With mounting job losses in the auto industry, the number of unemployed has surged to a record high of 637,000, according to a US government report released on Thursday.

That is an increase of 32,000 from an upwardly revised 605,000 in the previous week, the Labor department said.

Since the recession began in December 2007, the economy has shed about 5 million jobs. The unemployment rate now stands at a 25-year high of 8.9 per cent.
A separate report from Labor department yesterday showed prices paid to US producers rose 0.3 per cent in April as food costs jumped. The increase followed a drop of 1.2 per cent in March.

Wholesale food prices climbed 1.5 per cent, while the price of fresh eggs jumped 44 per cent.

The jobless rate is expected to increase further with the ongoing restructuring process at the nation's two major automobile manufacturers, Chrysler LLC and General Motors Corp.

On Thursday Chrysler asked court permission to cancel 789 car dealership agreements, about a quarter of its estimated 3,188 retail outlets, as the company finds it increasingly difficult to overcome the ongoing crisis.

Trimming dealers from urban areas will increase profitability at the rest, Chrysler said. The dealerships will stop operating as Chrysler outlets on or about June 9.
''Over time, the market for new motor vehicles has changed dramatically,'' Peter Grady, Chrysler director of dealer operations, informed the US Bankruptcy Court in New York.

Numerous other competitors selling a wide variety of vehicles, including Toyota, Honda, Hyundai and Kia, have entered the market and captured a larger share. In 2008, Chrysler's dealers sold 1 million vehicles through 3,298 dealers, or 303 per dealer. By comparison, Toyota sold 1,292 per dealer and Honda 1,219, the company said.

''With the downsizing of operations after the sale and reduction of plants and production, similar reductions must be made to the size of the dealer body.'' Jim Press, vice chairman and president, of the company said in a statement.

''The unprecedented decline in the industry has had a significant impact on our sales and forced us to reduce production levels to better match the needs of the market,'' Press said.

The 25 per cent of the dealers (Chrysler wants to drop) account for 14 per cent of its total sales.

''Is there a more humane we could do it? No,'' Press told reporters. ''There is no way to say anything but that it is a sacrifice that is for the good of the total.''
There is no appeal process for dealers that are cut, the company said, and Chrysler is offering them no compensation.

Rejected dealers will transfer their inventory and loans on vehicles to other dealerships, it said. They won't necessarily go out of business. Some may survive with service operations or switch to dealing used cars or other brands.

But, according to analysts, Chrysler is the loser in this deal. The reduction in number of dealers will make the company unattainable to the people, one noted. It will also affect those who have already bought Chrysler vehicles, as they will not get proper service.

However, the administration supports Chrysler plan dubbing the action as ''necessary for this company and the industry to succeed.''

The administration is trying ''to help ensure that financing is available to creditworthy dealers and pursuing efforts to help boost domestic demand for cars,'' the department said in a statement.

General Motors, the largest US automaker, said last month it plans to cut its dealer network to about 3,600 from the 6,200 outlets it operated at the end of last year. However, the US government found that target insufficient.