3rd UPDATE: GM: Smaller Dealer Networks Will Cut Costs
June 03 2009 - 6:24PM
Dow Jones News
Top executives at General Motors Corp. (GMGMQ) and Chrysler LLC
defended plans Wednesday to cut ties with thousands of auto
dealers, telling skeptical U.S. lawmakers the reductions are
critical to their companies' survival.
GM Chief Executive Fritz Henderson and Chrysler President Jim
Press, testifying before Congress for the first time since their
companies filed for bankruptcy, said plans to close about a
combined 3,400 dealerships will reduce expenses, improve brand
image and ultimately boost sales.
"This is our last chance to get it right, to fix permanently
those parts of the business that have diverted us from consistently
building winning cars and trucks and the consumer experience to
match," Henderson told the Senate Commerce Committee.
The hearing was held as Congress sought more influence over the
Obama administration's auto-industry rescue. Lawmakers from both
parties have expressed frustration over their limited role in the
administration's plans to take ownership stakes in the auto makers.
The administration is guiding the restructuring using funds from
the Troubled Asset Relief Program that Congress authorized last
year to stabilize the financial system.
"I never would have believed as a candidate for the U.S. Senate
that the U.S. government could buy GM without a hearing, with no
vote, yes or no," Sen. Mike Johanns, R-Neb., said at Wednesday's
hearing. "And I find that to be extremely bothersome. There are
billions and billions of dollars at stake here."
He said he would soon introduce legislation requiring the
administration to obtain congressional approval any time it used
TARP funds to take equity stakes in a company.
Senate Commerce Committee Chairman John D. Rockefeller, D-W.Va.,
called Wednesday's hearing along with the committee's top
Republican, Sen. Kay Bailey Hutchison of Texas, who threatened to
hold up a war-funding bill last month because of the dealer
closings.
Rockefeller said it was the most crowded hearing over which he
had presided. Dozens of auto dealers sat in a packed hearing
room.
Dealers told the committee that the cuts won't produce the cost
savings claimed by the auto makers. They said the closings were
being done hastily and without regard to state franchise laws that
require manufacturers to compensate dealers slated to be closed.
Chrysler dealers are slated to close within weeks.
"Rapid dealer closings increase unemployment, threaten
communities and decrease state and local tax revenue without any
material corresponding decrease in the auto makers' costs," John
McEleney, a GM dealer in Iowa and chairman of the National
Automobile Dealers Association, said in his prepared testimony.
"We are not a cost to Chrysler," said Russell Whatley of Texas,
whose dealership is slated to be closed. "We pay for everything we
use, and we take all the risk. We are Chrysler's customer."
Many dealers fear they will be unable to sell vehicles that they
purchased from GM and Chrysler by the time they close, McEleney
said. He called on the Obama administration to provide more money
to Chrysler to buy back the dealers' inventory and to give dealers
more time before closing.
Press, Chrysler's president, committed to aiding dealers to
redistribute parts and inventory. "We don't plan for the dealers to
be left with inventory," he said. "We will help any of those that
sign a release."
GM plans to sever ties with about 2,600 dealers, while Chrysler
is closing 789 dealerships.
Henderson, at the request of committee members, said he will
also provide the committee with a list of dealers it intends to
close. GM has kept that list private since the dealers are still
deciding if they will agree to sign on to GM's plan to "wind them
down" by October 2010.
While the average dealer in the U.S. sold 525 vehicles and made
a profit of $279,000 in 2008, Chrysler dealers sold on average 405
vehicles and lost $3,431, Press said.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com