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Chrysler 1, Dealers 0 In The Arbitration Game

May 3, 2010
Empty Auto Dealership

Empty Auto Dealership

Fiat 500 Abarth

Fiat 500 Abarth

The results of Chrysler's first arbitration hearing are in, and the news for dealers isn't good. The arbitrator has determined that Joe Kidd Dodge of Cincinnati, Ohio met Chrysler's criteria for elimination and that Chrysler broke its contract with the dealer in an impartial manner.

As Chrysler entered bankruptcy last year, the automaker eliminated 789 dealerships from its network -- roughly 25% of its total. Due to pressure from a variety of groups, particularly the U.S. Congress, Chrysler agreed to hold arbitration proceedings to ensure all parties that dealers were appropriately dismissed. As per the agreement, if Chrysler is found to have applied its criteria unfairly to a particular dealer, that dealer will be reinstated to the network.

Last time we checked on the proceedings, about 400 former Chrysler had applied for arbitration, and the automaker had preemptively invited 86 of them back to the fold. Others have settled, leaving the current number of dealers seeking reinstatement below the 300 mark.

Joe Kidd Dodge was the first of those dealers to go all the way to arbitration, and unfortunately for owner Trudi Schwarz, the arbitrator determined that reinstating the dealership would hinder Chrysler's recovery strategy. In making that determination, the arbitrator looked a number of factors, including the dealer's profitability, the demographics of the area (noting that Chrysler recently reinstated a Chrysler/Jeep dealer just five miles away), and the dealer's ability to sell all four Chrysler brands (a stated goal of the automaker). The arbitrator agreed with Chrysler's assessment that Joe Kidd Dodge didn't measure up to acceptable thresholds on those and other counts; thus the elimination stands.

Whether or not this is an omen of things to come remains to be seen. However, Chrysler does have the upper hand: it set the elimination criteria; it has restricted dealers' access to data about that criteria and how individual dealers measured up; and perhaps most importantly, it has the cash to spend on the hearings, which many dealers do not. For dealers, it's a long row to hoe.

We'll be interested to see how all this plays out in the media. Given Chrysler's lack of new models and its hit-and-miss advertising, the company is struggling to entice viewers into showrooms. That may change with the launch of eagerly anticipated rides like the 2011 Chrysler 300 and, of course, the Fiat 500, but even minimal bad press is something that Chrysler can hardly afford right now.


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