Cutting back production and right-sizing brands and lineups is just one aspect of the restructuring underway at the hands of the U.S. federal government. Earlier this week hard cuts in both labor and dealership numbers were discussed, foreshadowing the next steps to come, and today a Chrysler memo revealed that up to 789 dealers will be eliminated by June 9. In a conference call on the matter, Chrysler's vice chairman and president Jim Press and North American sales and marketing chief Steven Landry discussed how the changes would be made, and what would happen to the inventory at the closed dealers.

Due to its bankruptcy process, Chrysler will not have to buy back the vehicles or tools and parts from rejected dealers. Chrysler says the vast bulk of the unsold inventory at those dealers - 44,000 cars, or about 2 weeks of sales - will be put in a redistribution pool, then sold at deep discounts by other dealers. Parts will undergo a similar process, though it will be on more of a dealer-by-dealer basis.

"It is with a deep sense of sadness that we must take steps to end some of our Sales and Service Dealer Agreements,” said Landry. “The decision, though difficult, was based on a data-driven matrix that assessed a number of key metrics. In total, 789 dealers, which represents 14 percent of our sales volume, will be rejected and, subject to the court approval, they will discontinue selling Dodge, Chrysler or Jeep vehicles on or about June 9."

Chrysler says there is no review process or appeal process for the dealers - the list of 789 dealers submitted to the court 'will not change', barring legal action by the dealer group protesting the matter.

The memo also revealed that Chrysler will send letters to roughly 3.5 million customers of the rejected dealers after the June 9 closing date. Cars sold between now and June 9 from the doomed dealers will later be redirected to other dealerships. Extended Chrysler warranties sold through the closing dealerships will be honored at all other dealers in the network.

The balance of brand distribution will change too: 80% of these remaining dealers will carry all three brands - Chrysler, Dodge, and Jeep - under one roof, compared with 62% currently.

GM, on the other hand, has already announced plans to reduce its 6,200 dealers to around 4,600 by 2010.

Dealers have been worried how the Task Force will undertake to bring the respective General Motors and Chrysler dealer networks in line with current market conditions for weeks now. Furthermore, many are worried that by reducing the number of dealers, overall sales for both carmakers will slide even further, compounding the problem and potentially putting the entire dealer network at risk.