Chrysler Dealers Shuttered During 2009 Bankruptcy To Get Their Day in Court

At the time of its bankruptcy filing in April of 2009, Chrysler had a total of 3,181 authorized dealers in operation. Since just over half of that number accounted for more than 90 percent of Chrysler sales, the automaker elected to cut expenses by jettisoning 789 dealerships, or about 25 percent, as a plan for its bankruptcy reorganization. In May of 2009, the doomed dealerships began receiving letters informing them of the decision.

“With regret, this letter is to inform you that on May 14th, 2009, we are filing a motion in bankruptcy court rejecting the Sales and Service Agreement(s) between Chrysler Motors LLC and the dealership listed above,” Chrysler said in letters to the dealerships. “Upon approval from the court, your agreement will be rejected on or about June 9, 2009.”

At the time, Chrysler believed it would be financially better off without the 789 dealerships, which represented only 14 percent of its earnings.

“After a period of time, and substantially improved marketing and investments, overall sales in the reduced network are anticipated to grow beyond current sales levels within the existing network,” said the company in its filing.

The decision didn’t sit well with many of the 789 dealerships, who believe the government put undue pressure on the company as a condition of a bailout plan, and the issue has not been forgotten. Nearly 300 of the Chrysler dealers whose franchises were terminated in 2009 are bringing their grievances to the Court of Federal Claims on April 8thto sue Chrysler. If they are successful in the endeavor, the court could order the Treasury to pay upwards of $850 million the dealers, according to Automotive News. The case is being closely watched by the 40 percent of General Motors dealers who were similarly terminatedin the auto crisis of 2008/2009 and have also filed suit.

“The court will decide whether the government coerced Chrysler to terminate 789 of its franchises — a quarter of its dealer network — as a condition of the bailout or whether Chrysler made the decision on its own,” wrote Automotive News’ Hannah Lutz. “Dealers are asking the court for the fair value of their stores on the day the franchises were terminated.”

The lawsuit rests on the Fifth Amendment’s Takings Clause, which dictates that the government cannot seize property without fair compensation.