DETROIT (Bloomberg) — Chrysler LLC is seeking to reject 789 automotive dealership agreements, many located in the suburbs of major US cities, according to court papers filed in US Bankruptcy Court in Manhattan.

The company wants to break its contracts with less than a quarter of its approximate 3,188 retail outlets, including seven with AutoNation Inc., two Lithia Motors Inc. dealerships and the Atlanta dealership of Asbury Automotive Group Inc., according to the filing yesterday with US Bankruptcy Judge Arthur Gonzalez. Gonzalez must first approve the cuts before they take effect.

Fiat SpA, not Chrysler, decided which dealers will be brought along to the new company to be formed under the US automaker's bankruptcy reorganisation, according to people familiar with the situation. Trimming the bulk of dealers from urban areas will increase profitability at the remaining dealers, lawyers for Chrysler said.

"Over time, the market for new motor vehicles has changed dramatically," said Peter Grady, director of dealer operations at Chrysler, in the court filing. "Numerous other competitors selling a wide variety of vehicles, including Toyota, Honda, Hyundai and Kia, have entered the market and captured a larger share."

Chrysler said it would shrink its dealer network under "Project Genesis", which cost $216 million over eight years. Rejected dealers won't necessarily go out of business, as some may be able to get by with service operations, or make a switch to dealing used cars or other brands.

The Chrysler dealer contract rejections are to become effective June 9. General Motors Corp., the largest US automaker, had said last month it plans to reduce its dealer network to about 3,600 from the 6,200 outlets it operated at the end of last year. The US government, which provided emergency financing to both automakers, found that target insufficient.

Seeking to shed further costs in the face of a US-imposed June 1 bankruptcy deadline, Detroit-based GM is expected to notify 1,000 to 1,200 dealers that their franchises won't be renewed.

Auburn Hills, Michigan-based Chrysler had previously proposed cutting dealerships in metro areas by as much as 50 percent.

Chrysler said in court that it wouldn't make incentive payments to dealers it wouldn't keep, which lowered its budget for such payments by 25 percent.