Painful Day for 789 Chrysler Dealers

Today, 789 Chrysler dealerships will cease to operate unless the judge in the auto maker's bankruptcy case does the unexpected and rules in favor of more than 300 dealers who objected to Chrysler's dealer strategy.

The judge, Arthur Gonzalez, says he will issue an opinion today on the objections, but statements he made last week indicate he'll likely rule in favor of Chrysler.

Last week, Chrysler President Jim Press along with General Motors President Fritz Henderson testified before a U.S. Senate committee defending their elimination of more than 3,000 dealerships combined.

Press claimed a bloated dealer network costs the company money. Although he mentioned at least three areas in which dealers cost an auto maker money, dealers argue the costs are passed down to them and that they pay for everything.

The need for a streamlined dealer network makes sense when you realize Chrysler is going from building 2 million vehicles a year to about 700,000 and from 38 models to about 13. Those numbers alone suggest there has to be some dealership paring.

The problem is the way Chrysler went about it giving its dealers 26 days to wind down their stores. Terminated dealers are receiving no money from the auto maker including not getting paid for inventory and parts.

It was only after the hearing last week that Chrysler guaranteed to help all its eliminated dealers get rid of their inventory.

GM at least, is paying its dealers who are being terminated. Henderson says its a "modest sum," but it's something. In addition, GM, unlike Chrysler, is letting dealers appeal a termination. According to Henderson last week, the auto maker has received more than 500 appeals and has reversed 11 terminations. GM dealers also have till October 2010 to wind down their stores.