Bill to Aid Closed Auto Dealers Gaining Traction

Auto dealers from around the country converge on the Capitol to lobby for help after being shut down because of GM and Chrysler bankruptcies.
Auto dealers from around the country converge on the Capitol to lobby for help after being shut down because of GM and Chrysler bankruptcies. (By Jay Mallin -- Bloomberg News)
By Peter Whoriskey
Washington Post Staff Writer
Wednesday, July 15, 2009

Now that the Obama administration has spent billions of dollars on the bailouts of General Motors and Chrysler, Congress is considering making its first major management decision at the automakers.

Under legislation that has rapidly gained support, GM and Chrysler would have to reinstate more than 2,000 dealerships that the companies had slated for closure.

The automakers say the ranks of their dealers must be thinned in order to match the fallen demand for cars. But some of the rejected dealers and their Capitol Hill supporters argue that the process of selecting dealerships for closure was arbitrary and went too far.

Since federal money has been used to sustain the automakers, they say Congress has an obligation to intervene.

At a gathering of dozens of dealers who came to Capitol Hill yesterday to lobby their representatives, House Majority Leader Steny H. Hoyer (D-Md.) and several other congressmen spoke in support of the dealers. More than 240 House members have signed onto the bill, supporters said.

"We are going to stand with them for as long as it takes," Hoyer told an approving crowd.

The expanded role of the government in the companies it has bailed out has stirred warnings that the federal bureaucracy could smother the once-private companies, stymieing their recovery.

President Obama and administration officials have said they have no interest in running either company, although the United States owns 61 percent of General Motors and 8 percent of Chrysler.

The administration, however, did force GM and Chrysler to streamline their operations before it invested more money in them, and it was the president's auto task force that spoke out for dealer closures.

"These underperforming dealers create a drag on the overall brand equity of GM and hurt the prospects of the many stronger dealers," the task force concluded in its March 30 report on the company.

The primary reason the companies want to trim their dealer ranks is to improve the profitability of the remaining dealerships, company officials said. This would allow the surviving dealerships to improve their sales and service.

The domestic automakers often point to the example of Toyota, whose dealerships sell far more cars on average and so can afford to create better stores.

"They get the best people, the best locations, the best facilities," said Mark LaNeve, GM North America vice president. "Over time, they can wear our guys out."

GM projects that it could save $2.5 billion annually by cutting the dealers. While dealers are independent businesses, GM spends about that much money on sales incentives, advertising and other programs intended to prop up its dealer network.

Whatever the business reasons for the closures, supporters of the bill to revive the rejected dealerships say the closures were handled unfairly, and at least some of the small-business owners who headed to Capitol Hill yesterday say they were wrongly selected.

Rhode Island auto dealer Jim Tarbox says his was the state's highest-performing Chrysler dealership. And then the automaker cut him.

"I was targeted, and I'm sure others were as well," he said.

The bill's supporters say the closures threaten the jobs of 169,000 people who work at the selected dealerships.

Jesse Toprak, a senior analyst at Edmunds who once ran three Chrysler dealerships, says the bill could also harm the automakers' recovery.

"If you look at the human angle, it's a sad story," he said of the closures. "If you look at the business angle, it's the right decision."

For now, it is unclear exactly what the full effect of the legislation would be, particularly since some of the affected dealers have already closed or agreed to.

Both sides in the debate have signaled that they are open to compromise, and the bill may simply be a way of extracting concessions -- possibly money -- from the auto manufacturers for the dealers.

With so many sponsors on the bill, said Rep. Frank M. Kratovil Jr. (D-Md.), who introduced the legislation, "you do have some pretty good leverage."

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