UPDATE:Congress Seeks To Reverse GM,Chrysler Dealer Closings
09 Juli 2009 - 10:13PM
Dow Jones News
The U.S. Congress is moving to reverse the closings or planned
closings of nearly 3,200 dealerships by General Motors Corp.
(GMGMQ) and Chrysler Group LLC, setting up a clash with President
Barack Obama's administration.
The U.S. House Appropriations Committee approved legislation
this week seeking to restore so-called dealer franchise agreements
that were wiped out during the recent bankruptcy reorganizations of
GM and Chrysler. A full House vote could come as early as next
week.
The legislation could block the auto makers from closing
dealerships or effectively force them to increase severance
payments to rejected dealers, significantly raising the costs of
their restructurings.
The initiative has widespread support among House lawmakers,
including Majority Leader Steny Hoyer, D-Md. A similar bill has
been introduced in the Senate.
White House officials visited Capitol Hill this week to try to
strike a compromise among lawmakers, auto makers and dealers to
stop the legislation from proceeding, according to a person
familiar with the meetings.
A Treasury spokeswoman Thursday didn't respond to a request for
comment. The Treasury Department's auto task force, which has
overseen the taxpayer-funded restructurings of GM and Chrysler, has
argued that smaller retail networks are necessary for the companies
to become viable.
Meetings were ongoing Thursday between auto executives and
lawmakers. "The dialogue yesterday was good, so everybody's going
to keep talking this week," said Katie Grant, a spokesperson for
Hoyer.
She said the House majority leader is pushing for a "fair and
transparent process so that it's clear to the dealers and to the
nation at large as to how the auto companies reached their
decisions."
Mark LaNeve, GM's vice president of North America sales, said he
met with about 20 lawmakers Thursday to explain the company's
decision to cut about 2,400 dealers - or about one-third of its
network - by fall 2010. He said he sought to distinguish between
GM's and Chrysler's handling of the closings by pointing out that
GM is giving dealers months to wind down their operations, while
Chrysler's dealer closings already occurred.
LaNeve warned that the legislation would threaten to derail a
key piece of GM's restructuring and delay the auto maker's "old,"
underperforming assets from emerging from bankruptcy court.
"Everybody acknowledges, every dealer acknowledges, we have too
many dealers in aggregate," LaNeve said.
GM spokesman Greg Martin said the dealer closings are needed to
improve brand value and ultimately boost the auto maker's bottom
line and that reversing the closings "would put our long-term
viability at risk."
Chrysler said the House legislation "would jeopardize the
viability of the new company." The company added in a statement
that it "used sound business judgment during the bankruptcy process
to determine the appropriate size for its dealer network."
Chrysler recently moved to terminate more than 780
dealerships.
GM estimates its closings will save the auto maker $2.4 billion
a year in dealer subsidies, advertising support, incentive payments
and other expenses.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com