Chrysler's First Dealer Cut Happens Thursday

If you're a General Motors or Chrysler dealer, this week might feel a little like high school when you were anxiously waiting for the coach to post the list of players who made the final cut for the sports team. Only this time, the stakes are much higher.

GM is beginning to send letters this week to 1,000-1,200 dealers whose franchise agreements they do not plan to renew.

Last week, Judge Gonzalez who's overseeing the Chrysler bankrutpcy, scheduled the hearing for the sale of Chrysler for May 27, which means the auto maker has to mail certified letters for Thursday (May 14) delivery to dealers it plans to keep. Additionally, the list will be filed with the bankruptcy court on Thursday.

What about the dealers not on the list? No one seems to have an answer, although, lawyers involved tell me they think Chrysler also will notify those dealers on Thursday also.

(One caveat here -- all of this is dictated by the court, and is subject to change.)

You can find the ruling here. It's docket #492 and is 20 pages long (not counting the four exhibits). If you're a Chrysler dealer, have your attorney look at it because it outlines what your options are and the time frame to exercise them.

You're going to hear a lot in the next several days about executory contracts, designated agreements that will be "assumed" by Chrysler and "assigned" to the new company. That's legalese referring to which franchise agreements Fiat will honor.

Keep in mind, Thursday is only the first cut. The list is preliminary. It's likely dealerships will be moved on and off the list in the next several days. There will be a 30-day period beginning Thursday in which dealers can argue and trade their way onto the list, while Fiat will move dealers off the list.

There will be a lot of horsetrading going on the next 30 days. It's possible, Chrysler/Fiat will use the list and time to complete the Genesis project -- that is, making sure each surviving dealership houses all three brands.

Additionally, GMAC likely will determine to which Chrysler dealers it will continue providing floorplan financing over the next few months.

Another key point, if you are a dealer who makes the cut and has one of the older Chrysler Direct Dealer Agreements, you will have to modify the contract to match the current and newer Sales and Service Agreements. Otherwise, you will not make the final list of dealers who survive.

Interestingly, Chrysler President and Vice Chairman Jim Press' claimed last Friday on a conference call with dealers the auto maker does not have an active plan, nor knows who, how many or knowsd what the process will look like for determining which dealers to terminate (read the story from Friday here).

According to the letter of the law, Press might be right. I'm hearing Chrysler isn't necessarily making the decision of which dealers to keep. Instead, it sounds like everybody (except for dealers) with a stake in the new company might have a say.That's the Capstone Investment firm that's advising Chrysler on its bankrptcy; Chrysler; Fiat; the U.S. automotive task force and GMAC.

Dealers tell us their that dealer council members have told them the criteria for which dealers to save will be based on geographic location, financial health, customer satisfaction, condition of facilities and whether the dealership is meeting its minimum sales responsibility.

The big questions that remain unanswered are: how will Chrysler notify the dealers whose franchise agreements are not being transferred to the new company; and what happens to those dealerships? Are their franchise agreements immediately voided or terminated once the sale to Fiat becomes official?

Stay tuned. We're working to find the answers to those questions. As soon as we know, we'll get the word out.

One other note, a source tells us NADA has retained law firm Squire, Sanders & Dempsey to represent "affected" Chrysler dealers, that is, dealers not on the survival list.

Ward's reported last week, that Arnold & Porter LLP, the law firm NADA retained to represent Chrysler dealers in the bankruptcy case, informed the trade association it will not be able to continue defending dealers slated for termination, because their interests will conflict with surviving dealers.