Mercedes-Benz has refused to withdraw its 12-month termination of dealer contracts, DaimlerChrysler UK said today. Dealers leading the protest were in talks today with Retail Motor Industry officials about legal action.

Mercedes-Benz UK Dealers, the group formed to fight the manufacturer's plan, issued a 10-day ultimatum which expired today. DCUK was threatened with legal action if it refused to back down on the decision to end their contracts on December 31.

Geoff Day, DCUK head of communications, said: "We intend to continue with our plans for reshaping the retail network. "Our lawyers are in touch with the dealers' lawyers as it is not in anyone's interests for this to escalate further. We hope to resolve this in a way which suits everyone."

AM-online passed the news of Mercedes' determination to continue to Nick Adams, who heads then dealers' campaign.

"I was not aware of that," he said. "We have no choice now but to pursue legal action. The whole industry sees DCUK's action as dangerous - we believe we can win."

DCUK could have given a two-year termination without explanation. Mr Adams said EU law said 12-months applied only in the case of an emergency, when a manufacturer was unable to continue supplies.

Dermot Kelly, Mercedes-Benz UK director, has started a 10-day schedule of meetings with dealer bosses who want to run one or more of the planned 35 UK retail territories.

Mercedes-Benz wants to own its retail outlets in the London, Birmingham and Manchester areas. It plans three 'experience centres' but has not yet acquired a site for any of them.