CONGRESS MAY GIVE relief soon to car dealers who lost franchises as part of the government-funded bankruptcy restructurings of Chrysler and General Motors. But for many of them, any aid would come too late since they already have gone out of business or are hanging on by a thread.

Jim Casper, operations director at the former Birmingham Chrysler Jeep in Troy, Mich., said he would need to be repaid for his losses to be viable again. Since he received his closure order his dealership has survived, barely, by selling used cars.

"Our balance sheet is so weak that we are struggling to find financing to establish a franchise with another brand, despite our historic exceptional performance as a franchised vehicle dealer," Mr. Casper said.

The language of a congressional bill, already approved by members of the House and Senate, would allow more than 2,000 rejected dealers to pursue third-party mediation with the auto makers, with the possibility of being reinstated. Congress is working to line up a vote before it adjourns for the holiday break.

The legislation would be a small victory for the dealerships, particularly some of the 789 that were dropped from Chrysler's retail network last spring and given three weeks to close their operations. Many Chrysler dealers say they were improperly put out of business despite strong records for sales, profitability and customer satisfaction. About 1,250 GM dealers chosen for termination were given longer, continuing wind-down periods, and many have remained in business.

Chrysler and GM agreed last week to offer an arbitration process for the affected dealers, but these dealerships have sought a third-party mediator and the ability to present more evidence that they were viable businesses at the time they were dropped.

The legislation, if passed, would give mediators—not the auto makers—the power to decide which dealerships are terminated and which are reinstated.

The Committee to Restore Dealer Rights, a lobbying group of rejected dealers formed over the summer, had wanted the legislation to automatically restore dealer franchise agreements, but said it welcomes the third-party mediation as an alternative.

"Not not only are we in a much better place, but most importantly, we made a huge statement in Washington of how important and vital automobile dealers are in America," said Tamara Darvish, the group's head.

Chrysler argued during and after its bankruptcy that it had many more dealers than its sales volume could justify and that the dealership closures would make the company more viable.

For years, Chrysler had been working to consolidate its dealerships so that each carried all three of its brands: Chrysler, Jeep and Dodge.

During its restructuring, Chrysler terminated some franchises that carried just one or two brands, and placed those brands with competing dealers to complete the triad.

Many rejected dealers argue that, regardless of the number of Chrysler brands they carried, they were entitled to stay in business.

"It was car companies that went broke, not the dealers. They went under because of the product, so they should fix the product first—not get rid of the guys who sell the product," said Jack Fitzgerald, one of the rejected dealers and a leader of the dealer lobbying group.

Chrysler has declined to comment on individual cases, but spokeswoman Kathy Graham said "profitability wasn't the overriding factor" in determining which dealerships would go forward.

For many dealers, any offer of reinstatement would provide little help.

Rob Melvin, vice president of the former United Dodge in Las Vegas, said if he were to have his franchise restored "it would just be ceremonial." Added Mr. Melvin: "I have no staff—it took me two years to get my team together. And I have no floor-plan financing to buy the cars."

Former Jeep dealer Jim Tarbox in North Kingstown, R.I., said getting his dealership back would be a challenge for another reason: Chrysler has already offered his Jeep franchise to a nearby Dodge and Chrysler dealer. Such a situation would be a problem across the country, where many retained dealerships have already made significant investments in taking on the rejected dealers' lines.

Write to Emily Maltby at emily.maltby@wsj.com