Chrysler cleared a major hurdle in its bankruptcy restructuring last week when holdout investors gave up their quest for better compensation, but there are plenty of hurdles left. Chrysler dealers, fearful of losing their franchises, are banding together to fight back against the company’s consolidation while the Automotive Task Force has slashed the company’s ad budget.
Chrysler’s National Dealer Council has already hired the law firm of Arnold & Porter to represent all 3188 Chrysler dealers nationwide during Chrysler’s bankruptcy, but the dealers also are forming a committee to fight cuts and have hired the law firm of Squire, Sanders & Dempsey to represent any dealers that lose their franchise. The committee and the National Automobile Dealers Association have asked all Chrysler dealers to contribute $4000 to the legal defense fund.
Chrysler is expected to send the bankruptcy court a preliminary list of dealers who will lose their franchises on Thursday, but the list won’t be finalized until the automaker emerges from bankruptcy protection in June. The committee has not yet said exactly what kind of legal action it will take against Chrysler, though Squire, Sanders & Dempsey lawyer Stephen Lerner told Automotive News “Through our efforts, we would have the ability to improve the outcome for these dealers.” Chrysler, meanwhile, will likely work to avoid a situation similar to the one GM went through when it closed the Oldsmobile brand.
Considering the bad PR that GM caught for closing Oldsmobile, one would expect that Chrysler would go on an ad blitz to combat its negative image. That was the plan, until President Obama’s Automotive Task Force stepped in. Chrysler had planned to spend $134 million on advertising during the next nine weeks while the company is in bankruptcy court, but the task force cut it by half to just $67 million.
According to transcripts of bankruptcy court testimony, the task force understands the need for advertising but contested the amount Chrysler wanted to spend. Chrysler had recently been avoiding expensive major network TV advertising in favor of local stations, but with the damage done to the company’s image by the bankruptcy filing, Chrysler decided to go on the offensive with its new “We Build” ads featured on several major networks.
The new ad strategy “gives us the opportunity to reinforce that it’s business as usual and demonstrate a bright future ahead for Chrysler,” said Chrysler’s Executive Vice President of Sales and Marketing Steven Landry in a statement.
The intervention of the task force in Chrysler’s ad budget reveals for the first time the amount of influence the federal government will have over the daily operations of Chrysler. The influence is likely to be causing concern across town at GM, as many expect the automaker to follow Chrysler into bankruptcy and undergo a similar restructuring.