[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
SUBCOMMITTEE HEARING ON THE ROLE OF
AUTOMOBILE DEALERSHIPS IN RURAL ECONOMIES
=======================================================================
HEARING
before the
COMMITTEE ON SMALL BUSINESS
UNITED STATES
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
HEARING HELD
SEPTEMBER 16, 2009
__________
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Small Business Committee Document Number 111-045
Available via the GPO Website: http://www.access.gpo.gov/congress/house
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HOUSE COMMITTEE ON SMALL BUSINESS
NYDIA M. VELAZQUEZ, New York, Chairwoman
DENNIS MOORE, Kansas
HEATH SHULER, North Carolina
KATHY DAHLKEMPER, Pennsylvania
KURT SCHRADER, Oregon
ANN KIRKPATRICK, Arizona
GLENN NYE, Virginia
MICHAEL MICHAUD, Maine
MELISSA BEAN, Illinois
DAN LIPINSKI, Illinois
JASON ALTMIRE, Pennsylvania
YVETTE CLARKE, New York
BRAD ELLSWORTH, Indiana
JOE SESTAK, Pennsylvania
BOBBY BRIGHT, Alabama
PARKER GRIFFITH, Alabama
DEBORAH HALVORSON, Illinois
SAM GRAVES, Missouri, Ranking Member
ROSCOE G. BARTLETT, Maryland
W. TODD AKIN, Missouri
STEVE KING, Iowa
LYNN A. WESTMORELAND, Georgia
LOUIE GOHMERT, Texas
MARY FALLIN, Oklahoma
VERN BUCHANAN, Florida
BLAINE LUETKEMEYER, Missouri
AARON SCHOCK, Illinois
GLENN THOMPSON, Pennsylvania
MIKE COFFMAN, Colorado
Michael Day, Majority Staff Director
Adam Minehardt, Deputy Staff Director
Tim Slattery, Chief Counsel
Karen Haas, Minority Staff Director
.........................................................
(ii)
STANDING SUBCOMMITTEE
______
Subcommittee on Rural Development, Entrepreneurship and Trade
HEATH SHULER, North Carolina, Chairman
MICHAEL MICHAUD, Maine BLAINE LUETKEMEYER, Missouri,
BOBBY BRIGHT, Alabama Ranking
KATHY DAHLKEMPER, Pennsylvania STEVE KING, Iowa
ANN KIRKPATRICK, Arizona AARON SCHOCK, Illinois
YVETTE CLARKE, New York GLENN THOMPSON, Pennsylvania
(iii)
C O N T E N T S
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OPENING STATEMENTS
Page
Shuler, Hon. Heath............................................... 1
Luetkemeyer, Hon. Blaine......................................... 2
WITNESSES
Allison, Mr. Daniel, Allison's Chevrolet, Sylva, North Carolina.. 3
Thomas, Mr. Donald, Thomas Motors, Moberly, Missouri............. 5
Ernie Goss, Ph.D., McAllister Chair and Professor of Economics,
Creighton University, Omaha, Nebraska.......................... 8
APPENDIX
Prepared Statements:
Shuler, Hon. Heath............................................... 24
Allison, Mr. Daniel, Allison's Chevrolet, Sylva, North Carolina.. 26
Thomas, Mr. Donald, Thomas Motors, Moberly, Missouri............. 29
Ernie Goss, Ph.D., McAllister Chair and Professor of Economics,
Creighton University, Omaha, Nebraska.......................... 39
(v)
SUBCOMMITTEE ON RURAL DEVELOPMENT
ENTREPRENEUSHIP AND TRADE HEARING ON
THE ROLE OF AUTOMOBILE DEALERSHIPS
IN RURAL ECONOMIES
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Wednesday, September 16, 2009
U.S. House of Representatives,
Committee on Small Business,
Washington, DC
The Subcommittee met, pursuant to call, at 10:09 a.m., in
Room 2360, Rayburn House Office Building, Hon. Heath Shuler
[chairman of the Subcommittee] presiding.
Present: Representatives Shuler, Dahlkemper, Bright,
Luetkemeyer, Thompson.
Chairman Shuler. I will now call this hearing to order.
Earlier this year, the House Small Business Committee held
a hearing examining how small parts manufacturers are faring
during the reconstruction of the automotive industry.
During today's hearing, the subcommittee will look at
another vital link in the automotive supply chain, automotive
dealers. Traditionally, our domestic automotive makers will
rely on a network of 20,000 local dealers throughout the Nation
to sell vehicles to the American public. These entrepreneurs
are the nexus between manufacturers and car buyers, making them
a critical component in the overall automotive sector.
These small businesses are also an important source of
employment. Nationally, dealerships employ more than 1 million
workers and support a payroll of $54 billion. On average, each
new car dealership employs 54 people and supports a payroll of
$2.6 million. These employees, in turn, spend their wages
buying goods and services from local businesses.
In rural areas, like western North Carolina, the economic
role of auto dealers is magnified. Beyond providing a source of
livelihood for their workers, these dealers also offer rural
America an important service. Often, the closest dealership can
be as far as 50 miles away. This means that dealers that choose
to service rural areas are an important option for Americans
looking to purchase new vehicles.
These dealers also service vehicle warranties. In rural
America, public transportation is often not readily available.
In short, if you live in rural America, you are more likely to
drive to work, to bring your kids to school, or to pick up
groceries than if you live in a big city. And on average, the
distance you drive is likely to be greater than it is for
Americans who live in congested areas or urban areas.
Unfortunately, in recent years, automotive dealers have
encountered unprecedented economic pressures. Plunging sales
have hit all parts of the automotive industry hard. The number
of cars and light trucks sold in the U.S. declined by almost 3
million between 2007 and 2008.
In 2008, things went from bad to worse, as a combination of
rising gas prices, the credit crisis, and a recession put a
serious pinch in automotive sales. The U.S. auto sales fell to
a 26-year low that year, and the industry estimates sales could
drop by 3 million more this year.
Of course, automotive dealers are not alone in facing these
challenges. All of the American automotive industry is
undergoing significant reconstruction, and the entire sector is
responding to this climate. GM is eliminating several brands.
Both Chrysler and GM are closing plants and will employ fewer
workers. During the first six months of this year, at least 15
auto parts suppliers have sought Chapter 11 protection,
including the two largest suppliers.
As the committee heard earlier this year, an increased
number of small auto parts suppliers are going out of business.
These changes are causing hardships in communities across this
Nation.
It is my hope that today's discussion can highlight the
importance of auto dealers in rural communities. While they are
just one link in the chain of the automotive industry, the
small businesses play a critical role in small town America. I
think today's hearing is timely, and I want to thank our
witnesses for being here today. With that, I will defer to the
ranking member, Mr. Luetkemeyer, for his opening statement.
[The statement of Chairman Shuler is included in the
appendix.]
Mr. Luetkemeyer. Good morning.
And thank you, Mr. Chairman, for holding this hearing to
examine the impact of the auto dealer closings on rural
communities. I would like to extend a special thanks to each of
our witnesses who have taken the time to provide this committee
with their testimony. This is undoubtedly a difficult issue to
examine. The health of the American auto industry is directly
tied to the economic health of our nation.
On a smaller scale, but no less important, the financial
well-being of local auto dealerships, especially in rural
areas, is very closely tied to the economic health of our own
small towns and farm communities. Automobile manufacturers rely
on an extensive network of approximately 20,000 independently-
owned dealers for sales and service to their vehicles. Dealers
provide the local connection between manufacturers and car
buyers, and the dealership system is one of the several key
players in the complex web of relationships that make up the
U.S. automobile industry.
While there is a consensus about the overall role and value
of the dealer network, manufacturers and dealers have
demonstrated that there is a wide gulf between them on the
appropriate size of that network, the flexibility of the
dealerships in running their business, and the GM and Chrysler
visions of how the dealer network should perform going forward.
In June 2009, Chrysler eliminated 25 percent of its dealer
network to 789 dealers. GM has announced it will reduce its
dealer network from 6,000 to approximately 3,600 in October
2010 when its contracts with dealers from around the country
are up for renewal.
According to the National Automobile Dealers Association,
the GM and Chrysler dealerships slated for elimination have
more than 100,000 employees. This is a very important issue,
especially for members who represent rural areas where there
may have been only one or two GM and/or Chrysler dealerships to
serve one or more counties. This could lead to drive times or
tow times of well over an hour to get some service done.
Additionally, given the abysmal employment statistics we
have been seeing for well over 1 year now, this restructuring,
while hopefully benefiting the nation as a whole in the long-
term, will undoubtedly increase the numbers of unemployed
workers. Clearly, closing dealerships will translate into job
loss, an economic hit to many regions, particularly rural ones.
The broader impact on the communities they serve must also
be taken into consideration. For example, car dealerships are
local businesses and pay billions annually in State and local
taxes. They provide significant employment opportunities to the
communities in which they operate.
In addition, on average, each dealership makes $25,600 in
charitable contributions to its community according to the
NADA. From monetary donations to local charities to sponsoring
the local Little League team, these activities, while harder to
quantify, make dealers an integral part of their communities.
I am looking forward to today's testimony. And again, I
would like to thank Chairman Shuler for holding this hearing
and everyone for being here. I yield back.
Chairman Shuler. Thank you, sir.
Does any other member wish to be recognized for opening
statements?
We will now move to our panel. We will now move to
testimony from our witnesses. Witnesses will have 5 minutes to
deliver their prepared statements. The timer begins when the
green light illuminates. When there is 1 minute remaining, the
yellow light will come on. And when time is up, the red light
comes on, but obviously, we have got a rather small hearing
today, so we will be a little bit lenient on that. So hopefully
you can fully explain your testimonies.
Chairman Shuler. I would now like to introduce our first
witness, Mr. Daniel Allison.
He is the owner of Allison Chevrolet in Sylva, North
Carolina. It was founded by Dan Allison, Senior, in 1935. From
that time, three generations of Allison families have been
involved in running the company.
Mr. Allison, you will have 5 minutes to deliver your
testimony.
STATEMENT OF DANIEL ALLISON
Mr. Allison. Thank you.
Chairman Shuler, Ranking Member Luetkemeyer and committee
members, thank you for your willingness to address these
economic impacts of the closings of automobile dealerships in
rural communities.
Thank you also for allowing me to present my views and to
tell my story. My name is Daniel Allison, and I am the
president of Allison's Incorporated, a family-owned Chevrolet
dealership located in Sylva, North Carolina, in the
southwestern mountains of North Carolina.
Our relationship with General Motors began in 1935, when my
grandfather established Allison's as an Oldsmobile dealership.
From that time until recently, three generations of the Allison
family have proudly and loyally partnered with General Motors.
This partnership has been profitable for both GM and Allison's.
Small rural dealerships like mine offer automakers like
General Motors an important competitive advantage. They are
usually located in areas where there are very few, if any, new
car dealerships, and most often no import car dealerships.
Since 1935, Allison's has supported the local economy by
providing stable employment in one of the more economically
depressed regions of North Carolina. Even today, when the
unemployment rates in our market area range from 8.3 percent in
Jackson County, and 9.7 percent in Swain County, to a high of
14 percent in Graham County, 16 people and their families
depend on us to provide them with a good living wage and with
much needed benefits, such as a health care plan and a simple
IRA retirement plan.
Our business generates significant Federal, State, and
local tax revenues. In 2008, our annual payroll was over
$670,000, and we paid over $233,000 in payroll taxes. We sold
150 new Chevrolets and 163 used vehicles. These sales generated
over $147,000 in North Carolina highway use tax. Our service
and parts sales generated over $25,000 in sales tax, and the
property taxes we made were over $9,000. A good portion of all
these taxes, of course, returned to our community through the
services provided by the Federal, State, and local governments
through their services.
Allison's, Incorporated, like all small rural dealerships,
is of great economic importance to its local community. We do
regular business with several local, regional, and national
banks, with at least four local and State credit unions, with
10 or more local insurance agencies, three area radio stations,
three community newspapers, three local auto parts stores. And
in addition to this, our business and its employees spend money
with our local grocery stores, building supply stores,
restaurants, and other local retailers.
Small rural dealerships and their employees provide
critical support to the communities they serve by volunteering
their time and contributing their money. As a part of the
fabric of our community, Allison's, Incorporated, and its
employees have for 74 years supported our area schools,
churches, hospitals, community assistance organizations, youth
and high school athletic and music programs, as well as victims
of disaster, disease, and economic loss.
We are also regular supporters of Southwestern Community
College and Western Carolina University. I was raised to
believe that being a good neighbor and serving your community
is the right thing to do. Doing so also makes good business
sense, and it creates tremendous goodwill for General Motors in
our local communities.
The relationship between automakers and their rural
dealerships is mutually beneficial. Therefore, I hope that my
dealership and the thousands of successful rural dealerships
across America can continue helping their communities grow and
prosper. On behalf of our dealership, its employees and
customers, and of all small rural dealerships, I sincerely
appreciate your time, interest, and concern. Thank you.
[The statement of Mr. Allison is included in the appendix.]
Chairman Shuler. Thank you, Mr. Allison.
At this time, I will recognize the ranking member for the
purpose of introducing his witness.
Mr. Luetkemeyer. Thank you, Chairman Shuler.
Next up we have Mr. Don Thomas. He is the owner and
president of Thomas Motors, Incorporated, in Moberly, Missouri.
He has spent his entire life and raised his family in rural
Missouri, has been a General Motors dealer for over 34 years,
selling Chevrolets, Buicks, Pontiacs, Cadillacs, and GMC cars
and trucks.
Thomas Motors is a family-owned-and-operated business that
recently renovated its entire operation, from the exterior of
the building to the service department and the showroom.
Welcome, Mr. Thomas. I look forward to your testimony.
STATEMENT OF DONALD THOMAS
Mr. Thomas. Chairman Shuler, Ranking Member Luetkemeyer,
and members of the subcommittee, thanks for having me.
My name is Don Thomas. I am owner of Thomas Motors in
Moberly, Missouri. I have spent my entire life in rural
Missouri, 15 miles from my dealership. I have been a GM
dealership since 2005. We represent Chevrolet, Buick, Pontiac,
Cadillac, and GMC. We have no non-GM brands.
We are a family-operated business. We treat our customers
and our employees fairly. I think that is reflected in our
customer satisfaction scores of the dealership and the tenure
of our employees.
We comply with all the GM operational policies and
procedures, and we compete fairly with GM and non-GM dealers.
Sales have fallen since 1975 due to the overall decline in the
domestic auto sales. But even in a down economy, our unit sales
and profits are good. This year, to date we have sold 117 new
vehicles, including our GM program cars in addition to our used
cars.
We have a modern, updated facility. Our location is
excellent. We are on a new divided highway just a mile from the
shopping center, just a mile south of the junction. We have got
a new modern facility, updated facilities, 21,000 square foot.
We have 12 service bays. Our showroom will accommodate five
vehicles. We have 4 acres of paved parking.
In 2000, GM came out with a project they called Image 2000
Upgrade, Project 2000. We have complied with that. We spent a
little over $300,000 on our facility. In 2004, we finished the
renovations; spent another a little over 200,000. We paid for
that all out of the dealership profits. Our dealership is debt-
free.
Thomas Motors is the only dealership in a seven-county
area. Those seven counties consist of approximately 200,000
people. The local fire departments, schools, farmers, everybody
around, they depend on us for service. Since July of this year,
January to July, we have completed 2,600 repair orders for GM
vehicles. Now I have calculated the distance if we weren't here
that those customers would have had to have driven to get the
their respective car worked on, make and model, and they would
have had to have driven in excess of 55 miles one way. I have
talked to many of my loyal customers from Moberly and
surrounding areas, and they said they simply would not drive,
could not drive the 45 or 50 miles one way at minimum to get
their car worked on.
Randolph County is a population of 30,000 people. The
income is approximately $40,000. It is a rural area, but it is
a thriving area. Just across the street from us they just
opened up a new Lowe's home store, brought 120-some new jobs.
They just opened up a new biodiesel plant in our town, the
first one in our State, brought over a hundred-plus jobs. The
hospital, which is right next door to us, just completed a big
renovation. The airport, they added on; now it is a regional
airport. Moberly has got a Ford Lincoln Mercury dealership. It
has a Chrysler Dodge and Jeep dealership. The courthouse is
here. It has two colleges, training center; prison is here. It
has got eight major banks. It has got three radio stations. You
know, it has got Norfolk & Southern has got a terminal here.
There are seven or eight factories. There are approximately
7,000 people working in Moberly. The elimination of Thomas
Motors I think would have a very negative impact on the entire
area. We have 25 employees. We hire some school help when
school is out just to give them a job. Our payroll is in excess
of a million dollars a year.
In June of this year, I received a letter from GM saying
that our franchise was going to be wound down by 2010. We can
stay in business until then selling the cars we have. We can
buy or dealer trade for 2010 units, but we can't order from the
factory.
The thing that really concerns me when I get this letter,
there is no objective criteria whatsoever how they made that
decision. When GM filed bankruptcy, they filed in the U.S.
Bankruptcy Court in New York. They told the Court they were
going to use a dealership evaluation process. They would
objectively consider the dealership sales, the customer
satisfaction, the capitalization, the profitability, the dealer
return on investment, the customer convenience, the drive-time
metrics, shifting market demographics. If you look at that,
look at those facts, we excel on every one of them but one. If
we had known we had a deficiency in vehicle registrations, we
could have corrected that.
If they had only used the objective criteria that they said
they were going to use, if they would look at us and use those
criteria, there would be no question we would be there. Our
profit the last 10 years has been in excess of $275,000 a year
when you add back our LIFO deduction and the excess allowable
IRS deductions. Our capitalization is in excess of $1.5
million. That is a million dollars more than GM guidelines.
Year-to-date this year, even in a down economy, our profit is
in excess of $190,000.
We live in a rural community. I don't know how many ball
teams, school uniforms, scholarships, all the things we
contribute to. There is no telling how many dollars. You know,
the school I graduated from needed a van just here a while
back. They didn't have any money, so I just gave them one. I am
sorry. We donate to everything. If we weren't there, I don't
know what the Moberly community would really do.
Those people can't drive 50 or 75 miles to get their car
worked on. You know, we provide the city with lost of their
vehicles. Just the other day, they came out and asked me to bid
four vehicles for the city. I couldn't do it. I couldn't bid
them because we can't get them. They said they don't know what
they are going to do. If we are gone, they won't have
competitive bidding. They have expressed great concern what
they are going to do. They will just have to buy them because
they can't buy what they can't get serviced, and the Ford
dealer will get them all.
You know, GM just came up with a deal here just the other
day. I can't understand it; they had a deal they are going to
pay the General Motors dealers, that is the going-forward
dealers, to upgrade their facility. They are going to work with
GMAC to get them more floor planning.
I have been running the business for 35 years. My place is
paid for. I have done all the upgrades. I don't need GM to help
me with my floor planning. I got it. I mean, I don't need their
help.
You know, I have done everything that GM has asked me to
do. Our CSI score and our SSI score is above the zone; it is
above the region. That is a questionnaire or survey that GM
sends out to all the GM customers and gets feedback. We are
ahead of them always.
GMAC tiers their customers; that is the wholesale group
that does floor planning for dealers. They have three tiers. We
have got the highest rating GM offers. Since January of this
year, General Motors has lost six dealerships within a 100-mile
radius of me. And I can tell you, some of them have cost GMAC a
lot of money. But still they want to pour more money into some
of these dealers that can't make it. I just don't understand.
I have tried to figure the reasoning, what GM could be
possibly thinking about to get rid of a dealers that are making
money, that are doing what they are supposed to do. I just
dealer traded just in the last 3 or 4 weeks with some so-called
going-forward dealers. Got a letter they are going to stay.
They are going to stay in business. One of them, GMAC was
holding their MSOs. I don't know how in the world they are
going to stay. Another one, GMAC had them cut off; they
couldn't take any cars back. Another one, GMAC, they were full.
I could get their car, but they couldn't take something back
either.
Now how in the world is General Motors going to take our
tax money and put it in those dealers and help prop them up
when they got dealers like me and I don't need any of their
help? I have done everything they have asked me to do. And I am
selling their cars and making money. I got over a million
dollars a year payroll. I just had a conversation just a few
days ago with a branch manager of GMAC. He told me he had 200
dealers that he had sent demand letters to. He said a lot of
those, some of those he said were going-forward dealers. He
said they had to pay off within 30 to 60 to 90 days. He said
they can't stay; they are going out of business, but part of
them got going-forward letters. He said I have got 200 more on
a watch list that are going to be cut off after that. I just
don't understand it.
If I am gone, if I am out of Moberly, there will never be
another GM dealer there. You know, it cost $2 million to build
a dealership like mine. And where are they going to get the
money? If they had the money, they wouldn't put it in there,
seeing what GM has already done to them. They are losing money.
And if they had to go borrow the money, they wouldn't do it.
And GMAC--GM is working a deal with GMAC. Now they are going to
help those dealers get more money. It is just going to take
more tax money and throw good money after bad.
If the dealers can't make money, if they can't stay, they
can't stay. You can't keep propping them up. But if a dealer
that is making money and doing business, why do they want to
kick him out for? You know, we have got people that--I just did
a deal just Thursday, I knew I was coming down here, to see how
long it would take for a customer to go for his service. I had
him start at the Post Office in Moberly and drive to Columbia.
He left at 7:30. I told him drive down and turn around and
drive back. See how long it took. It took him 2 hours and 10
minutes. If you ever went to Columbia, where there are 200,000-
plus students, and tried to get there at work time and see how
much traffic you got and how long it takes, how is a farmer
going to go and do that?
I mean, this is not just getting rid of me or Thomas
Motors, it is the whole community. You know, I have got 25
people, that my payroll is over a million dollars a year. I
don't understand it. We have got a good business. I have
excelled in everything GM has ever asked me to do. I need no
help from them financially. My business needs no help
financially. I got a new, modern place. Moberly is growing.
They have got so much to offer. But still they want to get rid
of us. And there will never be another GM dealer in Moberly if
I am gone. Where are those people going? Ford is going to get
them all.
[The statement of Mr. Thomas is included in the appendix.]
Chairman Shuler. Thank you, sir, for your testimony.
Mr. Thomas. Thank you for allowing me to speak.
Chairman Shuler. Yes, sir.
Our next witness is Ernie Goss. He is the MacAllister Chair
and professor of economics at Creighton University in Omaha,
Nebraska. Dr. Goss has published over 80 research studies
focusing primarily on economic forecasting. Dr. Goss's research
spans local, regional, and national perspectives. He has done
an extensive review of the American automotive industry.
Dr. Goss, thank you for being here today, and I look
forward to hearing your testimony.
STATEMENT OF ERNIE GOSS, PH.D.
Mr. Goss. Thank you, Chairman Shuler, and distinguished
members of the subcommittee. I want to thank you for inviting
me to appear before you today to discuss the economic issues
related to the closure of GM and Chrysler dealerships across
the Nation. My testimony will identify some of the community
benefits and costs associated with the closures.
Up to this time, the media has focused on the private cost
and private benefits related to shuttering more than 1,900
dealerships across the U.S. For example, GM's CEO Fritz
Henderson recently claimed a savings of $928,000 per closed
dealership. There was no mention of the cost or benefits to the
public.
To date, taxpayers have invested more than $64 billion in
Chrysler and GM. And that doesn't include GMAC and the
suppliers as well. Currently, less than 1 percent of GM and
Chrysler stock shares are held by investors other than the U.S.
Federal Government. Thus both GM and Chrysler are essentially
100 percent, plus or minus 1 or 2 percent, taxpayer-owned.
As public corporations, public costs and public benefits of
corporate decisions must be an input into the decision-making,
including the decision to shutter dealerships. These closures
will result in a loss of thousands of jobs, both direct and
indirect, and produce severe economic hardships in many
communities across the country in the form of plummeting tax
collections, tumbling charitable contributions, and sinking
local real estate values.
Losses will be particularly acute and difficult for small
towns and rural communities of the Nation, where automobile
dealerships are an integral part of the area economy. At this
time, neither GM nor Chrysler is offering assistance to the
affected communities or to closed dealerships, at least to my
knowledge. This departs from GM's 2004 dispensation of
Oldsmobile, costing GM approximately $1 billion, with a
significant portion of that $1 billion going back in the form
of vehicle repurchases.
With public ownership comes public responsibility. As such,
the analysis of the closures must include the public costs and
benefits of the dealership termination. Across the country,
these dealerships employ hundreds of people in good-paying
jobs. They support the infrastructure of many communities by
sponsoring sports teams, raising funds for needy projects, and
contributing to local charities.
In many cases, the targeted dealerships have been a huge
part of the community for generations. What I am contending is
that both private and public costs be part of the decision-
making process. Thus far, to my knowledge, there has been no
cost-benefit analysis conducted as part of the dealer
termination process. That is, while the private benefits may or
may not exceed the private costs, there has been no explicit
examination of the public costs, especially for rural
communities where these dealerships are very important.
I will provide a brief examination of one announced
closure, one termination of Meyer-Earp Auto in Auburn,
Nebraska, a community of 3,400 residents in southeast Nebraska.
Each month since 2005 I have conducted a survey of bank CEOs in
rural parts of 10 States with an average community size of
1,300. States included are Colorado, Iowa, Kansas, Illinois,
Minnesota, Missouri, Nebraska, North Dakota, South Dakota, and
Wyoming.
In May of 2009, I asked the bank CEOs whether dealership
closures would have a significant impact on their area
communities. In those communities slated for dealership
closure, the impacts were judged as negative and very
significant. In total, and this is total, one-third of the bank
CEOs expect the closures to have a negative impact on their
local communities.
In an effort to gauge the impact of just this one closure,
I simulated the closure of Meyer-Earp using input-output
analysis. According to my estimates, Auburn will lose, now this
is a very small community, $680,000 per year in yearly sales,
more than $260,000 in wages and salaries, and in excess of
$54,000 each year for self-employment income. Additionally, the
area will lose 6.8 jobs and tax collections of $77,000. And I
am just including only new car operations there.
In summary, the lack of analysis and transparency, the lack
of analysis and transparency in the decision-making process is
troubling and could produce costs to the public greatly
exceeding the benefits. As stated by one Nebraska bank CEO in
our May 2009 Rural Mainstreet survey, this is his quote, "I
have yet to see the real cost to Chrysler and GM in keeping
rural dealerships open."
Mr. Chairman and members of the committee, thank you for
having me here today, and I look forward to any questions that
you may have. Thank you.
[The statement of Mr. Goss is included in the appendix.]
Chairman Shuler. Mr. Goss, thank you so much for your
testimony.
Really good testimony by a great panel here.
And Mr. Thomas, our heart goes out for you. I know how much
you have done for your community, and I can relate to growing
up in a small town like that, as Mr. Allison has always
performed just incredibly well when it comes to the youth
programs and the arts and sciences and the athletics of our
communities. When people need help, it is supplying those vans
and sometimes just, you know, letting them use it for a day or
so. I know how sometimes getting people to where they need to
go means a tremendous amount. And when you have that type of
payroll and you have that type of impact to a community,
especially a growing community, wow.
We actually had a Lowe's going to go up in my hometown
where I live now, but they said, no, it is just not going to--
and we feel like we are a growing community. They said, well,
just not now, so even though the property was already graded
and ready to go. So that just goes to show to me that you are
in a growing community.
I guess, Dr. Goss, one of the first questions I have is,
when you look at the overall impact in the communities,
especially the rural areas, what is the impact to these
communities when one dealership goes? And then to the people? I
mean the things that we don't hear about. You know, it is the
buying the goods and services. What overall impact? How big a
shadow does it cast when you lose a company such as this?
Mr. Goss. Well, Chairman Shuler, obviously, as Mr. Allison
and Mr. Thomas have testified to, very significant. So the
decisions of travel time, for example, that is not in the
matrix of decision-making. And I think the biggest problem, one
of the largest problems from my standpoint is lack of
transparency. The banks that we survey are complaining loudly
about, where is the analysis? Where did GM--it seemed to be
arbitrary and capricious. But to your question, you have got
retail sales, and the retail sales spills over into
wholesalers, which spills over into restaurants, and so on and
so forth. You have got very significant impacts.
And again, it is particularly large relative to the economy
in these small communities where there may be no other
dealership. In, for example, Auburn, Nebraska, there is no
other dealership there. This is their dealership. And by losing
their license, by losing the dealership franchise, it is going
to be quite significant, and it will ripple across the
community.
But also you have got in this part--that part of the
country, I should say, the part I live in, you have got farmers
who use the dealerships as well for buying parts for repairs
that doesn't really show up, in my analysis, and I would argue
doesn't show up in GM or Chrysler's analysis. But I have to
say, I have yet to see Chrysler and GM's analysis. This, again,
we have gone from--we went from $11 a barrel oil in 1998 to
$147 a barrel last year. In other words, we have got this very
large volatility in lots of factors, yet we are making
decisions, or GM and Chrysler is making decisions that will
last forever for these communities.
These are communities in the middle section of the country,
perhaps not on the East Coast and North Carolina, but in
Missouri and Nebraska, where population losses are quite
significant and something we need to pay attention to, and
depopulation. So this is another nail in the coffin, in some
cases, for some of these communities. And again, without
transparency, without analysis, we are talking about two
corporations that got $64 billion, yet we, at least I haven't
and the bank CEOs that I survey have not seen, what is the
analysis? Where is the cost? You are taking taxpayer money, yet
you have yet to show to the public where you are giving back.
In other words, this looks like a taking.
Now I am talking about the bank CEOs that I survey. I am
coming at it as an economist, pretty sterile, as you can
probably imagine but nonetheless trying to get at it. And even
I have yet to see the analysis. I mean, maybe GM and Chrysler
can show that, but it is yet to be--those out there, those of
us in the hinterland have yet to see it.
Chairman Shuler. Well, and unfortunately, in small
communities I think these two gentlemen have stated obviously
their financial strength and not having debt. But if there are
some of these communities, I guess the TARP funding is there
for some of the people from the banks that are going to be
having to lose obviously the revenue and when they are not
having the businesses, not having--no one--the dealerships not
able to pay the loan back. So, obviously, we have certainly
created a mess, no doubt about it.
Mr. Goss. And speaking of the TARP revenues, sorry for
interrupting there--
Chairman Shuler. That is all right.
Mr. Goss. --but a lot of the feeling out there, at least I
do three surveys of purchasing managers and bank CEOs, a lot of
the feeling is that we have done business, yet we have gotten
no TARP funds, and now we are being, in the case of auto
dealerships, being punished even though we are a viable, going
concern. Show us, where is the analysis? Show us why this is
happening, because again, as Mr. Allison and Mr. Thomas have
demonstrated, or at least discussed, playing by the rules, not
getting TARP funds, yet being shuttered anyway. That message is
getting--is loud and clear in our surveys each month. So I am
very concerned about, without transparency, without any
analysis, at least from what I have seen.
Chairman Shuler. Mr. Allison, can you talk briefly about
the process that you are having to go through now and some of
the obstacles with your employees and the benefits that they
have and health insurance? And can you just briefly touch on
that? I know you told me the story about how you kind of read
the FedEx with your employees and kind of the openness that you
had with all your folks.
Mr. Allison. Yes, sir.
Thank you for the question. The first thing is I guess we
pride ourselves on offering not just a good wage but a
complete, or as complete as possible, benefit package. We try
to stay at least with the competition both in the industry and,
you know, the other similar industries in our community and
most of the time try to have a better package so that we can
attract the best people.
With that being said, Mr. Thomas's experience I am sure has
been multiplied, you know, countless times with a lot of us
dealers. And we are no exception. The way that we were notified
that we wouldn't go forward with GM like the other dealerships
is that they literally delivered the letter via FedEx. And in
Sylva, North Carolina, that FedEx comes right to the door of
Allison Chevrolet, and right up to the cashier's window. So
everyone that is in the dealership, employees and customers,
immediately knew about it. When it came in, I was actually with
my son at the doctor's office in Asheville, which is about 50
miles away. And the office manager called me and said, we got a
letter, got a FedEx. And I said, well, I am just about
finished. If you would have people just patiently wait, and I
will be there in about an hour.
So when I got there, I said, give me just a few minutes and
let me read through this letter, and then we will talk about
it. So we kind of chose to do something differently than maybe
GM had suggested, which was to hold that information kind of
close to your chest. I felt like the most honest and fair thing
I could do with the employees and the community was just tell
the truth. And so, with that, we have kind of embarked on the
process, which has been somewhat lengthy and definitely
harrowing, of trying to appeal. And these appeals are made
really just through e-mail and to we don't know who.
Chairman Shuler. What is the actual cost? I mean, how much
do you give back to the auto manufacturer, the automaker versus
how much you actually cost them? I am only assuming there has
to be some costs relative to what every dealership actually
costs the maker, automaker.
Mr. Allison. That is the thing that I fail to see. On a
monthly basis, we pay for all kinds of things that relate us to
GM. We actually pay for delivery of our parts to repair cars
from General Motors. We pay for our service training, for our
sales training. We even pay to go to a dealer meeting. If we
don't send someone that we have signed up for service training,
then we are charged a fee, a no-show fee. We pay for every
poster, every piece of literature, sales literature. We pay for
the books that we train ourselves out of and use as a
comparative analysis for, you know, to talk to the customers
with. We pay for using the ability to communicate via the
computer with General Motors, to record our sales and to order
our parts and that kind of thing. So I don't know, it probably
runs on an average month a little over $3,000.
Chairman Shuler. That you pay them?
Mr. Allison. Yes, sir.
Chairman Shuler. And how much do you think you are costing
them a month?
Mr. Allison. I fail to see that I am really costing them
anything. Our relationship, as far as their calling on us, is
through the telephone.
Chairman Shuler. So when they deliver a vehicle, you have
basically paid for it then?
Mr. Allison. Yes, sir.
Chairman Shuler. So whether you sell it or it sits on the
lot for 10 years, it really is no impact to them.
Mr. Allison. That is exactly right, other than the fact
that, to be fair, that if we didn't sell it and had an
accumulation of those vehicles, ultimately we wouldn't order
any more.
Chairman Shuler. Right. Got it. Have you ever failed to
have someone--vehicles on your lot for an extended time far
exceeding what you expected to order? I mean, obviously during
this last couple years, it has been very difficult.
Mr. Allison. Yes, sir. And occasionally you will get a
vehicle for whatever reason that just seems to stay. But for
the most part, they move rather quickly.
Chairman Shuler. At this time, I will yield to the ranking
member, Mr. Luetkemeyer, for his questions.
Mr. Luetkemeyer. Thank you, Mr. Chairman.
Follow-up with Mr. Allison. Do you sell any other brands of
vehicles?
Mr. Allison. No, sir. Just GM presently.
Mr. Luetkemeyer. Just GM products. What is the size of your
market area that you have? You said six counties, I think you
said? Is that right?
Mr. Allison. It is actually three counties. It is the
majority of Jackson County, all of Swain County, and the
greater portion of Graham County.
Mr. Luetkemeyer. Do you have a population figure on what
all--how much--how many people it would be?
Mr. Allison. Jackson County is about 39,000 people. About
60,000 or 64,000.
Mr. Luetkemeyer. What is the average length of employment
for someone who has been with you?
Mr. Allison. I have employees that have been well over 20
years. I think the youngest as far as service is probably 2
years, year-and-a-half.
Mr. Luetkemeyer. Okay. So, in other words, you have been
there a long time?
Mr. Allison. Yes, sir.
Mr. Luetkemeyer. People who work with you have been there a
long time.
Mr. Allison. Yes, sir.
Mr. Luetkemeyer. They are well trained. You pay for the
training.
Mr. Allison. Yes, sir.
Mr. Luetkemeyer. At this point, you don't really cost the
company any money per se.
Mr. Allison. No, sir.
Mr. Luetkemeyer. Let me follow up with a question, Mr.
Chairman, here. At what point do you actually purchase the
vehicle? When it comes off--if you have ordered one, at the
point that it comes off the assembly line, do you own it or
when it comes on your lot?
Mr. Allison. It is actually shortly thereafter being
assembled. So shortly after it has come off the assembly line,
then we have purchased the vehicle.
Mr. Luetkemeyer. Okay. So the company charges your account,
I assume?
Mr. Allison. Well, generally if you pay for it in cash,
they charge your account. If you are paying for it, like I do,
through General Motors Acceptance Corporation, or GMAC's floor
plan, then they charge your floor plan.
Mr. Luetkemeyer. Okay. Okay. Very good.
Mr. Allison. Yes, sir.
Mr. Luetkemeyer. Mr. Thomas, I know that you have been also
been profitable. What is the average length of your employee
employment?
Mr. Thomas. I have three people that have over 30 years. I
have seven people that have got over 13 years. I got three with
over 10.
Mr. Luetkemeyer. What do you think the average wage is of
your employee? You said you had a million dollar payroll?
Mr. Thomas. Oh, $40,000, they will average $40,000. My
salesmen in the high 50s. My service manager and parts manager
in the high 40s. Our techs all in the 40s. Our lowest paid
would be naturally the boys in the cleanup department, and they
will make in the 20s.
Mr. Luetkemeyer. So I think you said a while ago the
average citizen's income in your area was $40,000?
Mr. Thomas. $40,000.
Mr. Luetkemeyer. So most of your employees are average to
above average?
Mr. Thomas. All of ours with the exception of the three
folks in our used car cleanup department. But all of our people
will--yeah, I have got, oh, five or six that make well over 50.
Mr. Luetkemeyer. Okay. What kind of impact is there going
to be on those lives?
Mr. Thomas. I don't know. They don't have a place to go.
They won't have a place to go. They will have to go to--I don't
know where they would go. They would have to go to Columbia
would be what I would assume would be the closest place, and
that is, you know, an hour and something. I don't know where
they would go.
Mr. Luetkemeyer. You also don't sell any other brands, is
that right?
Mr. Thomas. GM is all I have.
Mr. Luetkemeyer. Okay. Very good.
Dr. Goss, where do you think this needs to go? I mean, you
have studied this. You have seen that basically there is no
cost to the car companies for the dealerships, yet they are
canceling dealerships.
You know, I have got a little bit of a financial
background. And to me, when you have a manufacturer, you need
to have a distribution system. I mean, it is a pretty important
part of being able to sell your product to have a distribution
system.
You know, we were talking to Mr. Thomas this morning before
the hearing, and he was telling us, you know, and in his
testimony as well, how difficult it is going to be for people
to buy his particular brand. There is going to be a void there.
Other dealers may come in, but there is some, you know, brand
loyalty there. Where do you see this going as far as, are these
companies just going to fall back and retrench, or are they
making some really bad business judgments here by cutting their
distribution system off? What do you think?
Mr. Goss. Yes, sir, I don't think it be would the first
time GM and Chrysler have made some bad decisions, if I may say
that. And of course, I believe at least--now, again, the
problem I have, and I think most economists and most
representatives have, is, where is the analysis? Where is the
transparency? And the motivation, at least looking at it from
GM's standpoint and Chrysler's standpoint, is economies of
scale and the ability to reduce competition between dealers,
and thus what we call in economics get the consumer surplus. In
other words, the consumer surplus that goes now to the consumer
would now go to GM and Chrysler, which of course we in
economics don't think highly of that. We like competitive
markets. So my concern is that this reduces competition. And
certainly I think that is the intent, one of the goals is to
reduce competition, what they see as economies of scale.
I don't know if there is economies of scale in terms of
dealerships. They have yet to show the analysis, the
transparency. And from the non-economist, even for the
economists and the dealers out there that are being closed, but
especially the individual has yet to see, well, why? What is
driving this? Where is the transparency? Why is my dealership
going and another is staying?
The travel times, as Mr. Thomas has indicated, are quite
significant. The impact that is not even a part of it is the
farmers who in fact do get repairs at many of these
dealerships, at least in the mid-section of the country. So I
think, again, that that is the motivation. And the impact,
unfortunately, for the consumer is going to be certainly
negative. There is no way you can reduce the number of
dealerships and have the consumer better off.
Mr. Luetkemeyer. One other follow-up question before I
finish up here. You talked about the lack of competition. I
realize there are other automobile options out there. However,
in a lot of rural areas, they are limited. So therefore, does
this, because of the lack of competition, do you see the
opportunity for increased prices on other makes and models than
in a certain area? Is that a possibility, or is that--because
of the other competition that is available that would not
occur?
Mr. Goss. Yes, sir, not just a possibility; it is going to
happen. That, again, I think is a lot of the motivation for
what is going on here. And that is certainly a concern as an
economist. And back to my point about the volatility that we
have seen, and we are making decisions for generations. In
other words, these dealerships have been in business for
generations, yet GM and Chrysler are making decisions that will
be with these communities forever. And the idea that somehow
another dealer will come in, many of these communities will not
see that. For example, in Auburn, Nebraska, the community I
discussed, it is very unlikely, or I would say somewhere
between a zero and 10 percent likelihood that there will be
another dealership that will replace the one that is closed.
Mr. Luetkemeyer. If Mr. Chairman would indulge me one more
minute, just one follow-up question with regards to the appeals
process that you gentlemen have to go through or are trying to
attempt to work your way through, is there a process set up
that you can present your case? Is there a board of review? Is
there a group of people that you can talk to? Is there an
individual that will make it? Or is it just a fiat from above
that has been dictated to you and this is what it is going to
be?
Mr. Thomas. That is it.
Mr. Luetkemeyer. That is it.
Mr. Allison. Yes, sir, thus far, that has been the outcome.
Mr. Luetkemeyer. So regardless that you are profitable,
made sales quotas, all the other criteria that they look at and
judge the quality and capability of your agency to survive and
deliver quality service, those things are not able to be
discussed with anybody at a higher level and appeal their
decision?
Mr. Thomas. No.
Mr. Allison. In one of my e-mail communications that I sent
to General Motors, I literally asked them, is there someone I
can speak to, a person? And would you be willing to come down
and talk to me? And really those questions weren't answered
directly.
Mr. Luetkemeyer. Well, Mr. Chairman, from the standpoint
that we are looking at the impact on rural areas, and these
gentlemen have got good numbers from the standpoint of customer
service, it looks like we have certainly got some work to do.
Thank you, gentlemen, for your testimony.
Thank you, Mr. Chairman.
Chairman Shuler. Thank you, sir.
At this time, I would like to recognize Mr. Bright from the
great State of Alabama.
Mr. Bright. Thank you, Mr. Chairman, for this opportunity.
Thanks for this hearing today and the testimony.
Guys, thank you all greatly for the testimony that you have
given us today. It is kind of awakening to hear your testimony.
And I don't think there is a person in this room today that can
testify or even say that it is a mystery to us as to why
Chrysler and GM is in the shape today that they are in. Making
decisions like they have made as it relates to each one of your
dealerships is unconscionable.
And Dr. Goss, thank you for your testimony, too. And I
would like for you, if you would, to tell me if in the
communities that you have seen and investigated out there you
have seen any Federal stimulus moneys or anything invested by
GM or Chrysler in these communities to offset the value and the
benefits and the assets that these two dealerships will take
with them when they quit selling the GM product out there or
the Chrysler product out there? Is there anything that you have
seen during your investigation to substitute for those
benefits?
Mr. Goss. Each month we do a survey of three--we do three
different monthly surveys of about probably 15 States, and we
ask that very question. And the answer is about 10 to 15
percent respond yes, so that is meaning 85 percent say no. So
that is one of the real issues that they see, the bank CEOs,
purchasing managers. And these are all businesses that we are
surveying, not consumers.
Mr. Bright. Dr. Goss, thank you very much.
Mr. Thomas, Mr. Allison, thank you for your time today.
Thank you for your very valuable testimony. It is awakening.
And people need to pay closer attention to what you have had to
say here today.
And I really tend to look closely at what, and Mr.
Chairman, what we need to do is investigate closely the
analysis used by GM and Chrysler in making these decisions. And
if it is determined that they are creating areas of competition
out there, or eliminating and shaping competitive districts out
there by way of taking away the livelihood of dealerships like
Mr. Thomas and Mr. Allison, I think that breaches on criminal
activity as far as I am concerned. And that is all I have to
say.
And Mr. Chairman, thank you very much again for this
hearing. And I will yield back the remainder of my time.
Chairman Shuler. Thank you, sir.
At this time, I would like to recognize Mr. Thompson from
Pennsylvania.
Mr. Thompson. Thank you, Chairman, and thank you ranking
member, for putting this hearing of this subcommittee together.
And you know, Mr. Thomas, Mr. Allison, having grown up in a
small family-owned business, it wasn't a car dealership, but
knowing what a central role I am sure you have in your
communities, my heart goes out to you with this being imposed
upon you pretty arbitrarily by the looks of things.
You know, I scratch my head, and I wonder about an economic
model that abandons successful, proven businesses with a track
record. I just don't understand. And we have had this impact in
the Fifth District of Pennsylvania as well, so I appreciate the
opportunity to begin to try to understand.
I will start with Dr. Goss. Is there any transparency at
all of what criterion has been used? And you know, given the
fact in your statement we are--you know, GM and Chrysler are
100 percent, plus or minus a couple percentage points,
government-owned, is there any transparency in terms of what
criterion was used, and who is making these decisions?
Mr. Goss. I have yet to see it. Now, that doesn't mean it
doesn't exist. But I have yet to see that analysis. And the
problem, as I see it, is the reduction in competition that is
going to result, that will result in higher prices to the
consumer, and the idea that there are economies of scale. But
with the speed that this came down, I am really concerned that
there was not any analysis, that it was done by some sort of
math. I have no idea if that is what it was. And saying there
is no--let's eliminate this dealership, that will provide more
business for this dealership that is 35 miles over, and that is
probably the way it was done without any serious look,
examination of what it does to the communities that are
affected, what it does to the profitability of the dealerships,
but more I think--and again, I am not--I am a little suspect of
any analysis that may have been done because of the speed that
we would have had to have seen. This came in May. I think
Chrysler's decision was in May. So this was very quick. [11:08
a.m.]
Mr. Thompson. You made a statement that really there was no
cost-benefit analysis. And the question in terms of even the
capturing market share, Thomas Motors sounds like you are going
to drive at least 2 hours for somebody who wants to buy a
vehicle that is readily available in that radius that you
service today.
I just throw this out there. I represent a very rural
district, as a lot of my colleagues do. Is there any bias
towards closing rural dealerships? Any evidence of that?
Mr. Goss. I don't know that for certain, but I would
suspect that there is that bias. And, of course, what it
results in is a cost that is borne by the consumer by traveling
greater distances which will be, I think--according to GM and
Chrysler, they would get to put that into their price, the new
dealership, the ones that the individual, the businesses will
have to make use of. And so I think that is the intent.
But I would question even that. I am just not certain that
there has been any really analysis, even from the private
benefit and private costs, let alone putting in the public
benefit and the public cost.
So, again, the swiftness with which this took place makes
many of us question the decisions.
Mr. Thompson. Mr. Allison, you had talked about, within the
appeal process was rather anonymous. You send an e-mail you
don't know where it went to, and that is an anonymous way to
communicate. We all probably get those kinds of e-mails and
people don't give their names when they give us feedback. But
it is said that now that you are dealing with a company that
is, say, 98 percent government owned and you get that--here is
my question.
Was that--and you all, you both have had decades,
generations, of experience, of dealing with communications with
GM in particular.
Was that type--is that the standard that you experienced
pre-government involvement with GM?
Mr. Allison. No, sir. And I was not quite technically
correct.
There was a telephone contact set up that literally
explained to you step by step, but there really wasn't any full
explanation. They were very limited in what they could tell
you.
Mr. Thompson. Okay.
With the chairman's indulgence, I wanted to take a little
different direction, Dr. Goss, for those who have not been
voted off the island--maybe they have been watching too many
reality shows--those who are going to be participating. I have
talked with some of those dealers, as well, and two specific
things I wanted to get your reaction to if you are familiar
with them.
One is participation agreement--actually, that rolls into
one question--I wanted to see what you are hearing about that.
I am hearing--you know, dealers--that the new GM, to
participate, you are going to have to build new facilities, you
may have to invest capital in the showroom. If you happen to
have a foreign line of cars that you have always carried also,
that that is being shoved out and you are being dictated that
you no longer continue, at least within your showroom, that
line of business.
And that kind of rolls into pushing because of government
involvement, now that the State laws are circumvented with the
State franchise requirement; and I wanted to get your reaction
to those.
Mr. Goss. That is certainly the case, Mr. Thompson. And I
am not a lawyer, but nonetheless, it looks like, at least at
certain levels, there may be violations of the antitrust laws
whereby GM or Chrysler is eliminating competition. And that
does work against the consumer, and at least work for those two
companies.
But you are talking about eliminating the profitable
dealerships. I know I am repeating myself, but in an effort to
capture that--the consumer surplus, as we would call it; in
other words, consumers having now to travel greater distances--
the goal would be for GM and Chrysler to, in fact, capture
that. I argue against that.
But, secondly, I am not certain they calculate those things
very accurately, given the speed with which it was done.
So there are many problems there, but chief among them is
the fact is these are public corporations now, $64 billion, yet
decisions have been made that seem to be contrary to the public
interest, at least on the surface.
Mr. Thompson. Thank you.
Thank you, Chairman.
Chairman Shuler. Thank you.
At this time would like to recognize the gentlewoman from
Pennsylvania, Mrs. Dahlkemper.
Mrs. Dahlkemper. Thank you, Chairman Shuler, and thank you
for convening this critical hearing on the role of automobile
dealerships in rural communities and, really, throughout this
country.
And I want to certainly thank the panel of witnesses for
your testimony today. It has been very valuable for us to hear
your personal stories, as well as you, Dr. Goss, to look at
things on a larger scale.
Since I had my first phone call from one of my dealers, I
have been trying to understand this issue, and trying to
understand exactly how this occurred. And as we seem come today
with no conclusion as to exactly what kind of business model
was looked at to make these determinations. And personally, my
brother-in-law was an executive at Chrysler for many years, and
he and I argued many times about the business model that they
were using. I argued for about a dozen years, before he finally
left the company, about the business model they were using and
where they were going.
I have a couple of questions for you, and I just want to
try to understand. Would you, Mr. Thomas and Mr. Allison--first
of all, when are you looking at time frame for closure of your
dealerships?
Mr. Thomas. 2010. GM says 2010 is when they expect our
wind-down. We can't order any new 2010 model vehicles. We can
stay in business, and they say we can buy them from another
dealer.
Mrs. Dahlkemper. You have 2009s, but you cannot get any
2010s, which are probably coming out or have come out already?
Mr. Thomas. That is right. The only way we can get 2010
vehicles is to get them through another dealer.
Mrs. Dahlkemper. So they are not selling any new product?
Mr. Thomas. None.
Mrs. Dahlkemper. So you will wind down next year?
Mr. Thomas. 2010. October 2010.
Mrs. Dahlkemper. But you may not be able to keep your doors
open that long because you won't be able to get new product,
basically?
Mr. Thomas. Unless we buy them from other dealers.
Mrs. Dahlkemper. Mr. Allison?
Mr. Allison. Yes, ma'am, that would be the same for us.
Mrs. Dahlkemper. Could you and would you consider selling a
different brand?
Mr. Thomas. I have been offered an import, but I don't want
to do that.
Mrs. Dahlkemper. Why?
Mr. Thomas. Well, I have been with GM 35 years. Our
customers, our community, depend on GM vehicles. I don't want
to start switching them and try to go to--I just don't want to
do it.
I don't want to retrain our employees. I don't want to
change our customers, GM loyal people. I think they are going
to change, but--
Mrs. Dahlkemper. You mentioned the Ford dealership, and you
think they will go to Ford because there is--obviously,
convenience being probably the biggest factor there.
Mr. Thomas. Exactly. Exactly.
Mrs. Dahlkemper. Do you think there will be another
individual in your town who would say, Well, Mr. Thomas is not
here any longer and there is only Ford, so I am going to come
in and I am going to sell--you know, whoever, Honda, Toyota,
whoever?
Mr. Thomas. I don't think that there will be another
dealer--never is a long time, but I think in this environment,
in this economy, I think it is going to be a long time before
this economy straightens out. And the cost now to start a new
dealership would be prohibitive.
Mrs. Dahlkemper. Mr. Allison, can you comment on that?
Mr. Allison. Yes, ma'am. I, like Mr. Thomas, if we don't go
forward with General Motors, there would only be Ford in our
town. And I agree, the costs would be astronomical to establish
a brand-new dealership from scratch.
Mrs. Dahlkemper. Can you use your same facility if you
wanted to? You own that building, right?
Mr. Allison. Yes, ma'am, we do.
Mrs. Dahlkemper. So you certainly could, but you would have
to retool.
Mr. Allison. That would be an option. But like Mr. Thomas,
probably the most loyal General Motors dealers are the small
dealers. We literally eat, breathe and live GM.
Mrs. Dahlkemper. I guess my question is, then, as you
were--as we were looking at the automobile industry in this
country failing really in their business model, did you have
any concerns about that, long term? Were you concerned about
where the business model was going as we see our foreign
competitors were take a bigger and bigger share of the market?
Mr. Thomas. Yes, I do.
Mrs. Dahlkemper. I guess I am just trying to understand the
loyalty. If you can explain that to me a little bit, why you
would not go with some other dealer.
Mr. Allison. I certainly would not close out that
alternative at all. But it is just that my first wish would be
to continue forward with General Motors, as would the people in
our community and, certainly, our employees.
Mrs. Dahlkemper. Dr. Goss, do you have any comment on this,
because you seem to know a lot of what is going on in many
different areas.
Mr. Goss. Well, at this juncture, as everyone in the room
knows, this is a tough time for the economy.
These decisions are being made at a critical time for many
of these communities, and many of the communities that we
survey--I survey 15 States, a lot of rural areas--they are
under tremendous stress, and this is just another nail in some
cases in the coffin. And I am not certain you can move that
quickly and not suffer some significant long-term generational
impacts.
Mrs. Dahlkemper. There is a piece of legislation--there are
271 sponsors on it--that I have signed on to called the
Automobile Dealer Rights Restoration Act of 2009. Are you
familiar with that piece of legislation?
Mr. Thomas. Yes, I am.
Mrs. Dahlkemper. Obviously, there are many in this Congress
that are concerned. I have many dealerships in my district that
have closed, and I am continuing to try to understand. Staying
on it--my time is expired, but what would the costs be if you
wanted to start up a new dealership with a different brand?
Just--can you give me kind of a ballpark?
Mr. Thomas. I talked to one that--out-of-pocket, about
$700,000 for the one I talked to for their initial package.
That does not include inventory. That includes training,
signage, some of the equipment they require you to buy. The
initial package, about $700,000.
Your facility has to meet their specifications, so you have
to change, redesign and make your facility meet theirs. Like
GM, GM wants theirs to all look the same. You would have to do
the same. I would have to do, not the same thing I did to my
building in 2000. But I would have to redo it, reshape it,
recolor it. And my building is all stucco. I would have to redo
all the signage, all the fascia.
Mrs. Dahlkemper. So basically the investment that you put
there, there is no value to that?
Mr. Thomas. No.
Mrs. Dahlkemper. And you would have to outlay a very, very
large sum of money?
Mr. Thomas. Well, based on the one that I have looked at is
$700,000.
Mrs. Dahlkemper. Have you looked at anything Mr. Allison?
Mr. Allison. Yes, ma'am, and my experience is similar to
Mr. Thomas'. Obviously, the outlay would be--we already have
facilities, so it would be to retrofit or change the facilities
to meet their requirements.
Mrs. Dahlkemper. Thank you very much for your testimony.
Thank you, Mr. Chairman. I yield back.
Chairman Shuler. Thank you.
I think one thing that really struck me in the testimony
was loyalty. You guys have one store, one location. Most of the
big dealers have, what, multiple? I mean, some of them are very
close friends of mine. They have multiple dealerships, multiple
brands, foreign and domestic.
So you decided to stay with that American-made vehicle.
Hopefully, these dealerships that are in front of us--and maybe
there are some automakers' representatives here today. That
goes a long way with me, people that are going to be loyal to a
particular brand, to service them with the integrity and
character that I know that Mr. Allison has had. I am sure Mr.
Thomas has, as well.
That goes a long way with me, and hopefully that can--that
will go a long way with the automakers. So we have a lot of
work to do, I think.
As you can tell, there is minority on one side and majority
on the other, and you probably couldn't tell with the question
which side anyone was on from the standpoint--this is not
political, this is about creating jobs.
I mean, the bailout happened. I guess it is all the more
reason that I think my vote was right when I didn't vote for
the bailout, because it is about families, creating jobs. And
maybe I don't fully understand it, and hopefully I will get
educated, as well, from the understanding--from the automakers'
standpoint. Maybe that is where I need to educate myself for
the reasons of why they are being shut down. It is hard when we
have great testimony from you to understand that analogy.
So when it comes down to making sure that we have
representatives in our communities, three generations and a
fourth that is here today, I hope. I know your son is here
today. Hopefully. That would be a fourth generation to be able
to sell that GM product.
Mr. Allison. Yes, sir.
Chairman Shuler. We need to make sure.
And one of the things we need to do is make sure--we have
to ensure--I don't want us to lose GM, Chrysler, Ford; that
would be devastating to our country. We need to continue to
produce things in this country. We far import way too much. And
so I respect your loyalty more than anything and what you have
given back to our communities.
And so, does any other member have any other follow-up
questions or comments?
But I do want to thank you all for your participation. And
I hope I get educated so--on some of the things, and maybe I
can relay some of the messages to you. That will be part of--we
will all try to gather as much information to educate
ourselves. There are always two sides to the story, and I want
to be able to see both sides and understand the issues that we
have in front of us.
But loyalty goes a long way for me. So, hopefully, you guys
will get an appeal process that will be beneficial to you, long
term for the families and the people of the community.
I ask unanimous consent that the members will have 5 days
to submit statements and supporting materials for the record.
Without objection, so ordered. This hearing is now
adjourned.
[Whereupon, at 11:28 a.m., the subcommittee was adjourned.]
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