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July 29, 2014

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Chrysler dealers discuss payment cuts at Las Vegas auto convention

Big writeoff

DaimlerChrysler AG declined comment today on published reports that it will write off up to $3 billion for the cost of shutting assembly lines and eliminating 26,000 jobs in its Chrysler division.

The Chrysler division reported a third-quarter loss of $512 million and has warned its fourth-quarter loss could be more than $1 billion. The U.S. economic slowdown and tougher light-truck competition have hurt Chrysler.

DaimlerChrysler plans to issue its fourth-quarter financial results on Feb. 26 and will not release write-off figures before then, spokeswoman Megan Giles said from Chrysler's headquarters in Auburn Hills.

The Wall Street Journal and Newsweek today quoted unidentified sources as saying the write-off would be $2 billion to $3 billion.

The Chrysler dealers slowly filed out, many refusing to discuss what happened Sunday in their closed-door Las Vegas meeting with the loss-making automaking unit that has cut financial backing to them.

But Mark Treiber, a Chrysler dealer in Monroe, N.Y., didn't hold back.

"They're sticking their hands in the dealer's pocket," he said angrily, believing Chrysler's dealer-targeted cuts announced last week could pare his vehicle margins by $400 to $500 per unit.

"It's ice in the winter," he added after the meeting during the National Automobile Dealers Association meeting.

For many of Chrysler's 4,400 dealers, tough times became a bit tougher by ailing Chrysler's announcement last week it will slash potentially hundreds of millions of dollars in dealership advertising and showroom subsidies.

Sunday's meeting, Chrysler executives said afterward, drew tough questions -- many of them expected. All the while, the U.S. arm of DaimlerChrysler AG assured the dealers "they didn't cause this. We caused this," said John MacDonald, Chrysler's senior vice president of sales and field services.

"There were fair questions, and I think the answers generally were acceptable. But let me qualify this -- this was no picnic," MacDonald said. "We took a big step today with our dealers, and I think they bought in."

"They asked tough questions -- questions they have every reason in the world to ask," added Bud Liebler, Chrysler's senior vice president of global brand marketing.

In the balance, however, is the prospect that dealers could pass along costs to consumers to make up for lost subsidies from Chrysler -- not something easily dismissed in an already price-sensitive, soft U.S. auto arena.

"Some dealers will pass (added costs) right through" to consumers, MacDonald said.

Chrysler announced the cutbacks last week, hours after detailing plans to cut 26,000 jobs -- one-fifth of its work force -- over the next three years, idle six plants and pare production.

The belt-tightening was meant to stanch losses -- $512 million of red ink in the third quarter, more than twice that expected when the automaker reports its latest earnings later this month. On Sunday, MacDonald tied the abruptness of Chrysler's financial fall to the collision of incentives-laded vehicles and costs that creeped in.

The cutbacks affecting dealers were less severe than Chrysler first had hoped, having been modified after dealers troubled by some of the initial steps offered counterproposals. One dealer called the outcome "the difference between a firing squad and a life sentence.

Those cutbacks, many having taken effect last week, include:

On Sunday, MacDonald said, dealers who reach the 110 percent target "would be hitting over the fence."

After hearing Chrysler's case Sunday, Bruce Bendell and Jim Wallick called the meeting civil and said they understand the company's dilemma. The partners in a publicly held dealer group that has Chrysler dealerships in New York City and New Jersey said they appreciated Chrysler being forthright.

"My feeling is we all have jobs to do, and we all have to just go out now and concentrate," Bendell said.

With the sales-based allowance, Wallick said, "our feeling is there's going to be more opportunity down the road from where the company is now."

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