GM, Chrysler Defend Dealer Cuts in U.S. Senate

GM, Chrysler Defend Dealer Cuts in U.S. Senate

By Michelle Krebs June 4, 2009

By Michelle Krebs

WASHINGTON -- General Motors CEO Fritz Henderson and Chrysler President Jim Press found themselves on the hot seat yet again in Congress Wednesday as they testified that it is essential to cut thousands of dealers in order to survive.

And once again, much as Detroit Three executives were at last fall's hearings for federal loans, the executives were grilled and skewered by members of Congress. Dealers being put out of business and dealer association executives chimed in as well.

Star Dealer Witness

Spencer, West Virginia, dealer Pete Lopez, who was notified that both his Chrysler-Dodge-Jeep and Chevrolet-Pontiac-Buick dealerships were to go out of business, was the star witness for the hearing held by the Senate's Committee on Commerce, Science and Transportation.

Lopez said he sold just over 100 vehicles last year but his rural location, 90 minutes from Charleston, serves mostly elderly customers who will have no place else to go. "I have one little old lady 79 years old, I love her dearly," Lopez said. "I pick up her car for service and take it back to her."

In contrast, Lopez testified: "In West Virginia, there's a dealership that sold 19 cars last year and he has his dealership in his front yard and they take my dealership.... There's no rhyme or reason" to the closings -- a refrain played repeatedly during the long, late-afternoon session.

Senators Take Their Shots

Henderson and Press had spoken not a word before the stage was set. Sen. John D. Rockefeller IV (D-W.V.), chairman of the Committee on Commerce, Science and Transportation, opened the session calling the dealership closings "a nationwide tragedy that a lot of us feel strongly about.

"I don't believe companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real notice and no real help. It's just plain wrong," continued Rockefeller who noted the roughly 2,000 Chrysler and GM dealerships being closed across the country put at risk more than 100,000 jobs.

Each Senator mentioned dealerships in their home districts being closed. Indeed, car dealers make significant contributions to political campaigns and are highly influential in their communities.

GM, Chrysler Rebuttal

Henderson, who comes from a family that owned GM dealerships, called the decision to close dealers "heart-wrenching." Press, long popular with dealers especially when he was at Toyota, said it was the most "gut-wrenching" decision of his career.

"Personally and professionally, I feel strong, deep ties to our dealers," Henderson testified, when he was finally allowed to address committee members. "I do not see our dealers as dots on a map or lines on a spreadsheet. They are members of a larger GM family.... A dealer closing is as painful as a plant closing."

But, Henderson insisted, GM has no choice but to cut them. "We are all being called to sacrifice in order to build a stronger, more viable GM."

Chrysler's Press took extra heat from Senate members because he had pleaded successfully in February for dealers to buy more cars -- in some cases far more than they needed -- to keep Chrysler out of bankruptcy, which it ultimately filed on April 30. What's more, Chrysler has no appeals process for rejected dealers, who had only a few weeks' notification that they must be out of business by June 9.

Press responded that the Chrysler dealer network, as a whole, is not profitable "and therefore not viable."

Cost Savings Questioned

Senators and dealers questioned Henderson and Press about cost savings of closing dealerships. The dealers and their representatives insist dealers generate revenues, not cost automakers anything.

Lopez said he paid $480 this month so one of his mechanics could take a computerized test -- even though Lopez is supposed to shut down in days. Fellow dealer Russell Aubrey Whatley III, a Texas Chrysler-Dodge-Jeep franchise scheduled to close, said cynically:  "I just paid $200 for sales training -- and I'm not even a dealer anymore."

Henderson insisted dealer consolidations generate savings to GM in support costs for information technology systems, dealer and sales person incentives, field staff and advertising. The cost amount to about $1,000 per vehicle, or a multi-billion dollar expense.

Beyond the cost savings, Henderson contended "this effort is all about creating a healthy, stronger and profitable dealer network that improves our brand image and increases the opportunity for sales and service provided by our high-performing dealers. It's about focusing our resources on our top performers and core brands so we can attract and retain more private capital and the best dealer operators--and yes, new customers from our competitors."

Added Press: "Poor performing dealers within the dealer network cost the company in terms of lost sales and low customer satisfaction."

Indeed, industry experts have long held that GM, Chrysler and Ford have too many dealers for their lower sales volume and market share. They point to Toyota, which has half the number of dealers than GM.

Michelle Krebs:  is Editor-in-Chief of AutoObserver.com. Follow @AutoObserver on Twitter.