ON THIS DAY: May 14, 2009, Chrysler terminates agreements with 19 area dealerships

OTD: Chrysler dealers agreements terminated

PITTSBURGH, Pa. — As the nation spiraled into recession in 2008 and 2009 following the financial crisis, automotive sales plunged. The economic damage spread from local dealerships to the national companies and the domestic industry was on the verge of collapse.

In December 2008, the George W. Bush administration approved a bailout plan, which provided $23.4 billion in aid to keep General Motors and Chrysler afloat. The Obama administration then shepherded the companies through bankruptcy proceedings, during which Chrysler terminated the franchise agreements for 19 dealerships in western Pennsylvania, 16 of which were in the Pittsburgh area. Pennsylvania lost more Chrysler, Dodge and Jeep dealerships than any other state.

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The dealerships had little time to react. The notification arrived in a simple UPS envelope. The cutoff from new cars was nearly immediate and stripped roughly 25% of the company’s dealers from the roster. Chrysler also refused to repurchase the 44,000 new vehicles already in inventory at the dealerships or any of the tools or parts inventory.

The National Automobile Dealers Association estimated that 187,000 jobs were affected by the closures announced by GM and Chrysler. The average Chrysler dealer employed nearly 50 people, or almost 38,000 jobs nationwide.

In the Pittsburgh area, the percentage was higher, accounting for nearly half of all Chrysler/Dodge/Jeep dealers, including the oldest Jeep dealer in the country.

Some of the dealerships tried to restructure into used car dealers and service centers. The more fortunate dealerships still had franchise agreements in place for other brands, like Chevrolet and Ford.

The transition was successful for some, led to the end of the family business for others and was difficult for all. Some tried to focus on their service departments, but even though labor rates were dropped, most remained noncompetitive with other independent shops and many employees were laid off while the dealerships tried to build up used inventory and transition their licenses to keep their sales operations viable.

Dealers banded together and filed a suit against the government and asked the U.S. Court of Federal Claims to award them the fair market value of their dealerships at the time their franchises were terminated. Estimates of the potential payout were as high as $850 million to the nearly 300 dealers who joined the lawsuit.

The court sided against the dealers in November 2019. The court said that because Chrysler wasn’t forced into bankruptcy by the government with the goal of terminating the agreements, the case against the government was unproven. Former auto czar Steven Rattner, who led the Obama administration’s task force to save the industry, testified that a “more rational” dealer network was believed to be necessary for Chrysler to remain a viable company but said the government’s offer did not require it. The court denied that the government was, therefore, required to provide just compensation.

The dealers pledged to continue the fight, appealing possibly all the way to the U.S. Supreme Court, claiming that the government mandated that Chrysler’s dealership network be reduced in the loan agreement drafted as part of the industry bailout.

Ten years after the franchise terminations, Rattner again testified in federal court in April 2019. He reiterated the Obama administration’s position that Chrysler was not coerced into terminating nearly 800 dealerships, including the 19 in western Pennsylvania.

In October 2019, the Court of Federal Appeals ruled that dealers could not force the government to compensate them because Chrysler entered bankruptcy voluntarily and had no choice but to terminate the agreements.