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, suggested the auto makers waited
too long to reduce their dealer networks. The companies' plans to
close about a combined 3,400 dealerships will reduce expenses while
improving brand image and sales, the executives told the Senate
Commerce Committee.
"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 said.
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
fall 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.
Other lawmakers, including Rep. Jeb Hensarling, R-Tex., a member
of the congressional panel that oversees TARP, said they would push
for hearings on how TARP funds were being used to help the auto
makers.
"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, with no real notice, with no real help," said Senate Commerce
Committee Chairman John D. Rockefeller, D-W.Va. "It's just plain
wrong. You don't do that."
Rockefeller 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.
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.
The plans are part of the auto makers' Obama-led reorganizations
and will accompany major concessions from other stakeholders,
including the United Auto Workers union, big lenders and individual
investors. Press called the dealer cuts "gut-wrenching" but
"absolutely necessary for Chrysler's survival."
The auto executives said the cuts were made after a thorough
economic analysis. They said many dealers of the same brands
compete against each other because of proximity, driving down
prices.
"Today's automotive industry cannot support the number of
dealers currently in the marketplace," Chrysler's Press said.
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.
"There's not enough business for the number of dealers Chrysler
has today, given that we have less than two-thirds of our former
sales volume," Press said.
Henderson said the closings will help GM reduce dealer-related
expenses for information-technology systems, sales incentives,
training, service parts and advertising. He estimated that GM
spends about $1,000 per vehicle on dealer support.
Even after the cuts, GM will still have the nation's largest
dealer network, Henderson said, which he estimated would be between
3,500 and 3,800 dealers by the end of next year. The number of
units sold per dealer would nearly double compared to today's
levels, he said.
"Consolidation will enable us to focus our resources on top
performers and core brands of Chevrolet, Cadillac, Buick and GMC,"
Henderson said.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com