REPORT: Detroit execs grilled on dealer cuts by Congress, Henderson agrees to cough up closure list
When it comes to dealership closings, there is a big divide between what General Motors, Chrysler and President Obama's auto task force want and what dealers and Congress want. The bankrupt Detroit automakers say that closing dealerships will save money, streamline vehicle delivery, improve brand image, and improve the health of remaining retail stores.
Some members of Congress aren't so sure that dealer closings will cure much for GM and Chrysler, and the legislative branch brought Chrysler's Jim Press and GM's Fritz Henderson before the Senate Commerce Committee on Wednesday for yet another grilling. Broadly speaking, Congress tends to side with dealers because of the political influence of the dealer body, and because of the impact of dealership job losses in the districts/states that Congressmen and women serve.
According to The Wall Street Journal, committee chairman John D. Rockefeller (D-W. Va.) says that he doesn't "believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, with no real notice, with no real help." Mike Johanns (R-Neb.) added that he is introducing legislation that will force the Obama administration to require congressional approval to use TARP funds to obtain an equity stake in any company.
Press and Henderson told the dealers that they would need to ultimately close 3,400 dealerships. GM has so far announced 1,324 closings by the end of 2010, while Chrysler will shutter 789 retail stores by June 9. Over the course of the congressional proceedings, Automotive News notes that Henderson bowed to pressure to disclose the list of dealers GM is eliminating, although that list has not been made public yet.
Henderson calls bankruptcy "our last chance to get it right, to fix permanently those parts of the business that have diverted us from consistently building winning cars and trucks and the consumer experience to match." Dealers called the closings "hasty," and contend that the actions taken against them won't be nearly as effective as GM and Chrysler expect. Hat tip to Dave!
[Sources: Wall Street Journal; Automotive News - subs. req | Source Photo by Mark Wilson/Getty]
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Reader Comments (Page 1 of 2)
UCJR 1:40PM (6/04/2009)
It is still an issue of too much intra-company competition. When the local Chevy dealership touts that it has 'lower prices than any other Chevy dealer in town!' rather than advertising to compete with the Toyota dealership across the street, there's a problem with the distribution network.
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mapoftazifosho 1:50PM (6/04/2009)
NAIL + HEAD
Seriously, our government micromanaging this will be the end of these companies. Well, technically bankruptcy will be, but they should really have gone into BK without gov't backing. The PR fallout will sink GM...
Chrysler was already sunk.
Judy Zik 2:27PM (6/04/2009)
+1
Add in the fact that many of these dealerships are small operations that are either money losing or barely profitable. Customers end up seeing old dingy buildings, poorly staffed dealerships and the worst possible sales tactics by dealers fighting to hang on. Then to top it all off the multiple Chevy dealers in your area are competing with the multiple Pontiac dealers. So if you can't get the deal you want at one you go to the other. Then there is the marketing costs. With their sales volume GM should be able to support one really nice new dealership building in each market that is well staffed and highly profitable.
Where this hurts is when you have two dealerships in a market that have both bought into GM's and Chrysler's bullying over the past few years and invested a bunch of money in renovations. Somebody is going to take a big fall. There are also the dealers who were forced by the company to take on a bunch of stock and are now forced to sell it in no time for nothing.
tuxchown 3:08PM (6/04/2009)
Judy - You raise an important point. A poor dealer experience is detrimental to the image of the product. I wonder how many people who have complained about a poor experience at a Chrysler or GM dealer, who switched to Toyota, Honda or another product, are now complaining about the closing of these dealers? The downside is the potential loss of customers who have been loyal to one dealer. Some dealers sell foreign products as well. Will some of those potentially former Chrysler or GM customers jump to foreign competition to stay with the same dealer?
Driver X 1:39PM (6/04/2009)
Let the Free Market decide who stays and who goes.
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Aprime 1:52PM (6/04/2009)
There's no free market.
There hasn't been since the early 20th centry.
Fernando 1:52PM (6/04/2009)
It all boils down to how many dealerships are being closed in the Senator's state or Representative's district (and probably how much they contribute to the campaign fund). The reason why they are bitching is because they would rather see dealerships closes SOMEWHERE ELSE (like in a state controlled by the other party).
Typical NIMBE (not in my back yard) attitude, only in reverse (where NIMBE usually means don't build/bring something to my neighborhood).
Every economist will tell you that the big three need to restructure and shrink (i.e. less factories, less workers, and less dealers). It's a necessary evil and Congress is just going to have to accept it, bitch a bit, and then move on.
Sea Urchin 3:03PM (6/04/2009)
Fernando, Congress has a right to bitch, because they sign the welfare check for small 2.0
KLR 5:02PM (6/04/2009)
No, Congress doesn't sign the checks - Treasury does. That's why Congress is ticked off now. They gave up control with TARP and the auto financing but now they want it back.
UltimoDragon 5:09PM (6/04/2009)
The 'free market' is a quaint academic exercise that has never worked, and never will work in its most pure implementation.
Andy 5:26PM (6/04/2009)
Of course we basically have a free market.. you guys are splitting hairs. If you want to see the difference, look at Cuba.
SimbaDogg 12:08AM (6/05/2009)
no...i'm sure senators and representatives aren't complaining because of the concept of not in my back yard, but because...some of the closures simply dont make sense.
i was watching cnn where they actually showed some of the questions some of the congressmen/women were asking. one that popped up a lot is, why is it that A LOT of the best performing dealers are the ones getting the notice. i think they showed one example where 1 of the top performing dealers in the entire state of minnesota got the notice, another....which broke an all time chrysler sales record in april, then did it again in may got another notice. Attrition is one thing, acceleration attrition is another...but i've seen way too many dealers on tv who say, we make more than enough money, we have more than enough working capital, we have more than enough customers, and we're consistently one of the best and performing dealers in the county/state....but we're still getting the boot?
sorry, that makes absolutely no sense to me. why would you kick your best players off your all star team?
Willem B 9:46AM (6/05/2009)
Simbadogg:
The answer is location:
Since many dealers are being closed, it would make sense to place a new dealership right in the middle of the previous dealerships, so that all previous customers can get there equally easily.
What's gonna happen is that GM will put out a bid for a "megadealership", ie. one that will carry all brands, not just 1 or 2, and this new dealership will most likely be filled by one of the previous dealers, and will be located in a new spot, where it makes the most sense.
Yeah it sucks, but it has to be done.
artso06 2:03PM (6/04/2009)
Let my fears begin. Politics and business can NEVER collide at this level, Although they are one in the same thing sometimes. Business is hard nosed, and sometimes to come out stronger you can't be nice. Its a harsh reality but its the philosophy sacrifice one to save thousands. Government Motors is going to have an uphill battle from here on out because there is going to be no more whats best for the company (not that there was in the last 20 years either) but how do we make everyone under the sun happy.
The part about dealers have had no "notice" is a big maybe. Have they been following the news at all???
.
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Jay Evans 2:09PM (6/04/2009)
Terminated Chrysler Dealers Are Heard; The Clinton Scent Redux
http://zerohedge.blogspot.com/2009/06/terminated-chrysler-dealers-are-heard.html
Sworn testimony of Ethel L. Cook, Chrysler dealer:
"I have detected a pattern: In every market where there is a dealership connected with former Penske Automotive executive Steve Landers, or his new automotive partnership with “Mac” McLarty (former Chief of Staff for President Clinton) and Robert L. Johnson (majority owner of the Charlotte Bobcats), the competitors are rejected."
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David 2:45PM (6/04/2009)
Didn't Obama's Auto Czar and their team pick the site closures, and now they are grilling the "evil" CEO's of these beleaguered companies as though it was GM and Chrysler's fault? Am I reading this wrong, or is the double hypocrisy growing to epic levels with this new administration?
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KLR 5:05PM (6/04/2009)
A certain amount of this is White House vs Congress as well as GOP vs Dem.
MJS 3:41PM (6/04/2009)
In reading some of your comments, I can appreciate your concerns. Mine are the same. However, the auto business is one of the last true free market areas. Where else can you get two to ten dealers competing over a car deal where one will undercut the other by $100.00 to get the deal. True competitiveness and market forces, not an easy business, but a very profitable business. That's where the rub lies. This admis. doesn't want independent dealership, they want control-Health Cares next-(which, nothing is free). If you think about the dealers they want to shut, I'd say 90-95 % are profitable, because of the back end-service-parts-bodyshop and used car sales. Any dealer surviving this market now and still open is, overall, profitable. Plus, their in markets were they maybe the only option-no competition-so they are very profitable. Maybe not every month, but over the fiscal year, profitable. To have the government close these dealers is for control, period. The government and Taxbama have no clue what they are doing. This anti-business administration doesn't care about the dealers, becuase the majority of dealerships are non-union. There will be more jobs lost from the dealership closing-employees and local business, than from the Manufactures. This is all pay back for the union's helping to get this guy elected. I ask all of you that are hoping this to work to look at the government's track record when entering the private market-to fix things for the little guy-they fail at this all the time, becuase there is no incentive to make a profit. You may not agree with any of this, but, that's ok. Just look at the facts-medicare, bailouts-we were told, hey a billion here-billion there- and it will all be fine-they see going bankrupt is a good thing-schools-spend a pile of cash there, anyway, check out the facts. This administration, run by Obama-oops-Taxbama wants total contro-look at what he does, not what he says. The way he tells us what we want to hear, you'd think he used to sell cars and this bail out and ownership of a private company by the government-should work, won't, sad to say.
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MajorGeek 2:36PM (6/04/2009)
So, a collection of politicians that can not balance our budget and write blanks checks in the billions are going to grill auto execs? The people will be pissed when they get the bill on this.
@UCJR a plus one for you as well from me, I would like to see cars priced like Saturn used to (or maybe they still do) which is the sticker price IS the price.
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That One Person 4:34PM (6/04/2009)
The government (IMO) is in the same boat as the automakers: both had years of mismanagement and are finally trying to right themselves. Both will take years to recover...
Anyways, GM and Chrysler (and possibly Ford) need to close dealerships. They say closing them won't help. Well, how does Honda and Toyota function (and do very well) with significantly less dealers? I think there are two Toyota and Honda dealers within 15 minutes of where I live. I can't even think of how many GM and Chrysler dealers there are in this area.