protected by state franchise laws.

"We worked with Chrysler on all these projects, committed tens of thousands of dollars in bricks and mortar acquisitions, but yet they come back to more trivial things and reject us," Spitzer said. "There's no way I'd do it, invest all that money, without those state laws."

Most of the dealers in court said they were still shocked their businesses were on the rejected list.

"The only reason I came out here was just to find out on what basis they rejected me," Frank Mancari, a Chrysler dealer from Orland Hills, Ill., told the Manhattan courtroom, saying he had "no clue" why he was losing his business.

"That's my life, I've been in the car business since I was 24 years old," Mancari, 68, added.

Before the day's testimony began, Gonzalez noted that the automaker has a good case to terminate the dealer franchises.

Gonzalez said that under Chrysler's plan, those dealers will remain with "Old Chrysler," a collection of assets that aren't slated to be sold to a group led by Italy's Fiat Group.

Since those leftover assets won't be making vehicles, there would be little use for the dealers that would go with them, Gonzalez said.

"If the sale would be consolidated, there's a strong argument that no dealer network would be needed," Gonzalez said. "Nevertheless, I think it's still important to have this hearing."

Late Sunday, Gonzalez issued a ruling approving the government-backed sale of most of Chrysler's assets to a group led by Fiat. But the sale has been stayed pending an appeal filed by three Indiana state pension and construction funds.

Arguments before the U.S. Court of Appeals for the Second Circuit are slated for Friday afternoon.