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GM, Chrysler Prepare for Dealer Cuts

May 14, 2009

According to documents from the U.S. Bankruptcy Court, Chrysler LLC is seeking to reject 789 automotive dealership agreements, many located in the suburbs of major U.S. cities by June 9.

The company is seeking to break contracts with 25 percent of its estimated 3,188 retail outlets. Fiat SpA decided which dealers would be cut from the new company being formed with Chrysler's best assets, which will be run by the Italian automaker. Executives for Chrysler said the quarter of dealers Chrysler wants to terminate account for 14 percent of sales.

Chrysler say rejected dealers will not necessarily go out of business, as some may make a switch of dealing used cars or other brands, or service operations.

Meanwhile, General Motors (GM) is preparing a 40 percent cut in its dealer network by the end of 2010, according to Automotive News. The company will send out warning letters to nearly 1,000 "underperforming" dealers, which will arrive May 15.

The letters will let dealers know that when their franchise agreements expire in October 2010, they will not be renewed.

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