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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…)