2nd UPDATE: GM, Chrysler Executives In Congress Again To Defend Dealer Cuts
12 Juni 2009 - 7:54PM
Dow Jones News
Top executives at General Motors Corp. (GMGMQ) and Chrysler LLC
appeared in Congress for the second time in two weeks Friday to
defend plans to cut dealers from their retail networks, dismissing
criticism from lawmakers that they have treated the dealers
unfairly.
"A strong dealer body is vital to GM's success," GM Chief
Executive Frederick "Fritz" Henderson told the House Energy and
Commerce Committee's subcommittee on oversight and
investigations.
He said the planned closing of nearly 2,600 dealerships by fall
2010 will save the company $2.5 billion annually, including $2
billion in direct payments to dealers. The remaining savings will
come from expenses associated with local advertising, training and
vehicle service, Henderson said.
Henderson said GM currently has 6,000 dealerships compared to
1,240 for Toyota Motor Corp. (TM). A large dealer network forces
dealers of the same brands to compete against each other, he said,
often forcing them to reduce prices on GM vehicles, eroding the
cars' "residual" value.
Henderson said 96% of about 1,350 dealers on the company's list
of closings have signed "wind-down" agreements to shut their
dealerships by October 2010. The company also expects to lose
hundreds of other dealers through attrition.
Henderson submitted a document to the subcommitte stating that a
detailed analysis of its dealer network showed the "ideal" number
of GM dealers would be 3,380 dealers. It then used "objective
dealer performance criteria" to determine that its network should
number 4,100. GM expects between 3,500 to 3,800 dealers to accept
the company's new offer to sell vehicles once it emerges from
bankruptcy.
Chrysler LLC President James Press reiterated that the average
Chrysler dealer loses money.
"Without profits, dealers can't invest in people, training and
facilities," Press said. "As a result, sales and customer
satisfaction suffers."
Chrysler this month closed nearly 800 dealerships, about a
quarter of its retail network.
Lawmakers voiced skepticism of the rationale behind the dealer
closings.
"I can think of few subjects that have brought the ire of so
many members" of Congress as the dealer closings, said Rep. Bart
Stupak, D-Mich., chairman of the subcommittee.
"How is it pro-customer to reduce competition?" asked Rep. Greg
Walden, R-Ore.
Walden said that the planned closing of a GM dealership in
Oregon will force residents to travel 136 miles to the nearest GM
dealership for service.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com