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Obama ’strongly opposes’ dealer termination legislation

Posted Thursday, Jul 16, 2009, 11:14 am in Employee News

Automotive News is reporting that the Obama administration says it “strongly opposes” legislation to reverse terminations of Chrysler and GM dealerships by bankruptcy courts.

The provision, which has 243 sponsors and co-sponsors in the 435-member House, is due to come up for a House vote tomorrow, the story said.

In a statement, the White House said that the dealer cuts were “a critical part of their overall restructuring to achieve long-term viability.”

“It would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point,” the statement added.

If the bill passes, it will then go before the Senate, Automotive News said. (Automotive News)
 

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Chrysler's Statement

Statement Attributed to John Bozzella, Senior Vice President, External Affairs, Chrysler Group LLC, Regarding Discussions with Congress on Proposed Dealer Legislation

Washington, D.C., Jul 16, 2009 - Chrysler has had many conversations with members of Congress to explain the critical importance of an effective dealer network to the new company. We have also discussed with members of Congress and Congressional Leadership actions Chrysler has taken to assure a soft landing for dealers who remain with the bankrupt old Chrysler LLC.
 

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Fast Facts - Chrysler Dealer Network

Fast Facts - Chrysler Dealer Network

Auburn Hills, Mich., Jul 16, 2009 -

* Chrysler Group LLC has acquired a strong dealer network from Chrysler LLC, which remains in Chapter 11. The company’s new dealer network is comprised of 2,385 dealers open for business across the United States, and are selling new Chrysler, Jeep® and Dodge vehicles and servicing Chrysler products with genuine, authorized Mopar® parts

o 1,364 Chrysler, Jeep and Dodge dealers are located in rural communities

o 592 Chrysler, Jeep and Dodge dealers serving Metro areas

o 429 Chrysler, Jeep and Dodge dealers serve secondary markets

* More than 50 percent of the 789 dealers whose contracts were rejected during Chrysler LLC’s bankruptcy reorganization remain in business – selling other manufacturer’s new vehicles, selling and servicing used vehicles, or operating groundbreaking new business ventures, such as acting as a buyer’s advocate for consumers purchasing a vehicle. In addition:

o Chrysler launched a job-posting function as part of its dealer computer system to match displaced dealership employees with remaining dealerships

o To date, 239 dealerships have hired 436 displaced employees and 202 open jobs are currently posted

* Chrysler actively worked with dealers whose contracts were rejected to facilitate a soft landing within the constraints of bankruptcy reorganization

o Chrysler’s dealer reductions took place as part of bankruptcy reorganization, and as a result there was not funding to repurchase vehicle, parts or special tools inventory

o Chrysler, working with the major wholesale floorplan lenders, facilitated the redistribution of 100 percent of the remaining vehicle inventory

o Chrysler was not obligated to make arrangements for the left-over inventory, but felt it was the right thing to do

o Chrysler matched ‘rejected’ dealers who wanted to sell parts and special tools inventory with remaining dealers interested in purchasing parts and special tools inventory

+ 590 of the 789 dealers requested assistance with parts redistribution

+ Of the 590 dealers, 528 (almost 90 percent) have received commitments for redistribution

* There is a substantial cost to Chrysler to support underperforming dealers:

$33 million annually in administrative costs to maintain 789 discontinued dealers (personnel to support ordering, auditing, processing of payments and invoices, etc.)

$150 million annually for Marketing and Advertising for the 789 dealers (corporate cost - above and beyond dealer contributions)

$1.5 billion in lost revenue due to underperformance in 2008 CY (the 789 rejected dealers achieved only 73 percent of their minimum sales responsibility, resulting in 55,000 lost vehicle sales, which equates to $1.5 billion. This is revenue that is lost not only to Chrysler, but to the dealer, the community and the state, as well)

$1.4 billion (over 4 years) for product engineering and development of "sister" vehicles (the company had to develop "sister" vehicles when the majority of the dealer network did not have all three brands under one roof)

* In addition to the “hard” costs outlined above, there are soft costs that affect Chrysler Group LLC’s corporate and brand reputations

When there are too many dealers in an area, the dealers are not as profitable as they could be, resulting in a reduced ability to invest back in the business, which ultimately affects a customer’s perception of the dealer and the brand. A first impression is lasting. Once a customer is lost over their first negative impression of a lackluster dealership, it’s very difficult to get them back

Too many dealers in a market drive down the prices on vehicles because they compete against each other for the sale, which negatively impacts dealers and the company, as well as residual values, which can hurt the consumer

Retaining the best salespeople is key to both selling vehicles and providing the customer with an exemplary experience. It is difficult to keep top talent if they have the potential to triple their income at other manufacturers’ dealerships. (Average throughput at Chrysler LLC dealerships prior to the rejection was 405 sales annually. The U.S. average is 525, Honda's average is 1,219, Toyota is 1,292 and Nissan is 693. Again this contributes to a negative perception by consumers and hurts the company’s, and dealer’s brand image)

* Simple fact is new vehicle sales have declined 40 percent since 2007

The U.S. dealer network was built to service a 16 million unit per year industry which no longer exists. There are too many dealers for the business

From 1990 – 2007, annual new vehicle sales in the United States averaged 16 million units per year. In 2008, that figure dropped to 13.5 million units, and in 2009 it is forecasted to be approximately 10 million units

Even the dealers whose contracts were rejected testified during the bankruptcy proceedings that Chrysler’s dealer network was too large and needed to be reduced

Chrysler has been reducing the size of its dealer network for more than 10 years. The bankruptcy reorganization necessitated speeding the process up and completing it during the court process. The U.S. Bankruptcy Court, Southern District of New York, approved Chrysler’s motion to reject the contracts of 789 dealers

In the opinion approving the motion, Judge Gonzalez noted that the “court concluded that the procedures utilized by the Debtors to determine which contracts would be assumed and assigned to New Chrysler was a reasonable exercise of the Debtors’ business judgment. The decision-making process used by the debtors was rational and an exercise of sound business judgment.”

He further noted “The Court also finds that no evidence has been presented to the Court showing that the Debtors made their individual rejection decisions irrationally, such that the rejections demonstrate bad faith or whim or caprice.” (Opinion regarding authorization of rejection of all executory contracts and unexpired leases with certain domestic dealers and granting certain related relief - Case No. 09-50002, Judge Arthur J. Gonzalez)

Data cited is as of June 30,2009
 

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U.S. House votes to reverse GM, Chrysler dealer cuts

July 16, 2009

U.S. House votes to reverse GM, Chrysler dealer cuts



WASHINGTON – The U.S. House approved a measure meant to reverse some 2,100 dealer cuts at General Motors Co. and Chrysler Group LLC, but its backers called on dealers and the automakers to find some type of compromise.

For their part, Chrysler offered a lengthy justification for its cuts, while GM called on the National Automobile Dealers Association to engage in talks. Both companies and the Obama administration have warned Congress that restoring the dealers could jeopardize the automakers’ recovery from bankruptcy, but that argument has gained little ground in Congress so far.

The provision was part of $46 billion budget bill for government agencies that passed 219-208. Only Rep. John Dingell, D-Dearborn, spoke against the proposal, saying Congress was “playing with fire.”

“This is the wrong lever, and the wrong time, and the wrong way,” Dingell said. “The result of this playing with fire could be a serious disaster which we visit upon ourselves, upon the auto industry, and upon all of those who are dependent on it.”

Chrysler cut off 789 dealerships with less than a month’s notice as part of its bankruptcy, while GM has identified about 1,300 dealers who will be wound down through October of next year.

The bill would aim to not just reverse the closures at GM and Chrysler, but undo the new contracts GM had signed by 4,100 dealers to stay in business with the new company formed from the automaker’s assets by the Obama administration.

Rep. Steven LaTourette, the Ohio Republican who inserted the clause into the spending bill, said it was necessary to stop “the goofy action of an unelected task force” that threatened thousands of jobs.

While Senate Majority Leader Harry Reid has been dismissive of the dealers’ provision, a stand-alone version of the plan in the Senate now has 25 cosponsors. Rep. David Obey, D-Wisc., said it was unlikely the plan would survive the Senate in its current version.

“What we do want is to see that language used as an opportunity to get the auto dealers and auto companies to sit down and work out a better appeals process,” Obey said.

GM spokesman Greg Martin said the company also wanted to find a solution, but that the dealers had yet to come to the table.

“At this time, the only empty chair at the table is the one being saved for dealers,” he said. “Hopefully, they'll share our commitment to find a resolution with Congress.”

A spokesman for NADA said the group wanted to see the results of the vote before proceeding.

Peter Grady, Chrysler’s vice president for network development, said of the 789 dealers that had lost their Chrysler franchises, half had stayed in business by either selling other automakers’ new vehicles, used cars and trucks or other ventures. He also contended Chrysler’s dealer network had been sized for a U.S. market of 16 million new vehicles a year, and “those days are gone.”

“There are simply too many dealers for not enough sales,” Grady said in a statement.

LINK:U.S. House votes to reverse GM, Chrysler dealer cuts | Freep.com | Detroit Free Press
 

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The Real Story

July 16, 2009 3:48 PM

The Real Story on Chrysler's Dealer Network
Peter Grady - Vice President Network Development and Fleet, Chrysler Group LLC


Peter Grady, Vice President Network Development and Fleet, Chrysler Group LLC

There’s been a lot said about why Chrysler LLC decided to trim its dealer network and how it chose those dealerships that would not go forward as part of the new Chrysler Group LLC. I was there working on these issues and participating in the decisions. I’m sorry to say a lot of what’s been said and written is wrong, or, at the least, misleading.

As Congress considers legislation aimed at reversing our decisions, I feel it’s important to set the record straight—not with opinion or rhetoric, but with straight facts. Just like those paint sets we played with as kids, it’s best to do this by the numbers. So here goes.

We chose the network that we felt would best represent the new Chrysler Group LLC in each and every market. The process began with a thorough review of every market, and the realistic sales volume opportunity given the significantly reduced industry. We then chose the proper number of dealers for each market so that those dealers could realize a return on their investment, and ultimately further invest in the market and our customers.

We reduced our U.S. dealer network by 789 dealers, leaving 2,385 doing business across the nation. Critics have complained that this move left customers in many areas underserved. On the contrary, of the 2,385 remaining dealers:
 1364 Chrysler, Jeep®, and Dodge dealers are located in rural areas.
 592 Chrysler, Jeep and Dodge dealers serve the 124 largest metro areas.
 429 Chrysler, Jeep and Dodge dealers serve the next largest population areas, or what we call secondary markets.

On the other side of the coin, our rationale for choosing which dealerships would not be going forward with the new company has been criticized as unfair and unfounded. That accusation is rebutted in large part by a key finding by U.S. Bankruptcy Court Judge Arthur J. Gonzalez, who wrote, “The Court also finds that no evidence has been presented to the Court showing that the Debtors made their individual rejection decisions irrationally, such that the rejections demonstrate bad faith or whim or caprice.” This is no small statement. Thirteen Chrysler employees were questioned thoroughly by dealer lawyers in depositions, including Bob Nardelli, Jim Press, Steven Landry and me. Chrysler employees testified and provided statements at the hearing on the sale of assets to the new Chrysler Group and the hearing on rejected dealers. Many rejected dealers also testified and were deposed. In all, some 350,000 pages of Chrysler documents were turned over to dealer lawyers and the bankruptcy court for examination.

Together with that Court finding, the numbers make the case.
 The 789 rejected dealers achieved on average only 73 percent of their contractual minimum sales responsibility. This resulted in 55,000 missed vehicle sales and $1.5 billion in lost revenue to Chrysler. This represents lost economic value to the local communities and states, as well.
 It represents $33 million in annual costs to the company to maintain the 789 discontinued dealers for everything from personnel to support ordering, auditing, processing of payments, and other myriad of administrative services.
 It costs the company $150 million annually for marketing and advertising for the 789 dealers—that’s above and beyond dealer contributions.
 It would cost $1.4 billion over four years to develop and engineer overlapping “sister” vehicles, if a significant minority or a majority of our dealer network did not sell all three brands under one roof.

The fact is Chrysler didn’t just jump into reducing its dealer network. The process began more than a decade ago with widespread dealer support. However, the bankruptcy reorganization made it necessary to accelerate the reduction and complete it during the court process.

If Congress reverses this process, it flies in the face of a U.S. vehicle market that has declined 40 percent since 2007. Indeed, the U.S. dealer network was built to serve a market that once sold 16 million vehicles a year. Those days are gone.

Last year, annual vehicle sales industry wide in the U.S. dropped to 13.5 million units and for 2009, that number is expected to fall to 10 million units.
There are simply too many dealers for not enough sales.
When there are too many dealers in an area each dealer is less profitable and that means a reduced ability to invest in the business, risking a negative customer experience. You only get one chance at a first impression and once a customer is lost, it’s very difficult to win them back.
Too many dealers in an area drives down vehicle values due to unhealthy competition, and that can chill residual values, costing consumers money when they trade in their vehicles.
It also makes it tough to hang onto the best sales people who might triple their income at dealerships selling other makes. More numbers:
 233--Average annual vehicle sales at the 789 rejected dealers
 405—Average annual vehicle sales at Chrysler LLC dealerships prior to the recent dealer network adjustments.
 525—Average annual sales at U.S. dealerships.
 692—Average annual sales at Nissan dealerships
 1,219—Average annual sales at Honda dealerships
 1,292—Average annual sales at Toyota dealerships


Some final numbers: They relate to the 789 rejected dealerships, and Chrysler’s efforts to provide a “soft landing” for them.
 More than 50 percent are still in business selling other manufacturers’ new vehicles, selling and servicing used vehicles, or operating new business ventures such as acting as a buyer’s advocate for consumers purchasing new vehicles.
 100—the percentage of remaining vehicle inventory redistributed as a result of Chrysler working with major wholesale floorplan lenders. We weren’t obligated to help out with this; we just felt it was the right thing to do.
 590 requested assistance from Chrysler with parts distribution, with 528 (almost 90 percent) receiving commitments for redistribution.

All we ask is that Congress, dealers, journalists, and of course, our customers, take a close look at the numbers. I’m convinced they add up to a true representation of why we had to make some decisions about our dealer network that were not only necessary and tough, but, ultimately, fair.
 
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