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GM, Chrysler defend slashing dealerships

46 minutes ago


WASHINGTON (AP) — Fighting to survive, top executives from General Motors and Chrysler on Wednesday defended their decisions to slash dealerships around the country, calling the moves unavoidable despite the pain to many loyal dealers and customers.

GM president Fritz Henderson and Chrysler President James Press told the Senate Commerce Committee in prepared testimony that there are too many dealers and the networks date from the 1940s and 1950s when motorists lived farther apart and Detroit automakers led the world in sales.

But after hemorrhaging customers for decades and losing market share to foreign competitors, they said the companies need to scale back all their operations to become leaner and profitable as they operate under bankruptcy protection.

"Reinventing GM — real change — does require shared sacrifice," Henderson said. "These are tough times for everyone in the GM family. And, as part of the GM family, our dealers are also being asked to bear some of the sacrifice in order to build a stronger, more viable GM."

As for GM's smaller rival, "there's not enough business for the number of dealers Chrysler has today, given that we have less than two-thirds of our former sales volume," Press said.

"Poor performing dealers cost us customers. It's true that dealers are our customers, but it works both ways. If they don't sell cars, we don't either."

Committee Chairman Jay Rockefeller, D-W.Va., suggested both companies were abandoning customers and dealers, some of whom had been dealers for decades.

"I don't believe that companies should 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," Rockefeller said in prepared remarks. "That is just plain wrong."

He said that the companies seemed to be implying "that the dealers themselves are responsible for the companies' problems."

The committee made the prepared testimony available to The Associated Press in advance of Wednesday's hearing.

Lawmakers contend the dealership closings will put thousands of people out of work and offer few savings to GM or Chrysler, which have received billions in federal aid as they attempt to restructure and return to profitability.

Chrysler LLC has identified 789 dealerships that it plans to close next week, about a quarter of the company's dealership network. The Auburn Hills, Mich., automaker's plan has drawn fire from lawmakers because dealers received only three weeks' notice.

General Motors Corp. told 1,100 dealerships that it does not plan to renew their franchise agreements in late 2010 and expects to shed another 900 dealerships through attrition and by selling or discontinuing its Hummer, Pontiac, Saab and Saturn brands.

Two small-town dealers singled out by the committee contended that the loss of their dealerships could bring personal and community anguish.

"I have met every financial obligation put forth by Chrysler and GM," Peter Lopez, a GM and Chrysler dealer in Spencer, W.Va., said in prepared testimony. "Now ... they want to shut me down. What gives the government the right to do that? I'm a taxpayer and they're getting taxpayer dollars. It just doesn't add up."

Russell Whatley, a Chrysler-Dodge-Jeep dealer in Mineral Wells, Texas, said his grandfather opened the business in 1919. "A 90-year investment is just gone," he said, "and neither my family nor my employees have any say about it."

Chrysler dealers have only until June 9 to close down. "That termination date is needed to ensure that our new dealership structure will be firmly in place at or about the time the new company is formed with Fiat, something understandably important to Fiat," Press said.

Chrysler says that Chrysler dealerships have resold or redistributed about 90 percent of their vehicle inventory and parts through a company program. But dealers being let go want the Obama administration to give them more time to close their franchises and provide additional financing to help Chrysler buy back inventories, parts and specialized tools from the dealerships.

"We have an eight-month supply of vehicles and only three weeks to clear them out," Whatley told the committee.

GM said the dealers it's not renewing are being given until October 2010 to shut down. That gives them an opportunity to "sell down their vehicle inventories and provide warranty service to customers, thus winding down their business in an orderly fashion," said Henderson.

Car dealers are a potent political force, contributing more than $9 million to federal candidates for the 2008 elections.

GM and Chrysler have said the dealership reductions are a painful part of their restructuring, which also has required concessions from union workers and bondholders. Seeking to address the concerns, Troy Clarke, president of GM's North American operations, and Press met with committee members before the hearing.

Requests to the administration to give dealers better terms creates a potential conflict for the White House, which has said it will refrain from running the day-to-day operations of the companies and delegate those decisions to the auto companies' management. The government is expected to receive a 60 percent stake in GM and a 10 percent share of Chrysler in exchange for the federal aid.

LINK:The Associated Press: GM, Chrysler defend slashing dealerships
 

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Motion postponed

Motion to terminate dealer franchises postponed


NEW YORK (AP) — A hearing on Chrysler's request to terminate the franchises of 789 of its dealers has been pushed back by a day.

U.S. Judge Arthur Gonzalez will hear arguments Thursday on the Auburn Hills, Mich.-based automaker's motion to eliminate the franchises. Chrysler executives are also expected to testify.

The motion was expected to be heard Wednesday.

Also late Tuesday, the U.S. Court of Appeals for the Second Circuit halted Chrysler LLC's sale of the bulk of its assets pending an appeal of the sale by a trio of Indiana state pension and construction funds.

Arguments for that appeal will take place on Friday.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

NEW YORK (AP) — A bankruptcy judge will rule Wednesday on whether Chrysler can terminate the franchise agreements of 789 of its dealers as part of its ongoing restructuring.

U.S. Judge Arthur Gonzalez is expected to hear testimony from Chrysler LLC executives, as well as dealers during the hearing.

Auburn Hills, Mich.-based Chrysler maintains that it needs to reduce its dealer base to a leaner network of about 2,400 dealers in order to emerge from Chapter 11 bankruptcy protection as a stronger company.

Chrysler claims that many of the dealerships in question, which amount to about a quarter of its dealer population, were chosen because they are either unprofitable or located too close to other Chrysler dealerships.

But the dealers argue that they don't cost the automaker anything, just make it money by selling Chrysler's cars and trucks.

They maintain that if Gonzalez approves Chrysler's motion it will result in the shuttering of hundreds of dealerships and thousands of workers will lose their jobs.

A group representing about 300 of the dealers slated to lose their franchises have filed an objection. They also earlier objected to Chrysler's motion to sell the bulk of its assets to a group led by Italy's Fiat Group SpA, because it was tied to the plan to eliminate the dealerships.

A trio of dealers testified during the third and final day of the sale hearing, saying that their businesses would mostly likely be forced to close if they lost their franchises.

In addition to the dealers group, attorneys for several individual dealers have also filed objections.

Separately, the U.S. Court of Appeals for the Second Circuit agreed late Tuesday to hear an appeal by a trio of Indiana state pension and construction funds of Chrysler's sale to Fiat. Arguments will begin Friday, The Wall Street Journal said, citing the court's order.

Gonzalez said in his ruling late Sunday that a speedy sale was needed to keep the value of Chrysler from deteriorating and would provide a better return for the company's stakeholders than if it had chosen to liquidate.

But the Indiana funds, which own $42.5 million of Chrysler's $6.9 billion in secured debt, aggressively objected, saying the sale does not provide a big enough return for secured debt holders, while paying off unsecured stakeholders.

Chrysler requested Monday that the sale be certified for immediate appeal in order to move the case quickly to U.S. District Court. It's unclear how much the appeal could delay the sale's closing and Chrysler's emergence from court oversight.

Chrysler has said that any delay could cause the deal with Fiat to crumble, as the Italian automaker has the option of pulling out if the sale does not close by June 15.

Also on Wednesday, the Senate Commerce Committee is scheduled to hold a hearing on GM and Chrysler dealership closings.

GM Chief Executive Fritz Henderson and Chrysler President James Press, along with John McEleney, chairman of the National Automobile Dealers Association, and other dealers, are expected to testify.

LINK:The Associated Press: Motion to terminate dealer franchises postponed
 

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Press’ written testimony

Press testifies before Senate committee

Posted Wednesday, Jun 3, 2009, 3:00 pm in Employee News

Chrysler Vice Chairman and President Jim Press testified before the U.S. Senate Committee on Commerce, Science and Transportation today regarding Chrysler’s dealer network.

Below is Press’ written testimony as submitted to the committee:

Prepared Remarks for
James Press
Vice Chairman and President Chrysler LLC
United States Senate Committee on Commerce, Science and Transportation
Committee Hearing
June 3, 2009

Chairman Rockefeller, Senator Hutchison and members of the Committee, I appreciate this opportunity to discuss why and how Chrysler is realigning its dealer network. I can empathize with the dealers who were not brought forward into the new company, and can understand their disappointment. This has been the most difficult business action I have personally ever had to take. The decisions that had to be made were gut wrenching … but absolutely necessary for Chrysler’s survival.

It’s a well-documented opinion of the Administration and many members of Congress, that over the years Chrysler has not moved fast enough to make the tough changes necessary to remain competitive … and there are two main elements that we can control as an automaker to make those changes: our products and our dealer network. Chrysler is already investing in the high-quality, fuel-efficient vehicles consumers want, and our alliance with Fiat will make our product line-up even stronger. But unless we also complete a significant realignment of our dealer network, neither Chrysler nor our customers will benefit.

Chrysler maintains multiple distribution channels—which is an inefficient and expensive legacy of more than 80 years in business. This is a real disadvantage for us because it increases our costs of product development, distribution, marketing and advertising, and dealer administration—by several billion dollars per year. For example, we currently build and market two similar minivans—the Chrysler Town & Country and Dodge Grand Caravan – to satisfy our multiple dealer networks. Any separate Dodge and Chrysler franchises in close proximity must compete with each other in order to sell and later service what is basically the same vehicle.

As a result, the company spends more, while the dealer network as a whole is not profitable. In 2008, the average Chrysler dealer lost $3,431 selling only 405 new vehicles. When you look at all automakers together, the average U.S. dealer made a profit of $279,000 on sales of 525 vehicles. Why is this important? Unprofitable dealers can’t afford to invest in advertising, facilities, in people, in training, or in the high level of customer satisfaction required to compete in today’s marketplace.

As a result of the credit crisis and the global automotive industry depression, there’s simply not enough business to go around. With projected annual sales in the U.S. this year of only 10 to 10.5 million vehicles - compared to historical levels of 16 million vehicles - Chrysler cannot support the same number of dealers we have in the past.

The time frame for discontinuing dealers was driven by the Chapter 11 process, including the requirement to complete our strategic alliance with Fiat by June 15. It’s important to note that prior to May 1, Chrysler had been planning and working hard to avoid bankruptcy. Only after filing did we begin the necessary process of actually identifying which dealers could go forward with the new company.

The dealers were selected by a process that was rigorous, robust and rational, and the methodology was consistently applied to every dealer in our U.S. operations. It included factors such as sales, customer satisfaction with the buying and service experience, facilities, market potential and whether a dealer is dualled with a competing manufacturer.

While our plan reduces our overall dealer count by 25 percent, those dealers represent only 14 percent of our total volume. Forty-four percent of discontinued dealers are dualled with our competitors, so they have other brands to sell. Half of the discontinued dealerships sell less than 100 of our vehicles a year. In addition, 84 percent of these dealers sell more used vehicles than new ones, and many of these dealers will continue selling and servicing pre-owned vehicles.

Chrysler is working hard to assure as soft a landing as possible for discontinued dealers. Every dealer was contacted by a representative from his or her business center. We offered to help every dealer in the disposition of their vehicles, parts inventory, special tools and signage. On May 14, there were 42,000 vehicles in stock at discontinued dealers. Today, I’m very happy to report that more than 93 percent of them have already been sold, dealer traded, or have commitments in place to be redistributed.

We are very grateful to the loyal Chrysler customers who have supported us, and it’s important to our future that we take care of their needs throughout this process. All Chrysler vehicle owners will receive a letter assuring them that warranty claims will continue to be honored, and we’re providing a toll-free hotline to answer any questions they may have. Customers of discontinued dealers will also receive information on other dealers in their area.

To summarize, there’s no question that Chapter 11 has been a painful process in which many of our stakeholders were required to make unprecedented sacrifices—including our dealers. Facing that reality, we used a thoughtful, fair process to select dealers for the new company, and we are working very hard to minimize the impact on everyone affected.

Together, the new Chrysler Group and Fiat will bring exciting, stylish and fuel-efficient vehicles to North American consumers. Our realigned dealer network will be much stronger—and therefore will make the new company stronger and more profitable—preserving hundreds of thousands of direct and indirect jobs in communities across the United States.

I want to note that Congress can give a significant boost to the success of this realigned dealer network by passing fleet modernization legislation. We strongly support the proposal of Senators Stabenow and Brownback to provide cash to buyers who turn in older vehicles. Their broad-based proposal is open to all dealers, and it will stimulate sales of more fuel-efficient vehicles—helping both the environment and the economy.

Thank you very much, and I’ll look forward to your questions.
 
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