June 4, 2009 at 1:00 am

Auto execs defend dealer cuts in Senate visit

Senators scold GM, Chrysler officials for decision to shutter at least 3,000 outlets

Chrysler President James Press, left, speaks to General Motors President Fritz Henderson, right, as they sit down before the Senate Commerce, Science and Transportation Committee. (Alex Brandon / Associated Press)

Washington -- Top executives at General Motors Corp. and Chrysler LLC defended their decision to cut a total of at least 3,000 dealers while the two automakers are in bankruptcy court.

GM CEO Fritz Henderson and Chrysler President Jim Press told the Senate Commerce Committee at a hearing Wednesday that cutting dealers was painful but necessary. They came under withering attacks from senators.

Sen. Frank Lautenberg, D-N.J., said the "soft landing" that automakers said they were offering exiting dealers was like "a parachute with holes."

Chrysler will cut 789 dealers across the United States as part of its restructuring, forcing them to close by June 9. GM is reducing its dealer network by 2,300 to 2,600 and is requiring its franchisees to sign new dealer agreements or face elimination.

The decision to cut dealers "was gut wrenching, but it was an absolutely necessary part of our effort to assure the long-term viability of the new Chrysler Group," Press said.

He said it was urgent the company emerge from bankruptcy; it is burning through $100 million a day during its stay in court.

Henderson said GM could have 3,500-3,800 dealers by the end of next year. Under prodding from the committee, he agreed to turn over a closely held list of all of the closing dealerships.

Henderson also said that more than 500 dealers have appealed to the company and GM has reversed 11 decisions. It is still reviewing some appeals. He said the "wind-down" payments GM is giving to dealers don't top $1 million and are based on a sliding scale.

Chrysler is not allowing any appeals.

"This is 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," Henderson said. "Because of today's global economic crisis, we are out of time and money."

John McEleney, chairman of the National Automobile Dealers Association, noted that GM is requiring the 4,000 remaining dealers to sign "onerous, one-sided" new agreements that will leave those dealers with few legal rights. They must sign by June 12 or GM can cancel their franchise agreements.

"If we sign it, we sign all our rights away," said Pete Lopez, the owner of Spencer Auto Group in West Virginia.

Henderson said 640 dealers have already signed, with 10 saying no. He said GM would meet with NADA on Friday to discuss the group's concerns.

Senators want GM and Chrysler to do more for dealers they want to close, but with the bankruptcy courts now making decisions, Congress has little, if any, power to stop the closings. Both executives agreed little would change as a result of Wednesday's hearing.

'Chrysler not profitable'

Sen. Jay Rockefeller, D-W.Va., chairman of the Senate Commerce Committee, said the automakers must pare back the closings.

"We have to do better," he said. "We can save some of these jobs and help these communities."

He said that GM and Chrysler "should not 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. That is just plain wrong."

Chrysler is cutting 25 percent of its almost 3,200 outlets, and faces a hearing today in U.S. Bankruptcy Court to do so.

Press said that as a whole "the Chrysler dealer network is not profitable and therefore not viable. In 2008, the average U.S. automotive dealer sold 525 vehicles and made a profit of $279,000, but Chrysler dealers sold only an average of 405 vehicles and on average lost $3,431."

He said he expects Chrysler will sell about 700,000 vehicles this year at its retail outlets, with about another 200,000 in fleet sales, falling below the 1 million vehicles the company sold in 2008.

The closing dealers account for 14 percent of Chrysler's sales, while half of these dealerships sell fewer than 100 vehicles a year, Press said. That's fewer than what an average Toyota dealership sells in a month, Press said.

Press said that the 789 dealers had 42,000 vehicles in stock on May 14 when Chrysler announced the closings and "working together, we've already sold or redistributed 89 percent of all vehicles in discontinued dealer inventory."

Some closing dealers expressed anger because Chrysler executives -- including Press -- urged dealers to buy more vehicles earlier this year than they had planned to help the automaker survive.

GM is offering money to dealers who will agree to terminate their franchise agreements. One dealer told The Detroit News he had been offered about $150,000 while another said GM had offered him $223,000.

Privately held concern

Separately, GM clarified that it will report some financial information as a private company.

"GM intends to make regular disclosures during the period it is private in order to provide appropriate information regarding our financial condition," the company said in a statement.

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Pete Lopez, president of Spencer Auto Group in Spencer, W.Va., holds a ...