GM, Chrysler defend slashing dealerships
WASHINGTON AND LOS ANGELES — A congressional committee added another layer of government oversight to the Obama administration’s bailout of General Motors Corp. and Chrysler as senators grilled executives Wednesday over plans to use the corporate bankruptcies to close about 2,000 dealerships.
“I honestly don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, no real notice, no real help,” said Senate Commerce Committee Chairman John D. Rockefeller IV (D-W.Va.), who convened a hearing on the issue.
The standing-room-only crowd -- including about 30 dealers and more senators than Rockefeller said he had seen at a committee hearing in 24 years -- gave weight to suggestions that the Obama administration’s decision to take ownership stakes in the companies made Congress an unofficial corporate board.
“You find yourself with a board of directors of essentially 535 members,” Sen. John Thune (R-S.D.) told GM Chief Executive Fritz Henderson and Chrysler President James Press. “We are now partners, and as partners these are the type of questions you get to answer.”
Lawmakers acknowledged that they probably could do little more than make life uncomfortable for the automakers. But they also could spread that same discomfort to the Obama administration, which must balance congressional concerns with a vow not to get involved in the daily operations of Chrysler or GM.
Thune and some other senators said they were leery about delving into the inner workings of the companies. But they agreed the pain and job loss that the dealer cuts would impose on communities was a tragedy. Two dealers explained the heartbreak they were facing as their franchise agreements with Chrysler and GM were being terminated.
“To be arbitrarily closed with no compensation is wasteful and devastating,” said Russell Aubrey Whatley III, owner of a Chrysler dealership in Mineral Wells, Texas, that has been in his family for decades. “A 90-year investment is just gone and neither my family or my employees have nothing to say about it.”
Like nearly every other senator, Rockefeller told of calls and e-mails from dealers in his state complaining about the cuts being enacted by GM and particularly Chrysler, which last month gave 789 dealers less than three weeks to liquidate their vehicles, parts and specialized tools before their franchises are terminated Tuesday.
GM was taking a slower approach, but its cuts affect many more dealers. The company last month notified 1,100 of its 6,000 dealers that it was terminating their franchise agreements by October 2010, with a goal of reducing its dealer network by as much as 42% during that period.
As part of its bankruptcy filing, GM notified most of its dealers this week that they would have to operate under strict new rules or it would ask the court to end their franchise agreements.
Dealer groups have estimated the cuts could cost 100,000 jobs, as well as billions of dollars in lost state and local tax revenue.
Henderson and Press defended their decisions, saying they were painful ones made so the companies could become leaner and profitable.
“They were gut-wrenching [decisions] but absolutely necessary for Chrysler’s survival,” Press said.
Obama administration officials pushed them to be more aggressive about their restructurings but did not dictate the numbers or review a list of dealers whose franchise agreements would be eliminated, the executives said in response to inquiries from Republicans about White House involvement.
Although Chrysler has released a list of dealers it is cutting, GM has not, saying the dealers did not want to be named while they wind down their businesses.
But the committee flexed some power as Rockefeller agreed to a request by Sen. Mark Begich (D-Alaska) that GM provide a list. Henderson said he would do so, but it was unclear whether the list would be made public.
Senators rejected a request by the National Automobile Dealers Assn. that the government provide more money to Chrysler so it could purchase any leftover vehicles at the dealers it was terminating.
Press said the company had offered help and that 97% of the 42,000 vehicles at the dealerships had been sold or would be redistributed to dealers staying in business.
But Chrysler was not guaranteeing it would reimburse dealers for cars they can’t sell after Tuesday’s deadline.
“Every dealer’s biggest fear is on June 9 we lose all options on these cars,” Whatley said. “They’re just planter boxes on June 9.”
Two days ago, all of GM’s dealers received a fresh round of letters, copies of which were reviewed by The Times.
One letter, sent to dealers singled out for termination, offered cash payments to help them unwind their businesses, with a goal of selling off their inventories and closing between Jan. 1 and Oct. 31 of next year.
Those dealers will still be allowed to provide warranty service but will not be able to purchase more new vehicles and must provide their customer lists to GM. In addition, they waive their right to sue the automaker.
“This is a difficult step, but one that is part of GM’s court-supervised restructuring efforts,” the letter said.
The other letter, sent to dealers that GM intends to maintain, laid out strict new operating rules, including obligations to purchase more cars and trucks than in the past and to boost performance.
Each dealer “must substantially increase its sales of new motor vehicles” or face possible elimination. They also must waive their right to sue and, by year’s end, close franchises for other brands they own and operate out of the same facilities, a potentially huge financial blow for dealers.
Both letters asked that dealers agree to the new terms in writing by June 12. If not, GM said, it would move to terminate their contracts in U.S. Bankruptcy Court.
“If we sign that letter, we sign our life away,” said Pete Lopez, whose Chrysler and GM dealerships in Spencer, W.Va., are being terminated.
Henderson said that 647 dealers already had signed and returned the new agreements, while 10 had declined to sign.
Senators said that because the government was funneling billions of dollars to the two automakers -- and in GM’s case taking a majority ownership stake -- they had an obligation to probe complaints from dealers.
“If there were any more impetus to try to get back to profitability and try to get the government out of your business . . . today’s session ought to be that impetus,” Sen. Mark R. Warner (D-Va.) told Henderson and Press.
--
ken.bensinger@latimes.com
