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Senators Blast Automakers Over Dealer Closings
GM, Chrysler Defend Massive Shutdowns

By Peter Whoriskey and Kendra Marr
Washington Post Staff Writers
Thursday, June 4, 2009

Empowered by the government's emerging ownership role, members of a Senate committee yesterday excoriated General Motors and Chrysler for their decisions last month to close more than 2,000 dealers.

The senators have been besieged by auto dealers who say the franchise closures were capricious or unfair.

Chrysler is closing 789 on less than a month's notice, and GM aims to close 1,100 by next year and more in the future, as part of a massive industry restructuring being financed by the Obama administration.

Because the federal government is slated to own most of General Motors and 8 percent of Chrysler, some of the senators said they have a responsibility, as major shareholders do, to review company decisions.

Before GM chief executive Fritz Henderson and Chrysler President Jim Press could say a word, Sen. John D. Rockefeller IV (D-W.V.), chairman of the Committee on Commerce, Science and Transportation, voiced his support for the dealerships, calling the closings "a nationwide tragedy that a lot of us feel strongly about."

"Let me be very clear -- I don't believe that 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," he said.

Some of the senators seemed uncomfortable weighing in on a corporation's internal decisions. But they said they had an obligation to get involved.

The Obama administration has sought to ensure that government ownership does not make the companies vulnerable to political pressure. Members of the administration's autos task force have said they will refrain from getting involved in day-to-day decisions of the car companies. The task force pushed for dealership cuts but did not specify how many or which dealerships would be eliminated, administration officials said.

Sen. Mark Warner (D-Va.) acknowledged the danger of "micromanaging" the companies but concluded that as government owners "we've got the right and responsibility to ask these questions."

Sen. Jim DeMint (R.-S.C.) said he is getting to know what "government-managed economies feel like."

GM and Chrysler say they must shrink their dealerships as part of the streamlining their operations, and many analysts and dealers agree. There are too many of them competing for car buyers to be profitable and thriving.

The company chiefs yesterday said they made the cuts reluctantly but that they were necessary. The companies said they mainly chose dealerships that were underperforming in sales or customer satisfaction.

"We have no choice," Henderson told the committee. "We are all being called to sacrifice in order to build a stronger, more viable GM."

But the dealers say neither the Obama administration nor the company management should have a say in determining which dealerships survive. Instead, they argue, the matter should be left to the free market, which has winnowed thousands from their ranks since 1970.

"The way it was done was not very transparent," John McEleney, chairman of the National Automobile Dealers Association, said in an interview, referring to the method the companies used to choose which dealers to close. "The open market should have made the decisions."

The dealers want to reduce the number of closures or get better compensation for those dealers targeted, and many of the senators seemed sympathetic.

Over and over, the senators brought up dealerships back home that were slated for closure despite, the committee members said, appearing healthy.

Sen. Amy Klobuchar (D-Minn.) asked about one specific dealership targeted for closure, which she noted has what seems like an good location near the Mall of America.

"Some of these dealers were actually doing pretty well," she told the company chiefs.

Sen. Mel Martinez (R-Fla.) questioned the closures of two dealerships in his state, one in Miami and one in central Florida.

"What rhyme or reason is there to this?" he asked.

Some senators also demanded to see a list of GM dealerships that are slated for closure, even though almost all of the dealers on that list don't want that information to become public.

Some lawmakers also sought to zero in on the role of the autos task force, complaining at times of a lack of openness.

Yesterday Rep. Darrell Issa (R-Calif.) sent letters to Chrysler chief executive Robert Nardelli and autos task force chief Steven Rattner about "the lack of transparency" surrounding the decision to trim Chrysler dealerships.

"Intervening in the bankruptcy process by exerting pressure on Chrysler to shed 789 dealership agreements is a misuse of the authority of the Task Force, giving credence to growing concerns the Task Force is not working to facilitate the restructuring of Chrysler but rather to nationalize the company by making decisions affecting the company's day-to-day business," Issa wrote.

Issa demanded a number of documents and records be presented to the Committee on Oversight and Government Reform for review.

The dealers are also pressing their case in bankruptcy court. Former U.S. Attorney G. Douglas Jones is pushing for GM dealers to be treated as a separate group of creditors in that case.

"It gives terminated dealers a voice in bankruptcy court, as opposed to a voice among a much larger creditors committee," he said.

Yesterday Jones sent letters to Commerce Committee leadership, asking for that special status.

Chrysler closed hundreds of dealerships after it entered bankruptcy court, leaving no room for dealers to fight back, Jones said. That's why it's critical to quickly establish a GM dealers committee before the court gets too deep into the bankruptcy proceedings, he said.

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