Chrysler LLC notified all U.S. dealers on Thursday about its plans to eliminate 25 percent of its retail showrooms while rival Ford Motor Co assured investors it is on track to at least break even in 2011 without seeking any U.S. government aid.
Ford's top executives told shareholders at its annual meeting in Wilmington, Delaware, that the automaker's restructuring is on track to bring a profit as soon as 2011, without the need to resort to emergency government bridge loans.
In the meeting, Ford shareholders also approved the company's funding plan for a healthcare trust for United Auto Workers union retirees and rejected a challenge to the share voting structure that gives the Ford family control of the automaker.
The meeting came as Chrysler, which filed for bankruptcy protection last month, sought permission from a U.S. bankruptcy court to terminate franchise agreements with 789 of 3,181 dealerships as of June 9.
Chrysler and General Motors Corp have faced pressure to cut struggling dealerships to bring their large sales networks in line with those run by more successful automakers. Toyota Motor Corp has only 1,200 dealers in the United States.
Chrysler said 5O percent of its U.S. dealers account for 90 percent of overall sales, according to court documents.
GM, facing a U.S. government-imposed deadline of June 1 to restructure or file for bankruptcy, is expected to send termination notices to up to 2,000 dealers as soon as this week, sources have told Reuters.
Dealers are independent businesses and are protected by state franchise laws that have prevented Chrysler and other U.S. automakers from aggressively cutting dealers before now.
The bankruptcy process that we are in allows us a once-in-a-lifetime chance to achieve a right-sized dealer body, Chrysler Vice Chairman Jim Press said on a conference call. We do not have enough production or sales to keep all the dealers alive or prosperous.
DEALERS ANGRY AND SAD
Dealers across the United States reacted with a mixture of anger and sadness to the cuts, but most, even those surprised by the news, entertained little hope they could stop Chrysler from following through on the closures.
Mike Jackson, chief executive of AutoNation Inc, the largest public dealership group, said he supported Chrysler's dealer consolidation plan as long overdue but said it could put pressure on vehicle prices in the short term.
This is an unprecedented event in the midst of an unprecedented economic situation, Jackson said. I think it's a relatively short-term painful event.
It's going to be an exceptional time for consumers, he added, referring to expected stepped-up incentives to clear inventory.
The move to cut dealers helps Chrysler move ahead with its partnership with Italy's Fiat.
U.S. antitrust officials gave the green signal to the partnership, saying it poses no competitive issues.
The Italian carmaker will have an initial stake of 20 percent, but the deal will allow Fiat to own up to 35 percent as it makes investments in U.S. operations and small-car technology for Chrysler.
European automaker Volkswagen, meanwhile, sees no recovery in demand for U.S. vehicles before the end of the year with industrywide sales at risk of dropping below 10 million units, an executive said on Thursday.
But VW expects strong, pent-up demand for vehicles by 2011 when the company's plant now under construction in Chattanooga, Tennessee, will start production.
Separately, auto parts supplier Lear Corp said it is in talks with lenders -- and has been approached by potential investors -- as it seeks to restructure its debt-heavy balance sheet outside of bankruptcy after burning through $400 million in cash in the first quarter.
(Additional reporting by Soyoung Kim, Kevin Krolicki, John Crawley, James Kelleher, Kyle Peterson, Diane Bartz; editing by Gerald E. McCormick, Matthew Lewis and Steve Orlofsky)