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U.S. House Votes to Restore Nixed Car Dealerships

Congress postures for its campaign contributors, although the bill appears to have little chance in the Senate.

by on Jul.17, 2009


Hoyer talking at a news conference supporting legislation that opposes dealer closings.

Late yesterday the U.S. House of Representatives passed spending bill that included a section, H.R. 2743, intended to reverse the closing of almost 3,000 dealers, which is key to the restructuring plans of Chrysler Group and General Motors Company. The White House had issued a statement earlier that strongly opposed the measure.

The core issue being avoided is that new vehicle sales have declined 40% since 2007, and are not forecast to rebound from the current 10 million annual rate anytime soon. The U.S. dealer network now being pared was built to service a 16 million unit per year industry. Too many dealers are chasing too few sales. 

While individual dealers and the politically powerful National Association of Auto Dealers oppose the closings, no concrete plan to keep the dealers open without forcing the recovering auto companies to incur huge  costs has emerged.

House Majority Leader Steny Hoyer, a Maryland democrat, spearheaded the revolt after he felt he was brushed off by the President’s Auto Task Force.

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“They could not tell me why shutting down any of those dealers” would save money for the carmakers,” Representative Hoyer said in a press conference before the bill passed.

In detailed testimony in June, Chrysler and General Motors executives explained the rationale for the closings, what they were doing to help disenfranchised dealers, and even outlined the substantial costs involved to keep the dealers open.


General Motors Claims $1 Million in Costs to Keep Each Cancelled New Car Dealer Open

GM CEO Fritz Henderson forcefully defends wholesale dealer closings before a ranting U.S. House Subcommittee.

by on Jun.12, 2009

Testimony before the U.S.  House Energy and Commerce Subcommittee on Oversight and Investigations.

Testimony underway on dealer closings before the U.S. House of Representatives Energy and Commerce Subcommittee on Oversight and Investigations.

Critics of GM’s plan to cut new car dealerships that claim keeping them open is essentially free to auto companies were confronted today by GM CEO Fritz Henderson, who claimed a savings potential of $928,000 per closed dealer — if and when they are fully phased-out under GM’s reorganization plan.

It was the first time that bankrupt GM publicly revealed the cost numbers that underpin its strategy to drastically cut its dealer organization.

In an SEC filing on May 14, GM said it planned to reduce its dealer network from 5,969 stores then to approximately 3,600 by the end of 2010. The basic plan has not changed since GM filed for bankruptcy on June 1, although bankruptcy, with its canceling of contracts including dealer agreements, will make it easier for GM to proceed.

Bart Stupak

"What options were offered to those dealerships slated for closure," asked Stupak.

What has changed is the political uproar, some of it coming from the same Congressmen and Senators who said domestic auto companies should be allowed to fail at hearings last December when Chrysler and GM requested government loan guarantees. These politicians now say, with straight and grave faces, that the dealership closings caught them off guard.

Chrysler closed 789 dealerships this week as it emerged from bankruptcy, and GM wants to eliminate about 2,500 dealerships by the end of next year as part of its restructuring.

A failure of either automaker, of course, would have closed all of their dealerships. So the implications of auto restructurings, which all admit requires the closing of some dealers, are just becoming clear to politicians. Since car dealers are active in their communities, and donate millions of dollars to these same politicians, previous abstract free market economic theories that most espoused, have given way to a classic Washington expression of outrage and a search for the guilty by members of both the Senate and Congress. (more…)