Chrysler wants to eliminate 789 of its US 3,200 dealerships, saying in a bankruptcy court filing Thursday that the network is antiquated and has too many stores competing with each other.
Chrysler notified all US dealers about its plans to eliminate 25 percent of its retail showrooms and is seeking permission to terminate franchise agreements.
The company, in a motion filed with the U.S. Bankruptcy Court in New York, said many of the dealers' sales are too low. Just over 50 percent of the dealers account for about 90 percent of the company's U.S. sales, the motion said.
Chrysler said it would not repurchase any new vehicles, tools or parts inventory from terminated dealers but will assist in finding buyers for stock, according to a memo to dealers that was obtained by Reuters.
The move, which the dealers can appeal, is likely to cause devastating affects in cities and towns across the country as thousands of jobs are lost and taxes are not paid.
Chrysler spokeswoman Kathy Graham would not comment other than to say the company will notify dealers before speaking publicly.
Chrysler, which filed for bankruptcy on April 30, and larger rival General Motors have faced pressure to cut struggling dealerships to bring their large sales networks in line with those run by more successful automakers led by Toyota Motor.
General Motors says it is notifying 1,100 dealers that it will not renew their franchise agreements when they expire at the end of September of 2010.
In its motion, Chrysler said it has many dealerships that sell one or two of its brands, with Chrysler-Jeep dealerships competing against Dodge dealers as well as other automakers' stores across the country.
"In addition, as suburbs grew and the modern interstate system continued to evolve, longstanding dealerships no longer were in the best or growing locations," the company said in its filing. "Many rural locations also served a diminishing population of potential consumers. Some dealership facilities became outdated. Other locations faced declining traffic count and declining populations."
Chrysler has received $4 billion in federal loans and has been operating in bankruptcy protection since April 30. Its sales this year are down 46 percent compared with the first four months of last year and it reported a $16.8 billion net loss for 2008.
The news comes as dealer representatives stepped up lobbying in Washington to try to slow down closures they estimate would cost 200,000 dealership jobs.
More than 100 members from the National Automobile Dealers Association, a group representing the country's 20,000 new car dealers, met members of the House of Representatives and Senate in Washington on Wednesday, asking them to intervene with the Obama administration's autos task force on planned reductions.