If I had to guess I can come up with a few reasons. First they thought that too many dealers of the same brand too close together creates too much price competition for the same vehicle. If a customer can get two dealers to beat each other up over price it cuts profits. Of course that ignores that customers will do that with competing brands as well.
Another issue is more dealers also usually means more inventory which, when things get slow require more manufacturers rebates to sell. The manufacturer is more exposed to changes in the economy or market trends (customers running away from SUVs when gas got expensive).
One other issue is, as was mentioned in the quote paul posted, some dealers had pretty shitty customer service. This presented an opportunity for manufacturers to dump the dead-weight that played a part in dragging down their brands. In the dealers defense though it is hard to have good customer service when the customer is buying a dogshit Chrysler. A problem with that fake letter from Chrysler paul posted is Chrysler wouldn't have much reason to be snarky after building those same dogshit cars since the Nixon era and managed to screw up the company so bad the best option was being bought by Fiat.
