[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
GM AND CHRYSLER DEALERSHIP CLOSURES AND RESTRUCTURING
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT AND INVESTIGATIONS
OF THE
COMMITTEE ON ENERGY AND COMMERCE
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
JUNE 12, 2009
__________
Serial No. 111-49
Printed for the use of the Committee on Energy and Commerce
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COMMITTEE ON ENERGY AND COMMERCE
HENRY A. WAXMAN, California, JOE BARTON, Texas
Chairman Ranking Member
JOHN D. DINGELL, Michigan RALPH M. HALL, Texas
Chairman Emeritus FRED UPTON, Michigan
EDWARD J. MARKEY, Massachusetts CLIFF STEARNS, Florida
RICK BOUCHER, Virginia NATHAN DEAL, Georgia
FRANK PALLONE, Jr., New Jersey ED WHITFIELD, Kentucky
BART GORDON, Tennessee JOHN SHIMKUS, Illinois
BOBBY L. RUSH, Illinois JOHN B. SHADEGG, Arizona
ANNA G. ESHOO, California ROY BLUNT, Missouri
BART STUPAK, Michigan STEVE BUYER, Indiana
ELIOT L. ENGEL, New York GEORGE RADANOVICH, California
GENE GREEN, Texas JOSEPH R. PITTS, Pennsylvania
DIANA DeGETTE, Colorado MARY BONO MACK, California
Vice Chairman GREG WALDEN, Oregon
LOIS CAPPS, California LEE TERRY, Nebraska
MICHAEL F. DOYLE, Pennsylvania MIKE ROGERS, Michigan
JANE HARMAN, California SUE WILKINS MYRICK, North Carolina
TOM ALLEN, Maine JOHN SULLIVAN, Oklahoma
JANICE D. SCHAKOWSKY, Illinois TIM MURPHY, Pennsylvania
CHARLES A. GONZALEZ, Texas MICHAEL C. BURGESS, Texas
JAY INSLEE, Washington MARSHA BLACKBURN, Tennessee
TAMMY BALDWIN, Wisconsin PHIL GINGREY, Georgia
MIKE ROSS, Arkansas STEVE SCALISE, Louisiana
ANTHONY D. WEINER, New York
JIM MATHESON, Utah
G.K. BUTTERFIELD, North Carolina
CHARLIE MELANCON, Louisiana
JOHN BARROW, Georgia
BARON P. HILL, Indiana
DORIS O. MATSUI, California
DONNA M. CHRISTENSEN, Virgin
Islands
KATHY CASTOR, Florida
JOHN P. SARBANES, Maryland
CHRISTOPHER S. MURPHY, Connecticut
ZACHARY T. SPACE, Ohio
JERRY McNERNEY, California
BETTY SUTTON, Ohio
BRUCE L. BRALEY, Iowa
PETER WELCH, Vermont
(ii)
Subcommittee on Oversight and Investigations
BART STUPAK, Michigan, Chairman
BRUCE L. BRALEY, Iowa GREG WALDEN, Oregon
Vice Chairman Ranking Member
EDWARD J. MARKEY, Massachusetts ED WHITFIELD, Kentucky
DIANA DeGETTE, Colorado MIKE FERGUSON, New Jersey
MICHAEL F. DOYLE, Pennsylvania TIM MURPHY, Pennsylvania
JANICE D. SCHAKOWSKY, Illinois MICHAEL C. BURGESS, Texas
MIKE ROSS, Arkansas
DONNA M. CHRISTENSEN, Virgin
Islands
PETER WELCH, Vermont
GENE GREEN, Texas
BETTY SUTTON, Ohio
JOHN D. DINGELL, Michigan (ex
officio)
C O N T E N T S
----------
Page
Hon. Bart Stupak, a Representative in Congress from the State of
Michigan, opening statement.................................... 1
Prepared statement........................................... 4
Hon. Greg Walden, a Representative in Congress from the State of
Oregon, opening statement...................................... 6
Hon. John D. Dingell, a Representative in Congress from the State
of Michigan, opening statement................................. 8
Hon. Joe Barton, a Representative in Congress from the State of
Texas, opening statement....................................... 9
Hon. Bruce L. Braley, a Representative in Congress from the State
of Iowa, opening statement..................................... 11
Hon. Diana Degette, a Representative in Congress from the State
of Colorado, opening statement................................. 12
Hon. Gene Green, a Representative in Congress from the State of
Texas, opening statement....................................... 13
Hon. Michael F. Doyle, a Representative in Congress from the
Commonwealth of Pennsylvania, opening statement................ 14
Hon. Betty Sutton, a Representative in Congress from the State of
Ohio, opening statement........................................ 16
Hon. Peter Welch, a Representative in Congress from the State of
Vermont, opening statement..................................... 17
Hon. Janice D. Schakowsky, a Representative in Congress from the
State of Illinois, opening statement........................... 18
Hon. Michael C. Burgess, a Representative in Congress from the
State of Texas, prepared statement............................. 211
Witnesses
James Press, President, Chrysler, LLC............................ 21
Prepared statement........................................... 24
Answers to submitted questions............................... 214
Fritz Henderson, Chief Executive Officer, General Motors
Corporation.................................................... 36
Prepared statement........................................... 38
John McEleney, Chairman, National Automobile Dealers Association. 44
Prepared statement........................................... 46
Answers to submitted questions............................... 219
Robert Thomas, Bob Thomas Chevrolet-Cadillac, Bend, Oregon....... 70
Prepared statement........................................... 72
Frank A. Blankenbeckler, III, Carlisle Chevrolet Company, Inc.,
Waxahachie, Texas.............................................. 82
Prepared statement........................................... 84
Duane Paddock, Paddock Chevrolet, Kenmore, New York.............. 87
Prepared statement........................................... 89
Daniel J. Kiekenapp, Tacoma Dodge, Inc., Tacoma, Washington...... 95
Prepared statement........................................... 97
Alan Spitzer, Spitzer Automotive Group, Elyria, Ohio............. 101
Prepared statement........................................... 104
Answers to submitted questions............................... 224
James Golick, Golick Motor Company, Pitcairn, Pennsylvania....... 158
Prepared statement........................................... 161
GM AND CHRYSLER DEALERSHIP CLOSURES AND RESTRUCTURING
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THURSDAY, JUNE 12, 2009
House of Representatives,
Subcommittee on Oversight and Investigations,
Committee on Energy and Commerce,
Washington, DC.
The subcommittee met, pursuant to call, at 10:00 a.m., in
Room 2322, Rayburn House Office Building, Hon. Bart Stupak
[chairman of the subcommittee] presiding.
Present: Representatives Stupak, Braley, DeGette, Doyle,
Schakowsky, Ross, Welch, Green, Sutton, Dingell, Walden,
Radanovich, Burgess, and Barton (ex officio).
Staff Present: Theodore Chuang, Chief Oversight Counsel;
Scott Schloegel, Investigator, Oversight and Investigations;
Jennifer Owens, Special Assistant; Jennifer Berenholz, Deputy
Clerk; Lindsay Vidal, Special Assistant; and Kenneth Marty,
Detailee, HHS-OIG.
OPENING STATEMENT OF HON. BART STUPAK, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Stupak. This committee will come to order.
As you can see, there is a lot of interest in this hearing
today. I expect Members who are not on the committee will be
coming in and out. And we are going to try to hold a tight rein
on time and statements and questions in this hearing today
because, as I said, there is a lot of interest in this
oversight hearing.
This hearing today is entitled, ``GM and Chrysler
Dealership Closures and Restructuring.'' The chairman, ranking
member, and the chair emeritus will be recognized for 5-minute
opening statements. Other members of the subcommittee will be
recognized for 3-minute opening statements. I will begin.
For much of the past 100 years, General Motors has been the
largest automobile company in the world. The Detroit three--GM,
Ford, and Chrysler--have fueled the engine of Michigan's
economy, as well as the economy of the United States, for
generations. Through their vehicle manufacturing, countless
suppliers, and a vast dealer network, the automotive industry
has created and supported millions of jobs.
With the recent global financial collapse, much of the
domestic auto industry has been brought to its knees. In 2008,
General Motors and Chrysler lost $30.9 billion and $17 billion
respectively, and, in order to survive, they both filed for
bankruptcy. In the bankruptcy process, General Motors has
announced plans to close roughly 1,200 dealerships and Chrysler
announced plans to close 789 dealerships nationwide.
The Federal Government has loaned billions of dollars to GM
and Chrysler in an effort to help stabilize them. Billions of
more have been committed to assist them while emerging from
bankruptcy.
Today's hearing will focus on several issues associated
with General Motors and Chrysler's decisions to close more than
2,000 dealerships across the country. Among the questions to be
answered are: Why do the manufacturers believe they need to
close so many dealerships? What criteria were used to determine
which dealerships to close? How do GM and Chrysler save money
by closing these dealerships, which are independently owned?
Why were Chrysler dealers given a mere 26 days' notice that
their franchise would be pulled? Why were dealerships that had
been meeting or exceeding their expected sales requirements
still ordered to close? Why did Chrysler effectively order
dealers to buy more cars in January but now refuses to buy
those cars back from dealers who are being forced to close?
Who made the decisions of which dealerships to close? What
are GM and Chrysler doing to assist dealerships with selling
their parts, cars, and specialty tools before they are put out
of business? How will the dealership closures and restructuring
make GM and Chrysler more competitive and profitable?
Being from Michigan, I absolutely want General Motors and
Chrysler to survive. I think we all do. But we have an old
saying in Michigan that, ``when the auto industry sneezes,
Michigan catches a cold.''
Now, due to the global financial collapse, the entire
Nation is feeling the impact of a crippled domestic auto
industry. Other than high gas prices or a serious food
outbreak, I can't think of few subjects that have brought the
ire of so many Members as these auto dealership closures.
I understand the fact that General Motors and Chrysler need
to improve their bottom line. I also understand that the import
brands have far fewer dealerships, with higher sales volume per
dealership. What many of my colleagues and I do not fully
understand is why there is a need to close so many dealerships
and why dealerships that appear to be performing well are now
being told to close their doors.
We will hear from Chrysler today that the average Chrysler
dealer sold 405 vehicles and lost $3,431 in 2008.
We will also hear from Dan Kiekenapp of Tacoma Dodge in
Tacoma, Washington. Tacoma Dodge had net sales exceeding $1.7
million last year and was one of the top 100 dealers for sales
of parts in 2008 and was the number-one ranked Dodge dealer in
western Washington during the month of April this year but
still received a closure notice from Chrysler. I look forward
to asking Mr. Press how he reconciles this decision to close
Tacoma Dodge.
As I mentioned earlier, I want to see GM and Chrysler
return to strong and vibrant companies. I am, however,
concerned that the accelerated timeframe for dealership
closures and the way in which dealers have been treated may
actually damage the brands more than help them.
I am also deeply concerned that the closures will hurt
rural communities disproportionately. In my vast rural northern
Michigan district, if a dealer closes down, it can mean a 2-
hour drive for us to reach the next closest dealer. This will
cause added expense and hardship for my constituents who need
to have warranty work or special service done at a certified
dealership.
In addition, when it comes time to purchase a new vehicle,
many of my constituents will abandon GM or Chrysler and go to
whichever brand is locally sold by people they trust within our
communities rather than traveling a long distance to huge,
impersonal, big-box dealerships, where they don't know the
sales or the service staff.
In closing, I want to thank General Motors and Chrysler
executives for coming here today. This committee understands
how busy you are and greatly appreciates you taking time to
work with our staff and attend today's hearing.
In addition, I want to thank the dealers who have come from
every region of the country to testify today. I know that, in
many instances, many of you are facing the loss of your
livelihood, and to take the time and expense to travel to
Washington to be part of this hearing is appreciated by myself,
the staff, and everyone here.
Next, I would turn to the ranking member, Mr. Walden, for
an opening statement.
[The prepared statement of Mr. Stupak follows:]
[GRAPHIC] [TIFF OMITTED] TR73744A.001
[GRAPHIC] [TIFF OMITTED] TR73744A.002
OPENING STATEMENT OF HON. GREG WALDEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Walden. Thank you very much, Chairman. I want to thank
you and Chairman Waxman for concurring with me in the need for
our subcommittee to conduct an oversight hearing and
investigation to get answers regarding the termination of auto
dealer franchises all across our country.
I want to recognize the dealers, including a constituent of
Oregon's Second District, which I represent, Bob Thomas of
Thomas Chevrolet-Cadillac in Bend, Oregon. Bob and the rest of
the dealers have taken time and expense to travel to Washington
to provide us with their perspective on this issue.
I also welcome Mr. Press of Chrysler and Mr. Henderson from
General Motors. We are honored to have you here today, as well.
We have some hard questions for you, and I appreciate your
willingness to come here today and explain your situation, your
perspective, with clear and straight answers.
Since American taxpayers now own 60 percent of General
Motors, we have a right to know just how the decisions
affecting our constituents are made. We also have a duty to
make this process more accountable and transparent for all
concerned.
So let's start with a look at customer service. And, Mr.
Henderson, you have spent a pretty large some of money on
newspaper ads recently--I am sure you are familiar with your
own ads--proclaiming your concern for greater transparency and
customer service.
Yet, you have dictated the closure of GM dealerships all
across Oregon and the country. And I will cite one in specific
out in Burns, Oregon. Now, if you are a GM customer and the
dealership in Burns, Oregon, Ruel Teague Motor Company, is
closed, your nearest GM dealer is Payette, Idaho, 136 miles
away. Now, that is the equivalent of driving from Philadelphia
to Washington, D.C., to get service for your General Motors
vehicle.
Since we don't have the 3-plus hours it would take to drive
there even in one of the new Camaros, we are using the fastest
plane our Air Force has, the F-15 Eagle, and Google Earth to
demonstrate the route, while I talk, to that new brand of
customer service. This will be in 3D for your enjoyment. It
will take a while.
Just about a month ago, General Motors and Chrysler sent
what were effectively termination notices to about 2,000 auto
dealerships nationwide. We are told their notices serve to
accelerate restructuring plans that are a must-do step for
these troubled automakers. This is so Chrysler and GM can
emerge successfully from bankruptcy with stable financial
support.
Many dealers and the communities they serve, frankly, feel
blind-sided. The mid-May notices came in the form of complex,
take-it-or-leave-it wind-down contracts, with just weeks to
make important and expensive life-changing decisions about
their own livelihoods, few explanations, no real opportunity to
negotiate corrections or even sell to another more favored
dealer, and no clear rationale for why they were chosen for
closure.
Thousands more received continuation contracts, equally
complex, which forced them into 18 months of limbo, giving up
protections against abusive practices they would normally have
been able to be protected against under State franchise law.
But they had no choice; it was take it or leave it.
Oh, and the agreements, by the way, required the dealers to
say they weren't signing under duress. Really?
So let's talk about transparency. We have yet to get a
clear answer on how the so-called rationalization of dealer
networks will save the automakers or taxpayers money.
Rationalization seems like the 21st-century version of ``we had
to burn the village to save it.'' I want to hear this morning
from GM about how cutting dealers really will save $2 billion.
The National Auto Dealers Association argues the dealers
cost the automakers little on the margin and provide necessary
and convenient outlets for consumer sales and even the local
connection the automakers so sorely need. Dealers, even small
dealers, make sales and make the automakers money.
By what we can gather today, many dealers affected are not
bad-apple operations. Maybe they weren't meeting your mandated
sales quotas, but it is hard to see them as cost drains on
automaker operations. They often are the mainstays of the local
communities they serve. They contribute substantial taxes,
support local sports and community events, and they have good
reputations. They are established, they are hardworking, and
they are struggling in a horrible economic environment.
And soon, their employees will be out of work. By one
estimate, the termination notices may cost upwards of 190,000
well-paying jobs.
The validity of the cost issue is of particular interest
since the press reported yesterday that the House Majority
Leader said he had spoken to the White House's Auto Task Force
and it acknowledged that the automakers will see no immediate
cost savings from closing the dealerships.
So, Mr. Henderson, you say GM is going to be more
accountable. Let's talk about accountability. Who made the
closure decisions? How were they made? When were they made? Who
made the recent decisions to reverse closures of 41
dealerships?
Mr. Henderson, you say GM will be more focused on
customers. Let's talk about customers. How it ispro-customer to
reduce competition by eliminating dealerships which compete
with each other for price, quality, and service?
It has been said that our domestic automakers own rural
America. You know how it is to serve rural America. To
eliminate the lone dealership in a place like Burns, Oregon--we
are still not to Idaho, by the way. We did just pass Stinking
Water Pass.
In this ``Alice in Wonderland'' world of rationalization,
where up is down and less is more, how are customers served by
less competition and higher prices while, on the taxpayers'
dime, better served?
In Bend, Oregon, for example, General Motors terminated the
only GM dealership with substantial service repair facilities,
servicing tens of thousands of people in the 16,000-square-mile
radius. Do the planners behind this restructuring understand
the rural America from whence I come? Do they really understand
rural customers, the rural market, the loyalty?
Let's talk plainly. If you just want to turn GM and
Chrysler into a network of urban dealerships, then tell me. But
don't ask me and my constituents to provide the bailout.
Or is your plan to use the crisis of bankruptcy as a cheap
and quick way to get rid of dealers you don't want, only to
eventually sell or put in place, since you don't sell them, a
new franchise in a market you have left?
If you plan to reduce dealers, can you give me a guarantee
that you won't simply get rid of a Bob Thomas only to turn
around and offer a GM franchise in Bend to someone else in the
coming months?
So the goal for me in today's hearing, Mr. Chairman, is to
get straight talk and facts. We need to know the real reasons
for the closure decisions and whether they are really
justified. We need to know how this is really a good deal for
the taxpayer and the consumer. We need to know whether auto
dealers targeted for closure in their local communities are
getting that fair shake.
We all recognize the very tough and painful times for the
auto industry, especially its workers and suppliers. The
reverberations of Detroit's troubles have already reached into
every one of our districts.
I look forward to the testimony, and I look forward to
working with you, Chairman, on further investigating this
matter, and hope future hearings will focus on the role of the
President's Auto Task Force, as well.
Mr. Stupak. Thank you, Mr. Walden.
Mr. Dingell for an opening statement, please.
OPENING STATEMENT OF HON. JOHN D. DINGELL, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF MICHIGAN
Mr. Dingell. Mr. Chairman, thank you.
And I commend you for holding this hearing. This is a time
of unprecedented hardship for the domestic auto industry, but I
feel it is prudent that we objectively examine all aspects of
General Motors' and Chrysler's restructuring plans, including
how they affect dealers.
Although, restructuring of these companies is inevitable
and necessary, it means that we are going to have to achieve
their long-term viability, but at the same time we are going to
have to look to see how it is being done and how it is going to
impact on other parts of our economy. Measures must being taken
to mitigate excessive hardship on working Americans, especially
in a time of grave national recession.
In view of this, I will be asking frank questions of our
witnesses today. In particular, I seek to determine for the
record how GM and Chrysler arrived at the decisions they did
related to dealer closures. Public furor over these closures
demands truthful answers from these companies regarding these
matters. And it is my hope that they will provide much needed
insight into the decision-making process whose results will
affect the livelihood of many thousands of Americans in all
parts of the country.
Moreover, I understand that GM and Chrysler have approached
dealer closures in a markedly dissimilar fashion. And this,
again, should be subject to candid discussion.
Finally, I wish to ascertain what steps, if any at all, GM
and Chrysler have taken or will take to mitigate the impact of
these closures on dealership owners and their employees and
also on the communities. Their fair treatment is paramount to
the success of any rationalization of the companies' respective
value streams.
I conclude by encouraging our witnesses to engage in open
dialogue with members of the committee about the matters that I
have just mentioned. The honest disclosure at today's hearings
is necessary to restoring the semblance of public trust in the
plans for restructure.
So, thank you, Mr. Chairman, thank you to our panel, and I
yield back the balance of my time.
Mr. Stupak. Thank you, Mr. Dingell.
Mr. Barton for an opening statement, please.
OPENING STATEMENT OF HON. JOE BARTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Barton. Thank you, Mr. Chairman.
I want to thank you and Chairman Waxman for holding this
hearing. I want to thank you personally for agreeing to let Mr.
Frank Blankenbeckler, who is dealer in my district, testify.
And, also, thank you for being willing to put a segment in
the record of Congressman LaTourette, who is not a member of
the committee but has asked to sit on the dais, And you
indicated that you would accept unanimous consent to allow his
statement into the record.
So I appreciate all those courtesies.
Mr. Chairman, I have a prepared statement, and I will
submit it for the record, but I want to just kind of speak
extemporaneously.
I see both sides of this issue. I have a GM assembly plant
in my district in Arlington, Texas, that has been in business
since 1954. There are 2,400 people that work there; management,
about 250; and UAW workers, around 2,200. They have been making
cars and trucks in Arlington, Texas, for over 50 years. And I
have dealers all over my district, about a dozen of which have
received closure or termination or failure-to-renew notices.
I met yesterday with the president of GM North America and
also the president of Chrysler. And I see the management side
of this, the manufacturing and the business side of it. It is a
different era, and we have to make tough decisions to keep U.S.
nameplate manufacturing cars and trucks in America. I
understand that.
But there is another side. There is a human side, a dealer
side. And we are going to hear from Mr. Frank Blankenbeckler of
Waxahachie, Texas. He is a fourth-generation GM dealer and, I
think, a second-generation Jeep dealer.
His grandfather started selling Chevrolets in Waxahachie,
Texas, in 1926. He made it through the Great Depression. His
family made it through World War II, when you had quotas. They
made it through the boom years of the 1950s. They made it
through the gas rationing of the 1970s.
Bomb or bust, there has been a Blankenbeckler selling cars
in Waxahachie, Texas, for over 80 years. And, in May, he got
letters, I think, back to back, Jeep terminating his contract
immediately, or within 3 weeks, and GM saying they weren't
going to renew it.
Now, when the GM and the Chrysler people, the managers were
in my office yesterday, they were very sincere. They had their
flip charts and they had their notebooks and they could look up
and show me if I wanted to see the performance or
nonperformance of all the dealers in my district.
But that doesn't touch on the human story. Again, Carlisle
Chevrolet in Waxahachie, Texas, has 40 employees. They are not
at the bottom of these flow charts. Now, they are not at the
top either, but they are not at the bottom.
Mr. Blankenbeckler told me that last year he paid $1.3
million in taxes in Ellis County, employed 40 people, sells an
average of 50 cars and trucks a month. In good years, he can
double that. So he could do better; he says that.
But his business that has been in his family for four
generations, if we can't get Chrysler and GM to take a second
look, is gone. And his son, Austin, who is sitting right out
here, his opportunity at the American way of life, as we know
it, is gone.
Now, what I am asking, Mr. Chairman, is I am not asking the
management of Chrysler and GM to do things that don't make
sound business, economic sense. But what I am asking is the
show a little mercy, if that is the right term. Every decision
does not have to be the toughest decision you can make. You
know, you can err on the side of leniency. And if somebody is
selling 50.5 cars a month and the goal is for them to sell 51,
you don't have to cut them off at the knees.
So, Mr. Chairman, I want to hear from both sides. But I
really, hopefully by the end of the day, want to hear from the
presidents of the manufacturing companies that they will go
back and take a second look at some of these decisions and, if
there is an opportunity that makes reasonable business sense,
that they will give the Frank Blankenbecklers and the people
that he represents today an opportunity to continue in
business.
Because if they go out of business, it is gone. And, you
know, ultimately, if nobody is selling cars and trucks, it
doesn't matter what your manufacturing capability is, nobody is
going to buy them.
So, with that, Mr. Chairman, I yield back.
As you know, there is another hearing going on downstairs.
Mr. Markey's subcommittee is having a transmission hearing. I
have to run and make a statement down there, too, but I will be
back up here for the question period.
And thank you again for your many courtesies.
Mr. Stupak. Thank you, Mr. Barton.
And members will be moving in and out.
And while I am at it here, I should mention that we have
other Members who are not part of the Energy and Commerce
Committee, who are not part of this subcommittee, but are here.
Dan Maffei over here, from New York, I know he has some
legislation pending on dealerships. That is why he is here. He
will probably be in and out. Patrick Murphy is over here from
Pennsylvania. He is not on the committee, but very interested.
You mentioned Mr. LaTourette, Mr. Barton. I saw him earlier. I
am sure he will be popping in and out. I know he has
legislation.
And, in all honesty, I think we have 435 Members of
Congress, I think 430 contacted me and all wanted their dealer
to testify today. That wasn't possible. But we are going to try
to get you in this hearing. We welcome Members who would like
to sit and watch these proceedings.
But we are going to have to keep a tight timeframe on all
Members who have an opportunity to ask questions. For the
Members who are here who are not part of the committee, if you
an have opening statement you would like to submit for the
record, without objection, that would be accepted.
And let me do one more thing. As we were preparing for this
hearing, there were some concerns that Members may get into the
confidentiality agreement or, I should say, the dealer
agreement that GM has. And since Chrysler has already emerged
out of bankruptcy, GM is still there, there is a
confidentiality agreement with the dealers.
And I talked with Mr. Walden here. It is our understanding
that GM, Mr. Henderson, has no objection whatsoever to a dealer
testifying before the subcommittee about its business,
circumstances, or other matters involving the dealership.
Further, it is our understanding that General Motors has no
objection to the dealer testifying about the terms of the wind-
down agreement itself.
And GM is proud of these agreements and the assistance and
support they will provide to dealers compared to what they
would have received under an ordinary bankruptcy proceeding.
GM does have concerns, though, on the confidentiality part
of these wind-down agreements in two areas: the amount of the
wind-down payments set forth in paragraph 3(a) and any
discussions with GM representatives about the wind-down amount
found in that agreement.
So I am cautioning Members that if you want to talk about
the wind-down agreement, you have a right to, but we are not
going to expect the witnesses, for proprietary and business
reasons, to get into financial amounts and things like this
with the agreement.
Other than that, we are in agreement with that, Mr.
Henderson?
Mr. Henderson. That is correct.
Mr. Stupak. And, Mr. Press, as I stated, you have no
problems as long as we don't get into money exchanges with
dealerships?
Mr. Press. That is correct.
Mr. Stupak. OK.
OK, with that, let's continue to opening statements, 3-
minute opening statements. I am going to hold you guys to it
pretty firm.
Next on the list would be Mr. Braley.
OPENING STATEMENT OF HON. BRUCE L. BRALEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF IOWA
Mr. Braley. Well, thank you, Mr. Chairman and Ranking
Member Walden.
I think you can tell from the interest in this hearing that
it is something that affects all 435 congressional districts.
And that is why I am going to submit my written statement and
focus instead on the human cost of what we are here to talk
about, as Mr. Barton was just talking about.
I am very fortunate one of my constituents, who is the
chairman of the National Auto Dealers Association, John
McEleney from Clinton, Iowa, is here, because he works and
sells cars in the heartland. And I think a lot of what we are
talking about here today is an explanation of how the decisions
that are being made are affecting dealers all over the country.
My wife's grandfather, Burt Kalb, was the first Ford dealer
in Dubuque, Iowa. And my uncle, Lyle Nusserhoe, came home from
World War II and, at the request of one of his Navy buddies,
moved to my hometown of Brooklyn, Iowa, and started work being
as a parts manager in a Chevy dealership that he later
purchased and worked in for 60 years.
And I want to talk a little bit about where we have been to
get to where we are right now. Because I remember those fall
rollouts of new models and the excitement that they brought to
my hometown. And I remember those ads that my uncle ran in my
hometown newspaper showing all of the employees of his
dealership and how many years they had worked there, to show
the impact that his business was having object our community.
Because those same employees were the ones volunteering in the
Boy Scouts and the Little League and in school activities, and
they were making our community a better place to live.
And when you talk about these dealer closures, you are not
just talking about the application of economic principles and
mathematical formulations; you are talking about the impact on
people's lives in every congressional district in this country.
And that is why the issues we are going to be discussing
today matter. That is why they matter to me, they matter to my
colleagues on both sides of the aisle, and they matter to the
constituents we represent. Because when these dealerships
close, they don't just take away the opportunity to buy and get
service for your cars and trucks, they take away the lifeblood
of these communities. And it is much broader than simply the
loss of sales and service. It is part of the fabric of this
country.
And, Mr. Henderson and Mr. Press, your corporations were
built on the backs of people like the dealers you see in this
room, who went out there, invested in their communities, and
made you profitable during your boon times. And now I think
each of you and your companies owe them and the taxpayers of
this country a detailed explanation for your business
decisions, because we have to live with the aftermath.
And I welcome everyone's testimony on the committee and
look forward to further opportunities to question the
witnesses.
Ms. DeGette for an opening statement, please.
OPENING STATEMENT OF HON. DIANA DeGETTE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF COLORADO
Ms. DeGette. Thank you very much, Mr. Chairman.
Following up on what Mr. Braley and Mr. Barton said, these
bankruptcies and these closing of the local car dealerships are
not just affecting the dealers themselves, but millions of
people who live in all of our districts, who are going to be
inconvenienced, at the very least.
And the thing I am struggling with is, if bankruptcy
reorganization is designed to help GM and Chrysler become
leaner and meaner, become more efficient, then how does it help
to close profitable dealerships? Because, in my home State of
Colorado, for example, 14 profitable Chrysler dealerships are
going to be closed, and a number of other GM dealerships and
some others.
So I guess the reason why we are concerned is because, on
the one hand, we see these profitable dealerships in our
districts; on the other hand, we see the need for consolidation
and for saving money. But we don't quite understand how closing
those profitable dealerships works, especially given the human
implications. And that is why we are concerned, and that is why
we are having this hearing. I think that our constituents
deserve an explanation.
I want to mention one other thing really briefly that is
not the subject of this hearing, Mr. Chairman, but might be
worth some further investigation. As part of the
administration's bankruptcy plans, they are putting all of the
product liability court claims into the bankruptcy court, which
is going to wipe out the claims of victims who have had
defective products.
And talk about leaner and meaner. This is something that is
going to hurt millions of Americans who have been injured by
these cars and who don't have some kind of a fund set up
through the bankruptcy.
Now, in the past, when the government has helped companies
like GM and Chrysler through their bankruptcy plans, like with
the asbestos, we set up a fund to compensate victims. But here
there is no fund whatsoever that has been set up to compensate
victims. And I think this committee needs to look at this, and
I also think the administration needs to revisit their policy
of not setting up this kind of fund.
Thank you very much, Mr. Chairman, and I yield back.
Mr. Stupak. Thank you, Ms. DeGette.
Mr. Green from Texas, opening statement, please. Three
minutes.
OPENING STATEMENT OF HON. GENE GREEN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF TEXAS
Mr. Green. Thank you, Mr. Chairman. Like my colleagues, I
would like my full statement placed into the record.
Mr. Stupak. Without objection.
Mr. Green. And I am glad you are holding this hearing
because it is probably one of the biggest issues that I have
heard from in our district in a long time.
And I guess the problem I have is the lack of transparency
on how the decisions were made. And I think, hopefully, the
witnesses today will make some discussion or provide that to
us.
I didn't vote for the TARP bill last fall, either time. One
of the reasons is that I thought it was more of a bailout of
Wall Street, not Main Street. And now we are seeing what is
happening on Main Street, because our dealerships are on Main
Street in our area.
And I will give you a great example. The Houston market,
where I am from, already lost three large-volume Chevrolet
dealerships, and yet Knapp Chevrolet, one of the oldest
dealerships in Houston, actually close to the central business
district, which opened on December 6, 1941, the day before
Pearl Harbor Day, received their letter, and their appeal was
denied.
It is the only Chevy dealership in the downtown area. In
fact, it is the only one inside what we call the 610 Loop, and
there are only two inside Beltway 8, which is miles and miles
away. So now people in my district who live in the inner city
will have to definitely go to the suburbs to have their car
serviced or to buy a vehicle.
More than 4,000 people live in the core of downtown
Houston, and 74,000 people live within a two-mile radius. And a
rapidly growing population of about 4,000 live within that
five-mile radius. And over 140,000 people work in downtown
Houston, with 17,000 students at downtown colleges. It seems to
me that market is pretty sizable.
And Knapp Chevrolet was actually one of the highest
profitability, in the top 20 percent, for many years. I guess
that is what is frustrating, how this decision was made. People
working in downtown Houston could drop their cars off and their
trucks and get serviced, and then they would shuttle them back
and forth.
And, again, on Wednesday of this week, Knapp Chevrolet
received the denial of their appeal, for no reasons at all,
just, ``Your appeal was denied.'' We are losing a lot of high-
paying jobs. We have a lot of high-paying jobs in downtown
Houston. I don't know why it is.
And that comes from someone who buys Chevrolet and GM
products. I drive Chevy trucks. I am kind of Texas that way,
and I will continue to buy them. I am glad they are made in Mr.
Barton's district.
And I know the witnesses may not be able to answer
individually why that happened, but when you lose--in the last
year, we have lost three huge Chevy dealerships in the Houston
market--why we would go in and pick one of the oldest and the
only one within the inner city to close, it just kind of
boggles my mind.
So, with that, Mr. Chairman, I will yield back my time, and
appreciate you calling this hearing.
And, like other Members, I am getting ready to go down to
the transmission hearing down in the room below us, but I will
be back.
Thank you.
Mr. Stupak. Thanks, Mr. Green.
Mr. Doyle for opening statement, please. Three minutes.
OPENING STATEMENT OF HON. MICHAEL F. DOYLE, A REPRESENTATIVE IN
CONGRESS FROM THE COMMONWEALTH OF PENNSYLVANIA
Mr. Doyle. Thanks, Mr. Chairman. Thanks for holding this
hearing. And I want to thank you personally for allowing Jim
Golick from Golick Jeep-Chrysler, a constituent of mine and
someone in my district, for allowing him to testify today.
I didn't have a prepared statement, Mr. Chairman. I just
want to make a few comments.
My friend Joe Barton says maybe we are in a new era, and I
fear that maybe he is right.
You know, growing up in Pittsburgh, I have had the
privilege of representing Pittsburgh, Pennsylvania, and the
Turtle Creek and Mon Valley in Congress. We are blue-collar
kids. Our dads and grandfathers made the steel that go into a
lot of your cars. We look after one another in Pittsburgh. We
buy from our own. We were taught never to buy foreign cars,
where I grew up. The thought never would occur to us. We buy
American, and we buy from the people we know.
I remember Mr. Gatti had the local pharmacy on the corner.
He is long gone. There are no more family pharmacies left. It
is all the big-box stories. Mr. Tamarello had the hardware
store where I grew up. No more family hardware stores. Now it
is Home Depot, Wal-Mart.
But we always had our car dealerships. Jim's family has
been in business at the same location since 1935, an
institution in Mon Valley, in the Turtle Creek Valley.
I wouldn't buy a Jeep from anyone else besides the Golicks.
I don't care that their showroom isn't fancy. I don't care that
it is not the newest, most modern-looking place, or they don't
have a giant floor. What they have is service. They know you
when you come in. They don't take that little piece of paper
back to the manager and say, ``I will try to get you a better
deal,'' and go through that whole dog-and-pony show they pull
at these big places. They give you a good price right upfront.
And they take care of you. That is why I buy Jeeps there. I
wouldn't think of going anywhere else.
I raised my family on Dodge Caravans. My wife Susan and I,
we have four children. That car took care of our family for
years. I owned a bunch of them. Got it from another local
family dealership.
We are losing that. We are losing that in this country,
this idea that you can buy from people you know and trust, that
you know are going to take care of you. You don't have to guess
if they are going to take care of you; you know they are are
going to take care of you. That is why I buy the cars I buy at
the places I buy.
Now, Jim tells me he has met his quota-plus every year
since he has been in business. These guys started out in 1935,
a Hudson dealer. Then it was Jeep, Jeep-Eagle. Then Jeep-
Chrysler, when Chrysler come through.
You can't take people like this of the--you just can't
replace people like this. I can't imagine myself--I have never
bought a foreign car, but I can't imagine myself ever buying a
Jeep again if the Golicks aren't in business in Pittsburgh.
I don't understand how they are costing you money. I think
they are a revenue stream for you guys. And if for some reason
this has to happen, I want to know why you are not taking care
of people who spent 70 years and generations selling your cars
and, as you tell them that they don't have a business anymore,
that you are not doing something to help these guys out in the
transition.
So I have lots of questions, Mr. Chairman. I am just glad
that you are holding this hearing today, so that I can ask
them.
Mr. Stupak. Thank you, Mr. Doyle.
Ms. Sutton from Ohio, please.
OPENING STATEMENT OF HON. BETTY SUTTON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Ms. Sutton. Thank you, Chairman Stupak, for holding the
hearing and inviting one of my constituent dealers, Alan
Spitzer, here to testify today. Mr. Spitzer is losing seven of
his Chrysler dealerships. And, additionally, there are two
other Chrysler dealerships in my district that are being
eliminated.
Across Ohio, 47 Chrysler dealerships are being eliminated,
and the Ohio Auto Dealers Association estimates that 130 GM
dealerships may be cut. The impacts of these decisions on
families and local economies will be substantial. And we heard
from the distinguished gentleman from Pennsylvania, and I
associate myself with his remarks.
On average, 43 people work at a dealership in Ohio, where
the average pay is $44,000 a year. With these closings,
millions of dollars of income will disappear with the jobs. And
those jobs are lost on top of the 2,000 auto manufacturing jobs
that will be eliminated by the closing of the Chrysler
Twinsburg plant, the GM Mansfield Metal Center plant, and GM's
powertrain unit in Parma.
These dealers and their employees, they are not merely
statistics. They have families, they have mortgages, and, dare
I say, they have car payments. And in the time that I have been
in Congress, we have been fighting. We have been fighting hard
to try and keep those jobs in America. Because if people do not
have good jobs in the United States, they are not going to have
any money to buy things and they can't be consumers.
And over the last few months, along with my colleagues,
many of them in this room, we have been working on the Consumer
Assistance to Recycle and Save Act, known as the CARS Act,
which passed earlier this week. And through the CARS Act, it is
going to help manufacturers and it is going to help auto-
related jobs throughout the country, while improving the
environment and helping consumers.
But, again, it is called the CARS Act, but it is really not
about cars, it is about people. It is about the people who
produce those cars. And our job here--the actions that we have
been taking--and it is really hard to understand--have not been
taken just to preserve the brands of GM and Chrysler. It has
been to preserve the jobs, the jobs that our families and our
friends and our neighbors and our communities depend upon for
their tax base, to fund their police and their fire and their
schools and their other city services. It is about people. And
the impact of the decisions that have been made have been
extreme, and they have been decimating to many.
Now, we have been trying to get answers and trying to
understand the rationale that has been undertaken to come to
these decisions. And I think you heard it here today, that we
don't get it. We don't understand it. And we want to know why,
if you are trying to sell more cars, why having less sales
people to do it, who have been committed to doing it for years
and decades on end, will result in more sales.
That just doesn't seem logical to many of us here or
logical to many of the people who are out there in our
communities about to become jobless or who have become jobless
because of the decisions that have been taken. So I am
interested in hearing about that.
And I am also interested in making sure and hearing the
commitment, hopefully from the companies, about how we are
going to keep the market share of cars that are being sold in
the United States from the companies at its present level or
increase it so that we are not selling more cars from GM or
Chrysler that are imported.
Because, again, we haven't been taking these actions to
save the brands. We have been taking these actions to save our
manufacturing base, strengthen our Nation, and to preserve the
jobs of so many that are in our districts and across the
country.
And I yield back.
Mr. Stupak. Thank you, Ms. Sutton.
And the CARS Act that she mentioned is really called ``Cash
for Clunkers,'' as we call it. She was the lead author, along
with myself, Mr. Dingell, a bunch of us on this committee. In
fact, it went through this committee, went to the floor. We had
votes on the floor this week. We got that passed. It is
actually now in conference. So the Cash for Clunkers, hopefully
next week we can have that done. This committee has always been
supportive of the auto industry, no doubt about that.
Last but not least, Mr. Welch from Vermont, opening
statement, 3 minutes, please.
OPENING STATEMENT OF HON. PETER WELCH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF VERMONT
Mr. Welch. Thank you, Mr. Chairman and Mr. Walden. I really
appreciate you calling this hearing.
I am going to be repetitive. The reason I am going to be
repetitive is that this is a catastrophe for every community
where we have car dealers that have been doing a good job. And
you guys know it.
I mean, Mike Doyle was talking about the family
dealerships. I was taking to the Handys--52 years, father to
son, supporting Little League teams, providing good service,
good jobs in their community, and they get a letter telling
them ``no.''
Wade Walker is here from Vermont, one of our great car
dealers who has been playing a lead role. And you have heard
these stories one after another, and it doesn't seem to sink
in.
One of the things that is bewildering to us is that, as we
understand it, the car dealers pay basically for everything.
Every single thing that they get from the manufacturers they
have to pay for, from brochures to signs.
And I just asked Wade to put together a few facts for me.
$22,000 he has to pay every year--$21,000, actually, for
special tools. These are tools you could go down the street and
get for next to nothing, and they have to pay $21,000 to the
manufacturers because that is part of the deal. $2,000 for
parts and service promotion; $3,200 to put up a sign. Your sign
they have to put up every year. They have to sign a contract,
and I guess it is a 10-year contract. They have to pay for
that. $3,200 per employee to send to service training. $10,000
to hook up to the computer. $5,000 for the brochures.
So it is money out of their pocket that supports the
manufacturer. So it is very hard for us to understand why it is
these guys are, quote, ``a drain'' on the business model.
Secondly, I think what you are hearing from all of us is
that there is something wrong with a business model that
basically says, in order to survive, we have to crush our local
dealers; we have to take out of the community some of the folks
in the community that have been doing the most to create a
sense of community and to provide local jobs.
I mean, the economy has to be about making a living in our
local communities. And we are going dead-wrong if we can't have
a business model that rewards local success and gives people in
a community that are willing to take a risk to do a job,
provide a service, be related to their customers, if they don't
have a place in the economy and in the auto future of this
country.
You know, it is almost as though each one of the
manufacturers wants to have one dealer on steroids that can
sell to everybody in the country over the Internet. And it just
ain't going to work.
So, Mr. Chairman and Mr. Walden, I really appreciate you
having this hearing. My hope is that we can find a way where
there is a place that includes our local car dealers who have
been doing so much for so many for so long.
Thank you very much.
Mr. Stupak. Thank you, Mr. Welch.
Ms. Schakowsky, if you have an opening statement, a 3-
minute opening statement, now would be the time. Give yourself
a second, get situated there.
OPENING STATEMENT OF HON. JANICE D. SCHAKOWSKY, A
REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS
Ms. Schakowsky. Thank you, Mr. Chairman. I appreciate this
hearing.
And the circumstances that bring us here today are really
unfortunate. Despite signs that the economic downturn has
slowed and may be even turning around, many Americans are still
unemployed, are fearful of losing their jobs. And, for some,
this fear is--for many, this fear is very real.
Two iconic companies here today, Chrysler and GM, are
closing more than 2,000 dealerships nationwide, with potential
job losses numbering in the hundreds of thousands. This move
will impact every State and city in the United States. On
Tuesday, 789 Chrysler dealerships closed their doors, including
some in Chicago, where I am from. About 2,500 GM dealers closed
by the end the year.
There are three GM dealers in my district and another four
nearby that my constituents depend on. There has been no public
announcement of whether any of those businesses will close, but
the employees and their families go to sleep every night
wondering what the news will bring in the morning.
And I am glad that this committee will have the opportunity
to review how the decisions are made to close certain
dealerships. Closures of local businesses of this magnitude
will severely harm communities and local economies that are
already strained. And nationwide these closures have an
exponentially larger effect.
We have to determine whether the process used for deciding
whether and which dealer to close was fair to all involved. We
also have to begin to think about how to assist those who have
lost or will lose their jobs.
In addition, we must look to the future of our Nation's
historic auto industry. I have no doubt that these brands will
be able to make a comeback building and selling the cars and
trucks of the future, ones that are energy-efficient,
innovative, and uniquely American.
Also, while this may not be the primary focus of this
hearing, it has been brought to my attention that there are
concerns about how GM and Chrysler's restructuring will affect
injury and liability claims from current customers. I think
this issue is important and is something that we may want to
consider in the future.
Thank you, Mr. Chairman, for your indulgence. I yield back.
Mr. Stupak. Thank you.
That concludes the opening statements of all members of the
Oversight and Investigations Subcommittee.
Let me introduce our first panel of witnesses. Some of the
members have asked to introduce some of them. I will yield to
them at the appropriate time. And keep your comments brief.
First, we have Mr. James Press, who's President of
Chrysler, LLC; Mr. Fritz Henderson, chief executive officer of
General Motors Corporation.
Mr. Braley, do you want to introduce Mr. John McEleney?
Mr. Braley. Yes. I am very pleased to have John McEleney,
who is the chairman of the National Auto Dealers Association
and also president of McEleney Auto Center in Clinton, Iowa, in
my district, and also has another franchise in Iowa City.
Welcome, John.
Mr. Stupak. Mr. Alan Spitzer of Spitzer Automotive Group of
Elyria, Ohio. Betty, do you want to introduce him?
Ms. Sutton. Mr. Spitzer, as I said in my opening statement,
has been in the business a long time in Elyria and the
surrounding area, 100 years, I believe, in the auto dealership.
Mr. Spitzer. 105. We are 4 years older than General Motors
and more than 20 years older than Chrysler.
Ms. Sutton. Well, those are pretty deep roots.
And I am honored and grateful, Mr. Chairman, that you
brought Mr. Spitzer here to share his experience, not only in,
obviously, providing our communities with the cars they need to
drive, but helping to shore up so much within our community by
sponsoring organizations and contributing to the quality of
life there.
Mr. Stupak. Next we have Mr. Bob Thomas. Mr. Walden, if
you'd like to say a few words.
Mr. Walden. Thank you very much, Mr. Chairman.
Mr. Thomas is a constituent of mine from Bend, Oregon. His
grandfather formed the dealership for General Motors in 1918.
He served as a lieutenant in the U.S. Marine Corps from 1969 to
1972. He's a graduate of Stanford University.
Serves on the boards of the United Way of Deschutes County,
Greater Bend Rotary, St. Charles Hospital Foundation, Boys and
Girls Club, Bend Chamber of Commerce, Oregon State University-
Cascade's campus, and the Central Oregon Visitors Association--
the kind of person you'd want to represent your company in
central Oregon.
Mr. Stupak. Next is Mr. Daniel Kiekenapp of Tacoma Dodge in
Tacoma, Washington. He was requested by Mr. Dicks.
Thanks for being here. And Mr. Dicks asked that you be
here.
Mr. James Golick--Mr. Doyle, do you want to say a few words
there?
Mr. Doyle. Thanks, Mr. Chairman.
It's a pleasure to welcome my friend Jim Golick at today's
hearing. Jim and his family at Golick Chrysler-Jeep have been
at the same location in Pittsburgh since 1935, a business that
is still owned and operated by his family. They started with a
Hudson franchise. Then Golick sold cars from AMC-Jeep and later
Eagle. Several mergers later, Golick was a successful Jeep-
Eagle dealer until 1999.
In 2000, they acquired the Chrysler franchise. Now they're
a Chrysler-Jeep dealer and have sold over 10,000 new and used
vehicles over the last few decades. They have consistently held
the highest customer satisfaction rating for sales and service
in the State of Pennsylvania.
And I welcome you, Jim.
Mr. Stupak. Next is Mr. Duane Paddock of Paddock Chevrolet
in Kenmore, New York. Thanks for being here.
And last but not least--Mr. Barton is not back--is Mr.
Frank Blankenbeckler III, of Carlisle Chevrolet Company of
Waxahachie, Texas. Frank is here with his son, Austin.
And thank you for coming.
Joe, did you want to say anything about your witness?
Mr. Barton. Thank you, Mr. Chairman. I've been down in the
electricity hearing.
It is my honor to introduce Frank Blankenbeckler. He is a
native of Waxahachie, Texas. Graduated from Waxahachie High
School. Went to the University of Texas, where he lettered in
basketball. Came back home to Waxahachie and entered the
business that his grandfather started in 1926.
He is one of the civic leaders in Waxahachie. He and his
family have been major donors to every civic improvement in the
last 50 years in that community. And, as I said in my opening
statement, last year his business and the 40 employees
generated revenues that resulted in over $1.3 million in taxes
being paid to various State, local, and Federal entities.
He is considered one of the leading entrepreneurs,
businessman, philanthropists of his hometown. And I consider
him to be a personal friend. So we are honored to have him
here.
And, as I said earlier, I think he represents hundreds, if
not thousands, of family-owned dealerships that have been in
business for decades. And most of those dealerships hopefully
want to continue in a positive business relationship that is
positive for themselves and General Motors and Chrysler--and
Ford, who's not here.
Thank you, Mr. Chairman.
Mr. Stupak. Thank you.
And it's also my understanding Mr. Blankenbeckler's son,
Austin, is here, right? He is also in the car business?
Mr. Barton. He is.
Mr. Stupak. OK, that is our first panel of witnesses.
It's the policy of this committee to take all testimony
under oath.
Please be advised that you have the right to be advised by
counsel during your testimony. Do any of you wish to be
represented by counsel?
They are shaking their head ``no.''
If, at any time, you wish to be advised by counsel, let me
know before you answer a question, and we will accommodate
that.
Therefore, since we take our testimony under oath, I am
going to ask you all rise, please raise your right hand to take
the oath.
[Witnesses sworn.]
Mr. Stupak. Let the record reflect that the witnesses
applied in the affirmative.
You are all now under oath.
We are going to start with your opening statement, which
would also be under oath. I am going to ask you to please limit
it to 5 minutes. We have an unusually large panel. That's
because of all the interest in this hearing.
Mr. Press, if you don't mind, we'll start with you, and
then we'll do Mr. Henderson, Mr. McEleney, and then we'll go to
Mr. Thomas and Mr. Blankenbeckler, Mr. Paddock, Mr. Kiekenapp,
Mr. Spitzer, and Mr. Golick. That will be the order.
Mr. Press, would you like to start, please? Five minutes.
TESTIMONY OF JAMES PRESS, PRESIDENT, CHRYSLER, LLC; FRITZ
HENDERSON, CHIEF EXECUTIVE OFFICER, GENERAL MOTORS CORPORATION;
JOHN McELENEY, CHAIRMAN, NATIONAL AUTOMOBILE DEALERS
ASSOCIATION; ROBERT THOMAS, BOB THOMAS CHEVROLET-CADILLAC,
BEND, OREGON; FRANK A. BLANKENBECKLER III, CARLISLE CHEVROLET
COMPANY, INC., WAXAHACHIE, TEXAS; DUANE PADDOCK, PADDOCK
CHEVROLET, KENMORE, NEW YORK; DANIEL J. KIEKENAPP, TACOMA
DODGE, INC., TACOMA, WASHINGTON; ALAN SPITZER, SPITZER
AUTOMOTIVE GROUP, ELYRIA, OHIO; JAMES GOLICK, GOLICK MOTOR
COMPANY, PITCAIRN, PENNSYLVANIA
TESTIMONY OF JAMES PRESS
Mr. Press. Thank you.
Chairman Stupak, Ranking Member Walden, and members of the
committee, I appreciate this opportunity to discuss why a
realigned dealer network is important to the new Chrysler
Group.
Despite completing a painful restructuring, the new
Chrysler Group will retain 86 percent of its dealers by volume
and 75 percent by location. I empathize with the dealers who
were not brought forward into the new company, and I surely
understand their disappointment. This has been the most
difficult business action I have ever personally taken.
I'd like to begin first by answering the four questions
that I have been asked most often while I've been here in
Washington.
First, was discontinuing these dealers really necessary for
Chrysler's survival? The answer is: absolutely, yes.
Today's automative industry cannot support the number of
dealers currently in the marketplace. We have gone from 17
million new vehicle sales in 2006 to less than 10 million
today. As a whole, the Chrysler dealer network is not
profitable and not viable. In 2008, the average U.S. auto
dealer sold 525 vehicles and made a profit of $279,000. The
Chrysler dealer average was 405 vehicles and lost $3,431.
Without profits, dealers can't invest in people or
training, facilities. As a result, sales and customer
satisfaction suffers. The old Chrysler's multiple dealer
channel was too costly to support. I'll give some examples of
that in a moment. And to complete our bankruptcy process and
our alliance with Fiat, we needed a realigned, new dealer
network for the new company to emerge on day one.
On June 9th, the bankruptcy court authorized the
discontinuation of our dealer agreements as part of our
optimization plan. In his order, Judge Gonzalez said the dealer
restructuring plan was, ``an exercise of sound business
judgment made in good faith and for legitimate commercial
reasons.'' The judge also said in his ruling that the dealer
reorganization was, ``appropriate and necessary.'' On June
10th, the Fiat-Chrysler alliance was launched, with a right-
sized new dealer network.
Second question: Dealers don't cost the company anything,
do they? Well, in fact, they do. The cost to Chrysler of an
oversized dealer network includes both lost sales and excessive
spending.
First of all, dealers have a minimum sales responsibility
every year. It's realistic and conservative and based on their
average sales of Chrysler sales. Underperforming dealers cost
unit sales as well as revenue. In 2008, of the 789 discontinued
dealers, 80 percent of them were below their minimum sales
responsibility, which translated into 55,000 lost sales, $1.5
billion in lost revenue.
Second, the old Chrysler dealer network included many
dealers that sell only one or two of the three brands. This has
led to tremendous redundancies and inefficiencies in product
development and brand strategy.
For example, we spent $1.4 billion in the last product
cycle in engineering and development cost for sister vehicles
that did not return 1 cent of incremental profit or sales. For
example, Chrysler currently supplies dealers with two similar
minivans, two similar full-size sport utilities, two similar
mid-size SUVs, and two similar sedans.
We cannot afford to produce unique products any longer, and
that is one of the real reasons that the company had to declare
bankruptcy.
Other cost inefficiencies include $150 million annually in
marketing and advertising, $33 million annually in just
administrative costs to work with the dealer body.
Third question. My discontinued dealer says he is
profitable, so why not keep him? Profitability alone is not an
adequate measure to determine a dealer's viability or value to
Chrysler's future. Chrysler's discontinued dealers were, for
the most part, the least profitable dealers in the network. On
average, the discontinued dealers lost $73,000 last year.
But, of course, some of them are profitable, yes. Some of
them are profitable, but their new Chrysler business may not
be. In fact, most of the profitability of these dealers in
question is driven from used car business or the sales of other
makes in this same business.
Several problems beyond profitability contributed to
certain dealers being discontinued. Many dealers are in the
wrong location. Five hundred and fifty-five of the 789 are
standalone. They do not have all three brands. They aren't
viable. We can no longer produce products to keep those dealers
alive. Fifty percent sell a hundred or fewer vehicles per year.
Eighty-four percent sell more used than new. Forty-four percent
sell competing brands in the same showroom.
Here is a typical example, a Dodge dealer in the mid-
Atlantic area. This dealer is profitable, but he also sells
Buick, Pontiac, Subaru, Isuzu, and of his new car sales Dodge
only represents 3 percent of his sales, total sales for his
dealership last year. That is a good example of the situation
that we face.
So while some of the 789 dealers may be profitable, chances
are they are making money selling used cars, competitive
vehicles; and, by our assessment, they are a drag on the
network in total.
The last page of my presentation isn't here, but I will
paraphrase it very quickly. And that is that this is a very
painful process. Going through bankruptcy was not our choice.
The company is no longer a functioning organization. We have
had to make some very difficult decisions in business that
would assure, by making these tough calls for 789 dealers, we
have got 2,391 dealers not represented here, in small towns,
with Little Leagues, with a lot of employees whose jobs and
business is saved, along with the full enterprise of our
company, the suppliers, and the rest of the Nation.
This was a very difficult decision that we have made. It is
one that we want to share with you in terms of transparency. We
have taken every step to make this a soft landing for the
dealers involved. And you will find out soon that all of the
vehicles in the discontinued dealers have been redistributed,
along with most of the parts and most of the equipment.
We stand ready to answer your questions and respond to any
suggestions that you may have. Thank you very much.
[The prepared statement of Mr. Press follows:]
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Mr. Stupak. Thank you. Thank you, Mr. Press.
Mr. Henderson, your opening statement, please.
TESTIMONY OF FRITZ HENDERSON
Mr. Henderson. Good morning and thank you, Chairman Stupak
and Ranking Member Walden.
Mr. Stupak. You may want to pull that just a bit closer.
Mr. Henderson. Behind each action we are taking to reinvent
GM, there is a human story. Our dealers are part of the larger
GM family. They are valued business partners and, for many
consumers, the face of General Motors. However, the sacrifices,
all painful, that we are all making are necessary to put GM on
a brighter path to long-term viability and success.
We owe this to the U.S. taxpayer. In essence, this is our
last chance to deliver and reduce debt, to operate under
competitive labor agreements, to have the manufacturing
capacity that matches today's market realities, and, most
importantly, to continue to design and build winning cars and
trucks with leading technology.
We simply cannot undergo this sweeping transformation
without a comparable effort to reshape our retail network, one
which was largely created in the '50s and the '60s. We have
been called upon to make tough commercial decisions, and we
will do so responsibly and compassionately and, in the case of
our dealers, to act as carefully, responsibly, and objectively
as we can to help them wind down their businesses in an orderly
fashion, with a structured assistance package that benefits
them relative to their alternatives.
This approach is in stark contrast to what happens in most
contracts in bankruptcy, where contracts are typically simply
rejected with no assistance. And, unfortunately, we are a
company today in bankruptcy.
Let me first discuss costs and then sales opportunities
that are relevant to these dealer decisions. A concentrated and
highly profitable dealer network will reduce costs for GM at a
time when every dollar is precious. These cost savings come in
two categories. A right-sized network of strong dealers will
allow GM to systematically--and this is over time--reduce
direct dealer support programs, which today involve for General
Motors about $2 billion here in the U.S., or approximately a
thousand dollars per retail sale. This is a gross savings of a
little less than a million dollars per discontinued dealer.
This, however, does not take place immediately, because
these support programs, or in fact subsidies, have been
incorporated over many years to help dealer profitability as
our dealer network has, unfortunately, weakened financially. To
the best of our knowledge, our best-in-class competitors today
bear few, if any, of these costs.
Our consolidation will also provide an estimated $415
million in gross fixed-cost savings potential, items like
guaranteed local advertising--excuse me--assistance, service
and training, and information technology systems, for a
potential of approximately $180,000 per dealer.
Second, our dealer consolidation is not just about saving
money but about creating opportunity and revenue growth. It is
about our dealers augmenting our efforts to greatly enhance
consumer perception in our products, brands, and General Motors
directly and on a daily basis.
That is why in every other aspect of the retail business,
from Harley-Davidson to Apple stores and, yes, Toyota and
Honda, you see that a premium is placed upon creating a
distinct, consistent, and top-notch retail experience. That is
why we are building a profitable business plan for between
3,500 and 3,800 U.S. dealers by the end of 2010, which, with a
retail sales market of over 10 million units and a conservative
share assumption, would allow our dealers to approximately
double their throughput. For dealers, this translates into a
greater return on investment, better profits, and the ability
to attract and retain new customers and the best people to
service our vehicles.
Finally, even with these cutbacks, GM will still have the
largest dealer network in the country, more than any of our
competitors. In our case, around 3,600 versus, for example,
Toyota's at 1,200. This would include an extensive rural
network of 1,500 dealers nationally in markets where we hold
today on average more than a 10 point advantage in market
share.
While we are operating with a high sense of urgency, it is
equally important we get this process right, considering the
personal and financial stakes at hand. We recognize we won't
get every call right. That is why we are listening and working
with the dealers and with the NADA to give us all a better
understanding of their concerns. As a result, we sent our
dealers a letter this week clarifying various subjects in the
participation agreement, most notably dualing with competitive
makes and performance standards.
So what is the current status of our work on this important
front? We have in place an appeals process and have considered
856 appeals requests as of yesterday and have granted 45. We
will continue to evaluate all GM dealers against a common set
of performance standards to ensure that our selection process
is fair and robust.
As of today's deadline, we are encouraged by the progress
we are making, and the overall dealer response has been strong.
Approximately 99 percent of GM dealers have signed or verbally
agreed to our participation agreements, while almost 96 percent
have done so with the wind-down agreements.
In closing, we are deeply grateful for the support of these
dealers. They are helping to create a viable GM that will
preserve over 200,000 jobs at GM's remaining dealers, along
with hundreds of thousands of jobs with GM's direct
manufacturing and supply network.
We are also grateful for your support during this critical
time. We take our responsibility to the American taxpayers very
seriously, and we promise to be open and transparent in all we
do every step of the way.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Henderson follows:]
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Mr. Stupak. Thank you, Mr. Henderson.
Mr. McEleney, please, National Auto Dealers Association.
TESTIMONY OF JOHN McELENEY
Mr. McEleney. Thank you, Chairman Stupak, Representative
Walden.
My name is John McEleney, Chairman of NADA, the National
Automobile Dealers Association. I am also President of McEleney
Autocenter of Clinton, Iowa, which is in the district of
Representative Bruce Braley. We operate General Motors, Toyota,
and Hyundai franchises and have been in business for 95 years;
and we provide jobs for 140 people. Additionally, my family
held a Chrysler franchise from 1984 to 2007.
NADA welcomes engagement of this subcommittee. This panel
has a long history of aggressive congressional oversight, and
that is exactly what we need to enhance your understanding of
the Chrysler and GM bankruptcy proceedings. The lack of
transparency during this government-structured process has
compounded our concerns about the treatment of dealers
throughout this ordeal.
In the initial viability submissions, Chrysler mentioned
nothing other than continuing their current program to
facilitate dealer consolidation. Yet bankruptcy has left 789
Chrysler dealerships without franchises on 26 days notice
without even buying back their vehicles, parts, and factory
specific tools. No manufacturer has ever done this.
GM's original viability submissions reflected the desire to
eliminate some brands, and its call for additional dealer
consolidation was over an extended period of time. Now, besides
the brand eliminations, 1,350 additional GM dealers face
terminations on a much more aggressive timeline.
Why this dramatic shift? In response to a question before
the Senate Banking Committee on June 10th, Ron Bloom of the
Auto Task Force said, and I quote, we did not give the
companies a numerical target, but we certainly did say,
regarding plants, regarding dealers, regarding white and blue
collar head count, regarding all these matters that you need to
be more aggressive, close quote.
Everyone agrees that these companies need to decrease costs
and increase revenue, but dealer cuts do not achieve these
goals. The other key elements of the restructurings provide
direct and timely cost savings to GM and to Chrysler. In sharp
contrast, terminating a dealership does not provide any
material cost savings. The retail network, the land, the
buildings, the employees, training, the dealers pay for all of
this.
As detailed in my written testimony, we dispute the notion
that the dealer network imposes any significant per vehicle
cost or any significant administrative costs on the
manufacturers. Indeed, company officials have been widely
quoted as saying that the manufacturers' costs do not vary,
whether there are 6,000 dealers or 3,000 dealers. Moreover, the
faster, deeper approach of the Auto Task Force will actually
reduce manufacturer revenue at this critical juncture.
Over 90 percent of Chrysler and GM's revenues come from the
dealers. Because the dealers buy the cars, the parts, even the
dealership signs from the manufacturers. Automakers will tell
you that it takes at least 18 months to regain the sales of a
closed dealership. And that is the best-case scenario. In
short, the dealer terminations will cause revenue losses for
the manufacturers without any corresponding cost savings. As
such, we do not see how these cuts make economic sense, not for
the companies, not for the dealers, not for local communities,
and certainly not for the struggling U.S. economy.
Now I will turn to the status of the GM agreements, both
the participation agreements for those dealers going forward
and the wind-down agreements for those dealers who lose their
franchises.
Last week, during my testimony to the Senate Commerce
Committee, I voiced NADA's concerns about the extremely one-
sided participation agreements delivered to 4,000 dealers of
the new GM. During that hearing, Mr. Henderson committed to
meet with NADA to discuss our concerns. GM followed through on
that commitment. Our leadership met with senior GM officials
last Friday, and we had a very frank discussion. As a result,
GM has agreed to make significant improvements in the
participation agreement. Additionally, GM is committed to
clarify some of the terms of the wind-down agreements, and NADA
will continue to work with GM to improve these agreements. We
appreciate GM's efforts to interact with NADA on these crucial
matters.
In conclusion, Mr. Chairman, I want to thank you again for
convening this hearing, because we still have fundamental
concerns. These government-negotiated bankruptcies continue to
threaten dealer rights under State motor vehicle franchise
laws. These laws inject balance in the inherently unbalanced
economic relationship between a dealer and the manufacturer;
and they also provide consumers a reliable, convenient, and
competitive auto retail network. Therefore, Congress should
ensure that the franchise laws of 50 States apply with full
force and effect, especially when the new Chrysler and the new
GM are operating outside of bankruptcy.
We urge Members of Congress to support H.R. 2743, which
would restore fundamental rights to dealers. We stand ready to
work with you to achieve this goal.
Thank you for holding this important hearing, and thank you
for the opportunity to testify.
[The prepared statement of Mr. McEleney follows:]
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Mr. Stupak. Thank you.
We are now going to go from my left to right with the
dealers.
Mr. Thomas, would you like to begin? Pull that mike over,
turn it on until you get a green light, and speak into it so we
can hear you and they can also pick it up.
TESTIMONY OF ROBERT THOMAS
Mr. Thomas. Thank you Mr. Chairman, Ranking Member Walden.
May 15, 11 a.m., the FedEx truck arrives. Employees watch
as the driver hands me the thin cardboard envelope that
contains our destiny. I received an unsigned letter from
General Motors. The tone of letter was vague and referred to
criteria but not the specific methodology, neither stating the
relative importance of each, nor how great a period of time was
being referenced.
The letter stated, quote, we don't think we will be able to
renew your contract in October 2010. This is not final. Submit
what you like by the end of the month to this e-mail address.
The significance of this letter became clear on June 2,
when the content of the vague letter had been construed into
the offer of a wind-down agreement. The agreement offered on
the 2nd had to be returned in time to arrive in Detroit by the
12th, a scant 10 days to decide one's options, to confer with
professionals regarding unprecedented legal matters and loved
ones about our financial and professional future.
My grandfather immigrated to the U.S. in 1900 and by 1918
had established himself as a Chevrolet dealer in Bend, Oregon.
His daughter married my father, and he was a dealer until 1982,
when I succeeded him. Our company has woven itself into the
social fabric of the community since the time it was a village.
Our family has provided automobile sales and service, civic
leadership, and community involvement every year continuously
since 1916.
These are hard times for Bend, but not as difficult as
those we survived in the Great Depression and the world wars.
General Motors has been with us the whole time, from 1918
forward.
We have been GM to our community. Now it is a dark time
when GM must abandon our town, our region, and us. Just as GM
is an icon, we enjoy iconic status in our region: Always there,
always helpful and compassionate, always acting responsibly.
The letters we garnered in support to our appeal to GM were
humbling in their appreciation of our caliber and quality of
service and community support. Moreover, there was confusion as
to why Bend, now 80,000 strong, will be abandoned, as will we,
their dealer of choice, the largest GM dealership in central
and eastern Oregon.
Their world is crumbling. Things they thought they could
count on are being taken away: Long-standing reliability,
integrity, a safe harbor. In a very real sense, our customers
are afraid.
Who benefits from this taking, this cancellation that is so
unnecessary, so wrong, so wrongly executed? Not GM. Having no
dealer in Bend will not increase GM's sales. Not the 216,000
people in our region who are left solely with a small GM dealer
in the tiny town at its perimeter, with limited inventory and
repair capacity. Not our community, who has relied on us always
to generously support its activities. Not our employees, who
are highly trained to work on sophisticated GM products like
Cadillac and Chevrolet and service clientele with courtesy and
compassion. Not our customers, who bought our products
thinking, like we did, that we would be here forever.
That is our business model, the longest term you can
imagine. Always do it right. Be here for the long haul. Earn
the loyalty of your clientele, and they will reward you with
long-term patronage.
Over the years, that has been GM's business model, too; and
we were a good fit for 91 years until we got cut from the team.
Why are these cuts necessary? I recently attended a meeting
of letter recipients in Oregon. Who was there? A roomful of
respectable business people with whom I have attended GM
business meetings for 30 years. Obviously, they are able
business people to have survived, as have we.
The marketplace should be the sole arbiter of who should
fall by the wayside, not the arbitrary acts of well-meaning
administrators. If the plan is to replace us with another GM
dealer, why have we been deprived of the opportunity to make
such a transaction with their approval? Will our market be
awarded to a GM favorite or insider? This would seem to be an
unreasonable and wrongful taking of a valuable asset nurtured
through the years, only to be snatched by an overreaching at a
moment of opportunity inside the bankruptcy.
And what of the inventory that remains? In our case, some
$4 million, the value of which could shrink by a million or
more from what we paid. Over a year's supply of GM cars await
our sale. A half-a-million dollars of parts cannot be returned.
What I would hope for in such dire straits would be a
request of reason. Allow us to provide support for those GM
customers in our region and relieve us of the inventory
obligations we incurred in good faith by repurchasing at what
we paid. This is a small price to pay for potentially depriving
a long and faithful associate of its livelihood.
[The prepared statement of Mr. Thomas follows:]
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Mr. Stupak. Thank you, Mr. Thomas.
Mr. Blankenbeckler, your opening statement, please, sir.
TESTIMONY OF FRANK A. BLANKENBECKLER, III
Mr. Blankenbeckler. My name is Frank A. Blankenbeckler,
III. I am the dealer-principal of Carlisle Chevrolet-Cadillac-
Jeep in Waxahachie, Texas, to my knowledge the oldest Chevrolet
dealership in the State of Texas. The Cadillac line was added
in 1990, and the Jeep line was added around 1978.
This dealership was operated continuously in the same
community, with the same family ownership since 1926. The
dealership was found in 1926 by my maternal grandfather, Y.C.
Carlisle. My father, Frank A. Blankenbeckler, Junior, who was
awarded a bronze star for his service to his country at
Bastogne during World War II and who received a masters in tax
law from Harvard, married my mother in 1947 and moved to
Waxahachie to be the dealer at Carlisle Chevrolet for the next
55 years.
I graduated from the University of Texas in 1974 with an
MBA. Since that time I have had one job. I have been a GM and
Jeep dealer for nearly 35 years.
Approximately 3 years ago, my son graduated from Ole Miss
and joined me at the dealership to fulfill his childhood dream
of being an automobile dealer like his father, his grandfather,
and his great grandfather before him.
During these 84 years of dealership ownership and
operation, my family has been one of the most generous and
civic minded in Waxahachie. My family was very instrumental in
the founding of Baylor Hospital there, the YMCA, served on the
school board, and made many other numerous contributions, too
numerous to mention.
The point of this type of introduction is to state that my
family has been an integral and generous part of Waxahachie for
a long time.
On May 13th, I received a letter from Chrysler. It stated I
will no longer be a Jeep dealer after June 9. On May 14th, I
received a letter from GM stating that my Chevrolet and
Cadillac dealer agreements would not be extended beyond 2010.
In 24 hours, I was told that everything my family and I had
worked for for 84 years would be taken away, with no
compensation.
I have introduced a folder which conveys some facts about
Carlisle Chevrolet. I would like to request this folder and the
balance of my testimony be entered into the record.
Mr. Stupak. Without objection. Mr. Walden had supplied it
to the committee. Without objection, it will be part of your
testimony.
[The information was unavailable at the time of printing.]
Mr. Blankenbeckler. The pages of this folder show the
location of the dealership, including an article by the local
paper and a page of facts about the dealership.
I would particularly encourage you to look at the total
amount of taxes paid by Carlisle in 2008, about $1.3 million.
It contains sales history, CSI scores, and a couple of articles
about the dealership that is located next door. I can assure
you Carlisle is not the bottom of the heap in regards to its
peers per this folder.
I want to make mention of my employees. Over the years,
Carlisle has had numerous employees that had worked for my
family for 35 to 50 years. Time doesn't permit me to do them
justice. My point is Carlisle has had and currently has the
best people in the industry.
I would like to mention to the committee the human element
of these actions by GM and Chrysler. Nearly 90 souls depend on
Carlisle for their existence. With our closing, these people
will be subjected to serious economic hardship.
I have had numerous offers to sell my business. I have had
that right taken away. My family will be left with a single-
purpose dealership facility with no tenant. This is senseless.
My grandfather paid for Carlisle Chevrolet from his labors.
My father paid my grandmother for Carlisle Chevrolet through
his efforts. It took me nearly 20 years to pay my parents for
Carlisle Chevrolet. It took GM and Chrysler a mere 24 hours to
take Carlisle Chevrolet from me.
This makes no sense. Why is this happening? GM and Chrysler
have stated publicly they have not used the Bankruptcy Code to
usurp State and local motor vehicles codes and statutes. This
is patently not true. I don't care how it is spun.
GM dealers have offered either a wind-down agreement or
participation agreement. The content of the agreements is
horrible. Dealers are told to either sign the agreements or GM
will petition the bankruptcy court to have them immediately
terminated. There is no alternative to signing these new
agreements. This is wrong.
Now I would like to address what I think is the most
important part of my testimony. In a period of 24 hours, my
business was essentially taken from me with no real explanation
other than that these are difficult times. How in this country
can a man's property be taken without due process and without
compensation and apparently given to another dealer with better
political connections who has been in my community for less
than a year for nothing?
I adamantly think my constitutional rights have been
violated. I think I am a victim of an illegal taking. This is
the most important point of this hearing in my mind, and I
think it is the feeling of all the dealers that are in the same
position. I feel like it should be the concern of all
Americans. When your property rights are destroyed, how long
will it be until it happens to you?
I am hurt. I feel violated, and I am extremely upset. I
wear my father's Bronze Star lapel pin on my coat. He was truly
a member of the greatest generation. I am glad that he is not
alive to witness this terrible injustice. To have risked his
life for a country that does what they are doing would have
destroyed him.
I love my country, and I love my State. I feel great pain
from what is happening. It is my hope and my prayer that I will
be able to continue my life and not be consumed by bitterness
should this situation not be reversed and this country not
return to the tenets of the Founding Fathers who created it.
Thank you for hearing my testimony.
[The prepared statement of Mr. Blankenbeckler follows:]
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Mr. Stupak. Thank you.
Mr. Paddock, your opening statement, please, sir. You may
want to pull that mike a little bit closer. They don't pick up
as well as we think they do. Thanks.
TESTIMONY OF DUANE PADDOCK
Mr. Paddock. Good morning. I am a ``go forward'' dealer. My
name is Duane Paddock, dealer-owner of Paddock Chevrolet in
Kenmore, New York, where we employ 135 of the finest, most
hard-working Americans in the Buffalo area. I am proud to say
that Paddock Chevrolet is currently the largest GM dealership
in the Nation, and we have been proudly serving western New
York for almost 75 years.
I am really pleased to be here today. It seems especially
appropriate for me at least, since my father passed away
exactly 15 years ago to this day. It was on that day the
livelihoods of my employees were passed on to my hands, and our
company's responsibility to our community had to be preserved.
In addition to my responsibilities at the dealership, I
serve as Chairman of GM's National Dealer Council, known as the
NDC, for the past 2\1/2\ years, a position I was elected to by
my fellow GM dealers.
The state of our industry is this. The U.S. marketplace for
automobiles is the most open and competitive in the world, with
that competition taking place across a wide variety of brands
and competing dealers and now the Internet. But it is a
recognized fact that, since 2006, a rapid decline of our retail
business across all automakers, domestic and foreign, has
occurred.
Our industry has gone from an annual selling pace of over
17 million units to just more than 9 million. My fellow dealers
of every brand, both GM and non-GM, have suffered huge
financial losses in a very short period of time. The amount of
working capital necessary to fund their day-to-day operations
has been severely diminished. In addition, bank loans to
dealers for working capital are essentially nonexistent.
As I sit before you today, I am a franchisee of a company
going through a painful restructuring, a restructuring that is
not only necessary, but it is critical to the future of our
customers, suppliers, dealers, employees, and other
stakeholders. Some of my fellow dealers, many of whom I
consider friends, received notices this past few weeks that
they will not be part of the new GM.
While I cannot advocate the termination of any individual
dealership, I will tell you that the Dealer Council will work
vigorously with senior GM management over the past 2\1/2\ years
to address circumstances that we dealers face today. During my
tenure as chairman, all meetings between the NDC and GM
management have and will continue to be led with dealer
profitability as the primary goal of our dealer network. That
is because dealer profitability and the reinvestment it makes
possible are the keys to improving our customer experience at
our dealership and improving that experience is essential to
our ability to compete against our best competitors.
I also can tell you that, regarding the restructuring of
the GM dealer network to improve its competitiveness, GM has
elected to wind down affected dealers over a 17-month period,
allowing them to make an orderly business planning decision
about their futures. In addition, GM has recognized the need--
--
Mr. Stupak. It is just going to buzz. Go ahead. Keep going.
Mr. Paddock [continuing]. GM has recognized the need to
offer certain compensation to dealers winding down their
operations, something Chrysler clearly chose not to do.
Before I conclude, I should tell you that the vast majority
of GM dealers I know are also overwhelmingly optimistic about
GM's future. They believe in the uncompromising quality,
reliability, and dependability of our current portfolio of
vehicles. I can tell you that in my 26 years at Paddock
Chevrolet, I have never had a better portfolio of vehicles to
sell. The stunning designs and compelling fuel economy
improvements of these vehicles gives us hope for the future.
In closing, let me say I appreciate your time and, more
importantly, your understanding of the significant impact a
successful General Motors will have on this great Nation. My
family has been a part of GM for decades, my father as a GM
dealer, my two uncles, who were UAW members working at the
Tonawanda engine plant. Since the day I was born, everything my
family had came from their association with GM, from the food
on my table to the 1982 Camaro I proudly drove to my high
school graduation.
Paddock Chevrolet and all GM dealers are and will continue
to be a vital part of the future success of the new GM. I, like
my father before me, will continue to work tirelessly to ensure
that a vibrant GM dealership can be proudly passed onto my
children and will continue to be a fixture in the Buffalo
community.
Thank you for this opportunity, and I look forward to
answering your questions.
[The prepared statement of Mr. Paddock follows:]
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Mr. Stupak. Thank you.
Mr. Kiekenapp, can we get your testimony in?
We have one vote, and I will let Members know I plan on
getting through this testimony of this witness, and then we
will take a 15-minute break and get right back and finish up
this hearing. This is the only vote we will have today, so we
will get it done.
Mr. Kiekenapp, if you can, please.
TESTIMONY OF DANIEL J. KIEKENAPP
Mr. Kiekenapp. Mr. Chairman and Members of the
subcommittee, my name is Daniel J. Kiekenapp; and I am the
general manager and a shareholder of Tacoma Dodge, an
automobile dealership in Tacoma, Washington. Thank you for
giving me the opportunity to tell you the Tacoma Dodge story
and how the TARP funds you authorized are being used.
Tacoma Dodge has been in business continuously since 1972.
Until this week, the dealership was valued at several million
dollars and employed 71 people. In the month of April 2009, the
last month for which we have a complete report, reports
prepared by Chrysler showed that Tacoma Dodge was ranked number
one in western Washington and number two in the entire State of
Washington for the sale of new Dodge vehicles.
These reports, prepared by Chrysler, also show that out of
eight western States covered by the reports Tacoma Dodge ranked
32 out of 313 dealers for the sale of Dodge vehicles. Other
reports prepared by Chrysler for the area Chrysler termed Team
Washington, which covers more than the State of Washington,
shows that in 2006 Tacoma Dodge was ranked 7th out of 60
dealerships; in 2007, it was ranked 8th out of 41 dealerships;
and, in 2008, our worst year ever because of the economy and
the public's lack of enthusiasm for Dodge vehicles, we still
ranked 8th out of 35 dealerships. These stellar sales rankings
were accomplished in competition with other dealers selling
multiple lines of Chrysler vehicles, whereas Tacoma Dodge only
had the opportunity to sell Dodge brand vehicles.
The Dealer Performance Report prepared by Chrysler for year
end 2008, comparing Tacoma Dodge with the Dodge dealers in
Washington State, shows we have net earnings of $1,704,249,
whereas the group average for the same period was $680. Yes,
only $680 average per dealership.
We enjoyed the same success with our parts business. The
dealer scorecard for December 2008, a report prepared by
Chrysler, shows that in 2008 Tacoma Dodge purchased $3,895,166
worth of new parts from Chrysler, whereas the average dealer
within the United States purchased a total of only $746,107
worth of parts. Chrysler designates its top 100 dealers for the
sales of parts as Mopar Master Dealers. We were one of these
top 100. In fact, we ranked number 76 among all the Chrysler
dealers in the United States for the sale of parts.
In the area of customer satisfaction and retention, we
consistently outperformed our peers. As of February, 2009,
Tacoma Dodge had an over 25 percent customer retention average,
as compared to approximately 17 percent average for all of the
Chrysler dealers in the western United States.
Our problems began when Chrysler assigned us an
unreasonably high minimum sales requirement, requiring us to
sell an unrealistically high number of vehicles. We didn't
understand why Chrysler would assign us such an unreasonably
high number, so we looked at the demographics they used and
found they had made several errors in the traffic patterns and
other demographics they used for our market area. We then
pointed this out to Chrysler and asked them to recompute our
minimum sales requirement based upon the correct demographical
information. Unfortunately, Chrysler refused to even consider
our request.
In the spring of 2008, I attended the only dealer meeting I
am aware of, whereby representatives of Chrysler explained
Project Genesis to the Chrysler dealers in western Washington.
Project Genesis is the name of their program to reduce the
number of dealers. During that meeting, representatives of
Chrysler stated that under Project Genesis there would be two
Chrysler dealerships in Pierce County, Washington, and one of
those dealerships would be in the City of Tacoma so that the
needs of Chrysler customers in Tacoma would be adequately
addressed.
On May 14, 2009, I received notification from Chrysler that
it intended to terminate Tacoma Dodge as a dealer. In the State
of Washington we have a Franchise Act to protect dealers from
manufacturers unreasonably terminating a dealer. Under the
Washington Franchise Act, Chrysler would never have been able
to terminate Tacoma Dodge, since Tacoma Dodge was one of its
most outstanding dealers, using any yardstick you want to use
to measure our performance. However, the notification from
Chrysler told us we were being terminated under the U.S.
bankruptcy laws, which provide no such protection to dealers.
The termination of Tacoma Dodge leaves the city of Tacoma,
which is the second largest city in western Washington, with a
population of almost 200,000, without a single Chrysler
dealership. Chrysler's termination of us also leaves Pierce
County, which has a population of almost 800,000 persons and is
the second most populous county in the State of Washington,
with only one Chrysler dealership.
As a result of Chrysler's actions, Tacoma Dodge, which in
April was ranked the number one Dodge dealer in western
Washington, can no longer sell any new vehicles, nor can we do
any warranty work on any new vehicles. We have been reduced to
being a used car lot and a neighborhood automobile repair
facility. In the process, 35 faithful and loyal long-term
employees have lost their jobs; and Pierce County and the State
of Washington have lost a payroll of approximately $1.3 million
per year.
Again, thank you for the opportunity you have given me to
tell you how the TARP funds you authorized are being used.
[The prepared statement of Mr. Kiekenapp follows:]
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Mr. Stupak. Thank you, and thank you for your testimony.
We have a vote on the floor. It is only one vote, so I am
going to ask Members to--let's recess right now, go down and
vote. We will come back. We will hear from Mr. Spitzer and Mr.
Golick, and we will go right into questions.
So please come back in 15 minutes. We are going to be in
recess for about 15, 20 minutes, give you all a chance to
stretch your legs. And see you back here in about 15, 20
minutes.
We are in recess.
[Recess.]
Mr. Stupak. The committee will come back to order, and we
will wait for the rest of our folks to reassemble. No more
votes today, so we should be able to continue our hearing
uninterrupted.
When we left off, Mr. Spitzer, I believe we were up to you
to give an opening statement for 5 minutes, please, sir. Take
your time. Pull that forward. You are on.
TESTIMONY OF ALAN SPITZER
Mr. Spitzer. Chairman Stupak, Ranking Member Walden,
distinguished members of the subcommittee, I want to thank you
for the honor of appearing here today. I would especially like
to thank Congresswoman Sutton for her role in providing this
opportunity to represent my fellow dealers.
We are losing seven dealerships because Chrysler, the
bankruptcy court, and the executive branch of our government
have acted precipitously to deny us our economic rights. This
is a public policy issue worthy of your time and worthy of
congressional legislation, since without your prompt
intervention to restore rights to franchisees under State law,
2,000 businesses and approximately 100,000 jobs will be lost.
As a Nation, can we really afford to let this take place? I
urge Congress to enact H.R. 2743, the bipartisan Automobile
Dealer Economic Rights Restoration Act, next week.
We have a long and proud history with Chrysler and GM. The
majority of our stores sell these brands and these brands only.
None of our stores are dualed with other brands. We have a
combined 374 years of business relations with Chrysler alone.
We are passionate about both Chrysler and GM, and we want
both companies to succeed. We are committed to helping them do
so. That is why we are both disappointed and perplexed by the
recent actions to terminate us and over 2,000 other dealers.
We are not perfect. During those 374 years of operations,
we have made mistakes. Like Chrysler's managers, our managers
aren't perfect either. Nevertheless, we have stood shoulder to
shoulder with Chrysler during good times and bad. In fact, my
Uncle Del, as the President of the Dodge National Dealer
Council, lobbied this very Congress for funds to bail out
Chrysler the first time. We never quit on them, and they
shouldn't quit on us and the hundreds of other dealers who
remain committed to Chrysler.
This issue is not about the Spitzer family or our seven
dealerships that are being terminated or even the 300-plus
employees who work in them. It is about destroying the entire
net woth and life's work of hundreds of entrepreneurs and the
thousands of people they employ. And I fear that these actions
by Chrysler and GM will lead to their demise. And all of it is
unnecessary.
First, our dealerships do not cost manufacturers one dime.
All products and services which Chrysler and GM provide are
charged back to the dealership at a profit. Whether it is
special tools, training, or even those colorful brochures, we
pay for all of it. We build our own facilities, we provide our
own operating capital, we hire our own people; and if we lose
money, it comes out of our pocket.
Second, Chrysler has argued that the 789 dealerships
terminated were for performance reasons or to put all brands
under one roof. As demonstrated by the sworn testimony of
myself and dozens of other dealers in the bankruptcy court,
many of the terminated dealerships were high-performing or
Genesis stores or both.
Chrysler did not terminate dealers for the stated reasons
but rather to rid themselves of outspoken dealers and will now
redistribute to other dealers while skirting around the laws of
all 50 States, laws which otherwise prohibit this type of
arbitrary and capricious action. Profitable, high-performing
dealerships will be given to our fellow remaining dealers with
no due process and no compensation whatsoever.
It is unconscionable for a failed private business to
bankrupt another private business which was succeeding. But
when our government uses its power, its influence, and our
money to aid and abet such action, it is downright unAmerican.
At a time when our government is spending billions of
dollars to stimulate the economy and create new jobs, this
action will destroy 37,000 jobs with Chrysler dealers and quite
likely another 60,000 or more at GM dealerships and millions
and millions of local tax dollars will be lost and all for no
good reason.
In fact, this plan may ultimately destroy the new Chrysler
and severely damage GM's hopes of survival. Dealers are their
only customers. We are the face of these once-proud car
companies in our communities. The fact that we have survived
and prospered over the last hundred years, even as they often
produced vehicles American consumers did not want, proves that
independent entrepreneurs find ways to survive and create
employment opportunities even in tough times.
If Congress does not step in, dealers will be unwilling to
invest in new facilities, purchase millions of dollars in
inventory, and otherwise risk their capital if State law
protections are meaningless and if it could all be taken away
in the next downturn. Fewer dealers today means fewer sales of
Chrysler and GM products tomorrow, leading to a further erosion
of market share for both companies.
Allow the marketplace to select who lives and who dies, not
some committee in Detroit. As of today, approximately 350 of
the 789 rejected dealers have accepted their fate by not
objecting to their terminations. Thus, the accelerated
reduction of dealerships has already occurred for those who
believe such a reduction was necessary. There is no need to
eliminate those of us who remain committed to Chrysler and GM's
success.
I thank you, Mr. Chairman, and I can assure you that I will
work tirelessly and will not rest until H.R. 2743 becomes law,
which already has over 100 cosponsors, Congressman Maffei,
Congresswoman Sutton, Congressmen Hoyer and Van Hollen and
others who have supported our bill, and we have only been out 3
days.
So thank you for your time, and I will answer any
questions. Thank you.
[The prepared statement of Mr. Spitzer follows:]
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Mr. Stupak. Thank you, Mr. Spitzer. You want to hand that
mike to Mr. Golick.
And we will hear from Mr. Golick.
TESTIMONY OF JAMES GOLICK
Mr. Golick. Distinguished members of the subcommittee,
thank you for this opportunity to testify today. I am one of
the 789 dealers that Chrysler is terminating, and I am here to
give you my views on the situation and to advise you on what
you can do to help us.
My dealership is located in a suburb of Pittsburgh. We have
been there since 1935 and been in our present building since
1948, and we are a family-run dealership. I am the third
generation to sell new vehicles at our facility.
One of the distinguished members of your subcommittee,
Congressman Doyle, has bought three new vehicles some us and
sent some of his friends and family to our store, so he knows
firsthand what we are all about and how we run our business. My
family and employees have worked very hard to maintain our
excellent reputation. The Golick name has been synonymous with
trust and integrity.
I want to tell you next about the pressure that Chrysler
placed on me several years ago to purchase the Chrysler
franchise from a neighboring dealer. They pushed me into paying
hundreds of thousands of dollars to buy that franchise and told
me that my facility was fine and that I could stay in my
present location indefinitely.
Now that my franchise has been stripped from me, I have
been deprived of recovering that money, as I could have sold my
franchises locally for hundreds of thousands of dollars.
Last week there was a Senate hearing on June 3rd, and the
president of Chrysler, Jim Press, said these words, and I
quote, that ``Chrysler wants to bring the performers along that
will allow us the best return on our investment. In the case of
the dealers not being taken forward last year, we lost 55,000
units of sales,'' unquote.
I would like to let everyone know that I am one of their
performers. I have always been at 150 percent of my required
minimum sales responsibility and 150 percent of my required
working capital. My customer satisfaction rating has been among
the highest in the State of Pennsylvania for many years, and I
have always been profitable.
Now I would like to talk about why us dealers do not cost
the factory any money or very little money. In the case of my
dealership, the total cost to the factory, I really believe,
would be about $2,000 per year. To arrive at that number, I am
guessing my district manager's annual salary is, say, $52,000.
I divide that by the 26 dealers in my district, and thus I come
up with the $2,000 per dealer cost. Last week at the Senate
hearing, Jim Press said that each dealer cost the factory about
$41,000 per year, which is a far cry from the $2,000 that I am
coming up with.
He gave his side of the story as to why Chrysler needed to
eliminate 789 dealers. Mr. Press said that the dealers should
have sold 55,000 more units than they did last year, and that
cost the factory $1.5 billion in lost revenue. What he didn't
say is that, when we are gone, they will lose 140,000 units in
annual sales, and the factory is going to lose $4 billion
annually.
So, let's see, you are worried about the 55,000 units, but
you are going to lose 140,000 units. No wonder you are in
trouble, I mean, with that kind of thinking. I just don't see
the logic.
Second, he said us dealers cost the factory $1.4 billion a
year in development costs. That is a very large sum of money. I
would really like to see the breakdown of those numbers and how
the 789 dealers cost you that much.
I mean, you went into this theory about how you have to
have two separate minivans, the Chrysler and the Dodge, and
that costs you money to build an extra minivan. You put on
different hubcaps, different wheels on the car, different
grill, and different seat fabrics. I don't see the real cost,
heavy cost involved with that. I really don't.
Next I would like to talk about the process of selecting
the 789 dealers. In Chrysler's viability report that they
submitted to the government in February, Chrysler indicated
that 25 percent of their dealers were in financial trouble. I
am not in financial trouble. I would like to know how many of
those dealers that were in financial trouble are still with the
company.
If Chrysler was bent on eliminating 25 percent of their
dealer body, the prudent thing to do would be to get rid of the
25 percent that were in financial trouble and represented a
liability to them. My guess is that many of the financially
troubled dealers were picked to continue with the new Chrysler.
I would now like to talk about the rationale of cutting any
dealers at all in this tough economy. Ford Motor Company is not
cutting any of its dealers, and they are doing pretty good
right now. In the 1970s, when Chrysler was in financial trouble
and the government stepped in, how many dealers did Lee Iacocca
cut? He didn't cut any.
One would never think that we would see the day when
someone could just take your business from you in the United
States of America. But this very day is now upon us. Why can't
we let the free market decide which dealers survive or fail?
Why dictate it under the cloak of bankruptcy? That was un-
American.
No matter what the outcome here, I really think that the
bankruptcy laws should be changed to protect executory
contracts, such as new car franchise agreements, as I believe
they represent a pure revenue stream to the factory. And we
must protect the dealers' rights and protect the manufacturers
from their own imprudence.
I would also like to say that at least the GM dealers that
were being eliminated were given some money. You know, they
were given 10 months to wind down, and GM offered each dealer
anywhere from $100,000 to $1 million to help with the
transition. The Chrysler dealers' ``soft landing,'' quote, was
3 weeks long, and we received absolutely no compensation--
nothing, not one penny. That was an unconscionable act.
In closing, I would like to give some facts and figures
that should point the way forward from here. I took a look back
at the past 8 years of Chrysler's financial statements, and I
have discovered that they did not have a year where they made
more than $2 billion profit in any 1 year. In fact, they lost
money in 5 of the last 8 years.
The point I am trying to make here is that I really want
the new Chrysler to succeed. They will need every order and
every sale from us dealers that they can get in the next couple
of years to survive. They have exited bankruptcy owing over $13
billion to the Treasury. The past shows that it is very
difficult to even make $2 billion profit in any 1 year as an
auto manufacturer.
The pragmatic approach to getting that money paid back to
the Treasury is to reinstate us dealers and let us order our
140,000 vehicles annually. This will give Chrysler $4 billion
in annual revenue to help them survive and pay back that money.
I am extending an offer to Sergio Marchionne from Fiat to
welcome us with open arms. And I am urging Congress to sign on
to bill H.R. 2743, which will restore our rights and our
protection under the State franchise laws to where they were
before Chrysler entered bankruptcy. If Chrysler wants to pare
back their dealer body, why not let them do it within the
framework of the State franchise laws, which were enacted to
prevent this very thing from happening?
Again, I would like to thank everyone for taking the time
to hear me out, and may God bless America.
[The prepared statement of Mr. Golick follows:]
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Mr. Stupak. Thank you, Mr. Golick.
And thank you to everyone for your testimony.
We are going to go to questions, 5 minutes each. I am going
to hold the line on the 5 minutes, and we will probably go more
than one round.
Let me ask Mr. Press and Mr. Henderson this. The committee
staff has received reports that some dealerships that have been
chosen to go forward, in other words not being closed, are
being told that they should resign from positions of the
National Auto Dealers Association, NADA, and from positions on
State auto dealer associations because of NADA's support of
legislation to reinstate State franchise agreements. That is
the Maffei bill, H.R. 2743.
So are either of you, Mr. Henderson or Mr. Press, aware of
any such calls being made on behalf of GM or Chrysler to tell
people not to be on these boards and State boards?
Mr. Henderson. Mr. Chairman, I am not aware of any of those
calls.
Mr. Press. I am not only not aware of them, if I had
anybody in my company doing that I would like to reprimand them
or perhaps let them go.
Mr. Stupak. Will you commit, Mr. Press and Mr. Henderson,
will you commit to sending out a letter, a correspondence, a
message to the employees of your companies instructing them
that such intimidation would not be tolerated?
Mr. Press. We had an all-field conference call with all of
our field organizations prior to starting this, and that was
exactly the instructions that was given to them, to make sure
that this was done in a very positive manner.
Mr. Stupak. Right. My question, though, would you put that
in writing and send it to everybody?
Mr. Press. Absolutely. There is no--I would like to know if
anybody in our company did that. If you have that information,
I would like to have that.
Mr. Spitzer. Right here. Right here is an e-mail from one
of them right here.
Mr. Stupak. OK, OK. You can't do that. If you have such an
e-mail, why don't you give it to one of the Members here? They
can ask the question then more specifically on that.
Mr. Henderson?
Mr. Henderson. Mr. Chairman, I will put that in writing.
Mr. Stupak. OK.
So I take it, Mr. Press and Mr. Henderson, you will put it
in writing then for us. OK, thanks.
Let me ask this. Mr. Henderson, it is my understanding,
when you testified last week at the Senate, there was no appeal
process for the closed dealers. And then at the Senate you
announced an appeal process. And you said you were under
review, and 45 dealers had those decisions then reversed.
So you didn't have an appeal process until you testified
before the Senate, right?
Mr. Henderson. No, sir, we had planned to have an appeal
process.
Mr. Stupak. You planned, but you didn't have one. I mean,
those dealers who were closed, when they were given their
notice they were closing, they did not receive a way to appeal.
You announced it that Wednesday, and then Thursday the process
was made, e-mailed to everybody, and they had until Monday to
submit their documents on appealing, right?
Mr. Henderson. Yes, they needed to submit their documents,
sir.
Mr. Stupak. OK.
Does Chrysler have any appeal process for any of dealers
that were closed?
Mr. Press. No, sir.
Mr. Stupak. So, if I may, Mr. Press, then the dealers you
closed, there could have been some mistakes made then.
Mr. Press. Our situation, I think, is different from
General Motors, and therefore the conditions are not really--
would be favorable for having an appeal process.
Mr. Stupak. Because of the short time frame?
Mr. Press. No, not the short time frame. The reason is that
in General Motors, I believe, and I am not totally aware, I
think they have a term agreement which is not being renewed,
and there is a process to go through for nonrenewal.
Our situation is quite different from a standpoint that our
company went bankrupt, a new company was formed----
Mr. Stupak. Correct.
Mr. Press [continuing]. To take a different dealer body
forward. And, strategically, that dealer body that was taken
forward was based on criteria not performance-oriented, but
strategic performance criteria with regard to single lines
versus tri-branding and many other aspects that really--for
example, locations or even the population and demographic
projections.
Mr. Stupak. But the single line and tri-vehicle, that is
not the dealer's fault. That is Chrysler's fault. I mean, if
you got two minivans that are the same thing other than the
seats, the grill, and the design, that is not their fault. That
is really Chrysler's fault. So why are they being punished?
Mr. Press. Great question, sir. I understand why you would
ask that, and I understand the passion----
Mr. Stupak. You know, I drive an Oldsmobile. They did away
with it. I drove an Oldsmobile all my life. My last one here I
am nursing along, I have pretty close to 200,000 on it, and I
don't want to leave it. But at least I got other options. But I
am mad that they closed Oldsmobile.
Mr. Press. Yes, sir.
Mr. Stupak. But I understand the double branding. So why
couldn't----
Mr. Press. I have been with the company a short time. I
came from Toyota for 37 years.
Mr. Stupak. OK.
Mr. Press. And I think that everybody understands the
difficulties that our company has had with regard to integrity
of product, quality, and appeal. In asking why that is, it
isn't because people don't want to build good cars and trucks.
There are insufficient resources available to do the
engineering and development necessary to build winning formula
vehicles.
In our case, it isn't just wheel covers and grills. It is
about $250 million to $300 million per sister vehicle.
Mr. Stupak. Sure.
Mr. Press. And that investment doesn't return any
incremental sales, and it requires that we advertise the two
cars against each other. And it is one of the most important
reasons why the company went bankrupt, is that we kept kicking
this problem down the road instead of addressing it, which is
what we did.
Mr. Stupak. My time is up. But that's your decision; the
dealers. Even the dealers who survive, it's not their problem
that we have a sister vehicle, as you call it. That's really
Chrysler's problem. And the new Chrysler has got to address it.
So drop one, like you did on my Oldsmobile. Drop one.
Mr. Press. We did, sir. We did. And 555 of the dealers that
are discontinued were selling not 3 brands, but 1. That was a
necessary part of this. It wasn't our desire. It wasn't a plan.
But 555 of these dealers that had only 1 brand won't have
viable products coming. And unless all three brands are under
one roof, the dealer body isn't going to be viable.
Mr. Stupak. My time is up, but a retort would be: Why not
allow those one-brand dealers to sell all three of your
vehicles and keep them open?
Mr. Press. Well, because our volume has gone from over 2
million a year to 700,000, and the only way our dealers will
ever survive--and I think these dealers all really understand
that--is to have all three brands under one roof, where they
can put together the synergy, the total customer base, and the
fixed costs will be covered. That's something that everybody
wants. We've known that for 10 years.
Mr. Stupak. Then let them do it.
Mr. Walden, for questions.
Mr. Walden. Mr. Henderson, a question for you. Who is the
purchaser of GM?
Mr. Henderson. The purchasers of General Motors, sir, will
be 60.8 percent the United States Government, 11.7 percent the
Canadian Government, 17\1/2\ percent of the shares will be held
by a VIVA Trust, and the remaining approximately 10 percent
will be held by the unsecured claimants of General Motors.
Mr. Walden. And so the vehicle acquisition holdings is
really dominated by the U.S. Treasury.
Mr. Henderson. They will be the primary shareholder.
Mr. Walden. So, in your filing in the bankruptcy court,
when you say on page 40 here, ``Because there are now far more
dealerships than the company's market share can support,
including, in some cases, multiple dealers in a single
contracting community and dealerships that have become poorly
situated as a result of changing demographics, the purchaser is
not willing to continue all dealerships.''
That purchaser, you've told me now, is the U.S. Treasury.
Mr. Henderson. Yes, the purchaser, the largest shareholder,
is the U.S. Treasury.
Mr. Walden. And it goes on to say here in your comments to
the court, ``Among the dealerships the purchaser is not willing
to continue, for example, are those approximately 400 dealers
who sell fewer than 50 cars per year and those approximately
250 dealers who sell fewer than 100 cars per year.
Approximately 630 other dealerships are not being continued
because they are dealers who, in whole or substantial part,
sell brands that are being discontinued.''
Mr. Henderson. That's correct.
Mr. Walden. So the question we've been trying to get to the
bottom of, who is dictating how many dealerships are allowed to
go forward for General Motors? You've told me here, under oath,
that it's the purchaser--I mean, that's what you testified in
the bankruptcy court, that it was the purchaser who made that
decision. And that purchaser is the U.S. Treasury.
So doesn't that lead us back to the Auto Task Force making
the decision that you're now having to implement?
Mr. Henderson. The Automotive Task Force, as we've gone
through this process, has asked us to go through the process of
right-sizing our dealer body. They said if they're going to buy
the company, they want to have a right-sized dealer body. So
they asked the management to develop a strategy to accomplish a
world-class, correctly-sized dealer body. They were not willing
to take on our dealer body as it stood, sir.
Mr. Walden. OK. But I thought I've read that some of you
have said they didn't have anything to do with setting the
dealer levels.
Mr. Henderson. They did not tell us a number.
Mr. Walden. Yet, in your testimony in the bankruptcy court,
you say, for example, are those approximately 400 dealers who
sell fewer than 50 cars and those approximately 250 dealers who
sell fewer than 100 cars per year.
Mr. Henderson. That's true, yes.
Mr. Walden. These are ones the purchaser is not willing to
continue.
Mr. Henderson. Amongst others.
Mr. Walden. So the purchaser did tell you they're not
willing to continue those dealerships.
Mr. Henderson. The purchaser asked us to develop a strategy
to have a competitive world-class dealer body. One of the
issues that we had were the approximately 400 dealers who sold
less than 50 cars per year, in terms of not----
Mr. Walden. So you're telling me the task force didn't tell
you that these dealerships that sell fewer than 50 cars per
year had to go.
Mr. Henderson. What I'm saying, sir, is that the task force
advised us to develop a strategy to have a world-class dealer
body, properly sized, and address what they considered to be
serious concerns, which they articulated, for example, in the
March 30th findings on our viability plan.
Mr. Walden. On page 5 of your testimony, you have, ``We
have not terminated any dealers.'' Do you believe that?
Mr. Henderson. Yes. Can I explain?
Mr. Walden. Yes, please.
Mr. Henderson. What we've done is we've offered dealers who
will not continue with us wind-down agreements. The intent of
those wind-down agreements is to provide a period of time with
which to wind down their facility, provide compensation to
them, allow them to purchase parts, perform warranty service,
and, over time, we wouldn't renew their contract, and they
would no longer be with us.
Mr. Walden. OK. And beginning this fall they can't buy the
2010 model year cars from you, can they?
Mr. Henderson. They will not be able to purchase new
vehicles, that's correct, sir.
Mr. Walden. So it sounds to me more like you've diagnosed
them with terminal cancer, just not going to take them out--Mr.
Thomas, do you feel terminated?
Mr. Thomas. Very much so. I feel terminated.
Mr. Walden. Why do you feel terminated?
Mr. Thompson. Well, because I don't have an opportunity to
be a full-fledged General Motors dealer anymore. I can't order
new cars, I can't return parts. I'm partially in the game, but
I'm not really in the game.
Mr. Walden. How about the gentleman next to you? Mr.
Blankenbeckler, do you feel terminated?
Mr. Blankenbeckler. Absolutely.
Mr. Walden. Why?
Mr. Blankenbeckler. The same reasons that Mr. Thomas said.
The marketplace where I do business has viewed us as going out
of business. The press has been to our dealership. TV stations
have been to our dealership. My employees are extremely worried
and extremely nervous. It's just like----
Mr. Walden. I think you mentioned that you've had sort of
standing offers from people to buy your dealership over the
years.
Mr. Blankenbeckler. There have been people that approached
me. I'm sure Mr. Thomas has had people. Anybody who has a good,
viable business.
Mr. Walden. Could there have been a different strategy
here, where if you weren't meeting the goals that General
Motors set for you, you could have been given time to sell your
dealership? Did they give you an opportunity to change up what
it was?
Mr. Blankenbeckler. No, sir.
Mr. Walden. And when they've evaluated you in the past, did
they ever say, look, if you don't do these seven things, the
next reauthorization we are not going to be there for you?
Mr. Blankenbeckler. No, sir, they didn't. Outside of
bankruptcy, they couldn't say that. That's why they wouldn't.
Mr. Walden. My time has expired, Mr. Chairman. Thank you.
Mr. Stupak. Thank you, Mr. Walden.
Mr. Dingell for questions, please.
Mr. Dingell. Mr. Chairman, thank you.
Mr. Chairman, we are engaged in a very difficult business
here. We have to decide how we are going to protect the rights
of the dealers and at the same time see to it that we
restructure our American automobile industry so that we save
the rest of the dealers, as many of the workers as we can, the
jobs in the communities that are affected. That will be one of
my questions today.
First of all, to Mr. Press and Mr. Henderson, do you have
written rules for the closure of dealers and for the
termination of the dealers? Yes or no?
Mr. Press. Yes.
Mr. Dingell. Mr. Henderson.
Mr. Henderson. Yes, sir.
Mr. Dingell. Would you please submit each of them to the
committee with such accompanying remarks you would like to
make?
Now, there's no appeal right for a dealer, in the case of
Chrysler; is that correct?
Mr. Press. That's correct.
Mr. Dingell. Are there appeal rights for General Motors?
Mr. Henderson. Yes, there are, sir.
Mr. Dingell. Would you submit to the committee the precise
character of those appeal rights?
Now, would you tell us, please, Mr. Henderson and Mr.
Press--just give us the number--how many of the dealer
terminations have been changed by the companies under your
appellate procedures or under your categories and standards?
Mr. Henderson. At this point we've changed 45 decisions. We
are not completed with reviews, but that's the status as of
this morning, sir.
Mr. Dingell. Mr. Press.
Mr. Press. We have had no change.
Mr. Dingell. I've heard of a dealer who was terminated--I
won't tell you which company it was--where a big storm had
caused the collapse of a bridge, and that dealer was
essentially shut off from access to his customers. And he was
terminated, but the company involved has seen fit to reinstate
the dealer because they understand the facts.
Do you have provisions in your termination agreement, Mr.
Henderson and Mr. Press, that would permit you to address that
kind of a problem?
Mr. Henderson. Yes, sir. That was a General Motors dealer.
And when we relooked at the facts after the submission, we
concluded that we were in error in our decision, and we
reversed that decision.
Mr. Dingell. Now, Mr. McEleney, if the legislation that we
are working on passes, and if it screws up the bankruptcy
process and causes the collapse of either or both of the
companies down the road, we're going to have a rather nasty
situation on our hands. Part of it is going to be that we're
going to see all the dealers out of business, all the plants
close, all the communities hurt, all the workers and all the
suppliers hurt. What do we do about that situation?
Mr. McEleney. Sir, I think that with that situation--you
know, this is not a normal bankruptcy. This is, as you well
know, a government-negotiated bankruptcy.
Mr. Dingell. I understand those things, but what are we
going to do if that result is occasioned by the situation we
confront?
Mr. McEleney. I don't think that will happen. I think that
the fact that the government is involved in this, they are
going to prevent that from happening.
Mr. Dingell. Is that a statement or a hope that it is not
going to happen?
Mr. McEleney. I guess that is a hope, a fervent hope.
Mr. Dingell. I join you in that hope.
Mr. McEleney. Thank you.
Mr. Dingell. Mr. Press, Mr. McEleney asserts this: None of
Chrysler's submissions to the government prior to the May 14
announcement could have been interpreted to put Chrysler
dealers on notice of the scope of the terminations that
followed.
Is that statement true, yes or no?
Mr. Press. I'm sorry?
Mr. Dingell. Mr. McEleney states as follows: None of
Chrysler's submissions to the government prior to the May 14
announcement could have been interpreted to put Chrysler
dealers on notice of the scope of the terminations that
followed. Yes or no? Is that true?
Mr. Press. We've had a Genesis program, dealer
consolidation program, in place for more than 10 years. I think
the majority of those dealers had a good, long time to prepare
for that.
Mr. Dingell. Would you submit for the record your comments
that prove that this is not the case?
Now, Mr. McEleney, did General Motors give adequate warning
prior to its May 15 announcement that it would be winding down
approximately 1,200 dealers? Yes or no?
Mr. McEleney. Yes.
Mr. Dingell. Mr. Press, please describe briefly what
Chrysler is doing to reclaim and redistribute the inventory of
the 789 dealerships it announced would be closed.
Mr. Press. Mr. Dingell, just 1 second. I now think I
understand your question about notification to the dealers
versus knowing that there was a reason they may not stay in
business. The notification to dealers, there was not any
additional time given. The primary reason for that was until
April 30 at 6 o'clock at night, before we had to file for
bankruptcy, we did not plan to. This was not a plan to go
forward. We had no knowledge of this. After that, May 1 is when
we began to develop this program. So there was no notification.
Mr. Dingell. Now, Mr. Press, if you please, what is
Chrysler doing to reclaim and redistribute the inventory from
the 789 dealerships it has announced will be closed?
Mr. Press. Well, we have committed that we will
redistribute every single vehicle and every part.
Mr. Dingell. How about specialized equipment?
Mr. Press. And specialized equipment. And I'm happy to say
that 100 percent of the vehicles have already been committed
to. They have started moving. We're at 80 percent on the parts
and about the same on specialized equipment. We will continue
to work until that commitment is fulfilled and all of those
burdens are relieved.
Mr. Dingell. Now, I want you to listen to this question
carefully. How much is it going to cost each dealer that is
being terminated on each car from the termination? Are there
any fees associated with that? Do they get the full value of
the car? Is it a distressed price? How will that be addressed?
Mr. Press. The price is the invoice price they paid, less
$350 for inspection, cleaning, and transportation to the dealer
that will be selling the vehicle.
Mr. Dingell. Can General Motors give me the same answer,
Mr. Henderson?
Mr. Henderson. Sir, in the case of General Motors, to the
extent the dealer signs a wind-down agreement, we would expect
them over the course of the next 17 months to sell down their
inventory. And they would be afforded the same treatment as any
other General Motors deal with respect to retail incentives and
support for selling to customers.
Mr. Dingell. How much cash money are they going to be out
in the case of General Motors?
Mr. Henderson. They shouldn't be out any.
Mr. Dingell. So you're going to take back inventory, parts,
vehicles, and specialized equipment.
Mr. Henderson. In the case of General Motors, if a dealer
chooses to wind down, we anticipate that through that period
they would not only sell their cars, they would sell their
parts by virtue of the fact they would be able to provide
warranty and service to customers. And then finally the tools
would be amortized.
With respect to a dealer who terminates, if they just
choose to voluntarily terminate, by virtue of our agreement
with GMAC, a dealer can return the cars to GMAC, and we would
redistribute the cars with no cost to the dealer.
Mr. Dingell. Thank you. My time has expired.
Mr. Stupak. Mr. Press, on Mr. Dingell's question, $350 for
a 2009 model. But if they're turning back a 2008 model, it's
$1,500.
Mr. Press. There's a curtailment for the model year, it is
$1,500, yes, sir.
Mr. Stupak. Why do they have to pay you to take back the
vehicles when you shut them down?
Mr. Press. I'm sorry?
Mr. Stupak. Why do they have to pay you $350 or $1,500 when
you shut them down?
Mr. Press. First of all, obviously the company filed
bankruptcy. It's a defunct organization. The fact of the matter
is in a bankruptcy all precedent would be that the inventory
would be the responsibility of the dealer if the company that
they are franchised with is no longer in business.
There was not a provision in possession financing. It
couldn't be provided to buy the cars back. And so our challenge
was--and it was a good one--without using taxpayer money, to
find a way to relieve the dealers of the inventory, and do it
in a manner where it didn't cost the taxpayers, which we did
through the redistribution program.
And so that redistribution program was implemented, and we
did redistribute 100 percent of the vehicles. We're happy to
say that that's complete.
Mr. Stupak. That had to happen very late last night,
because as of 7 o'clock last night, we still had phone calls
from dealers saying, we have cars and they won't take them
back.
Mr. Press. We will take every car; we will redistribute any
car. We've made that comment. We've had written notices. It's
been in the Senate. It's been in the newspaper. We will
continue to provide the dealers information and evidence of
that. We have redistributed the cars to other dealers. They
physically may not all have left the lots, because we weren't
able to begin moving them until yesterday when the new company
formed, but we are at it.
Anybody who has that, please give them my name. I'd be
happy to talk to them.
Mr. Stupak. We will. I know you mentioned taxpayers. Every
one of these dealers are taxpayers, too.
Mr. Barton for questions, please.
Mr. Barton. Thank you, Mr. Chairman.
As you know, there's another hearing going on, and so I
have been kind of shuttling back and forth. I also need to
alert Mr. Blankenbeckler that there's a plane to Texas calling
my name. I may leave after these questions.
I want to ask Mr. Press and Mr. Henderson--and you may have
already answered this--but is there an established set of
criteria for evaluation of which dealerships were to be closed
and which were to be left open? Do you all have actual criteria
in writing on how you evaluated dealerships for closure or
remaining open?
Mr. Henderson. Yes, sir, we do. And we submitted those last
night, actually.
Mr. Barton. The same for you, Mr. Press.
Mr. Press. Yes, sir, we do.
Mr. Barton. Did the dealers know of these criteria?
Mr. Press. In our case they were not notified of the
criteria prior to the notification.
Mr. Barton. What about you, Mr. Henderson?
Mr. Henderson. In our case we have identified what the
criteria are, but, in fairness, haven't weighted that. So the
dealers don't necessarily know what the weighting of all the
individual criteria are, the two most important of which are
sales effectiveness and customer satisfaction.
Mr. Stupak. Mr. Barton, if I may.
You say you submitted them last night. To who?
Mr. Henderson. To the staff, I think, of this committee.
Mr. Stupak. This committee.
Mr. Henderson. We can resubmit them.
Mr. Stupak. We don't have them.
Mr. Henderson. We'll get them to you if you don't have
them.
Mr. Stupak. The point is you're under oath. And I don't
want people to think that we're holding something back here. We
don't have any criteria agreements.
Mr. Barton. I think we have just established one of the
puzzlements. It's somewhat unfair to Mr. Blankenbeckler and Mr.
Thomas and the other dealers to be told that their dealerships
are going to be revoked, and yet they didn't have any prior
knowledge of the analysis and the criteria that were being
used, and apparently to this day don't have the knowledge.
Mr. Blankenbeckler, do you think that's a fair way to run a
railroad?
Mr. Blankenbeckler. No.
Mr. Barton. Mr. Thomas.
Mr. Thomas. I think it's been an opaque process.
Mr. Barton. That's been one of the problems, I hope Mr.
Henderson and Mr. Press realizes.
Mr. Stupak. Is this the document?
Mr. Henderson. I apologize, sir. Yes, this is the document.
On page 3 of the document, we outline the dealer performance
score. And the weightings are actually in there: 50 percent
sales, 30 percent customer satisfaction. It's on page 3 of the
document.
Mr. Stupak. The staff took this as just a PowerPoint
presentation. They didn't realize this was the criteria you
used. After looking at it, they didn't think it helped much. So
this would be the criteria you said you used then.
Mr. Henderson. This was the dealer performance----
Mr. Stupak. We'll have copies made and give it to everybody
here.
I'm sorry. Mr. Barton.
Mr. Barton. Mr. Blankenbeckler, since you've received your
two letters, has anybody from either company, Chrysler or GM,
come to you and said, we want to explain why we've done what
we've done, and we want to give you a chance to show us the
error of our ways, and if you wish to continue a business
relationship, here's what you need to do?
Mr. Blankenbeckler. No, they have not.
Mr. Barton. Mr. Henderson and Mr. Press, do you think it
would be a reasonable business practice to give dealers that
have, in some cases, had decades of relationships with the
companies that you had some opportunity to know why they were
evaluated the way they were, and give them some opportunity to
show why they may have been evaluated unfairly?
Mr. Press. Yes, sir, I do. I would like to add that because
of the fact that our notification was coincidental with the
bankruptcy action and a lawsuit that was brought, and the fact
that we couldn't have a lawyer in an active lawsuit involved in
every discussion, we were not in a position to do that until
yesterday. And we are more than happy to have those discussions
going forward, now that that lawsuit has been finalized.
Mr. Barton. Mr. Henderson, would you like to comment on
that?
Mr. Henderson. Yes, sir. As of yesterday, we had received
856 requests to reconsider our decision. As I said in my
testimony, we had reversed 45 of them. We had expected to
complete that review by today, but given the number of
requests, we are planning to work through the weekend and into
Monday to finish this, and certainly are willing and open to
consider any and all requests for consideration.
Mr. Barton. Mr. Blankenbeckler, you don't have to answer
this question if you don't wish to, but you have told me
privately the amount of investment you have in your dealership.
If you wish to acknowledge that, I would appreciate if you
would. But, in any event, if you don't, do you feel that before
that investment, which has been built up over 84 years, is just
wiped out, that you should have some opportunity to get some
remuneration or at least have a reasonable discussion about
remuneration with GM and Chrysler?
Mr. Blankenbeckler. I can't imagine why that wouldn't be
the case in the country. I don't see--as I said in my
statement, I don't see how that can happen.
Mr. Barton. Could you give a general parameter of the
amount of the investment your family has made in these two
dealerships over the years? You don't have to if you don't want
that.
Mr. Blankenbeckler. I really don't care to state that.
Mr. Barton. I'll just state for the record, Mr. Chairman,
it's substantial.
Mr. Blankenbeckler. It's a large sum of money.
Mr. Barton. It is orders of magnitude more than my net
worth, Mr. Chairman. I will put it that way.
With that, my time has expired, and I yield back.
I do want to thank our witnesses. I want to thank, again,
our Chairman. I do hope, when talking directly to Mr. Henderson
and Mr. Press, you'll will come up with some protocol that
dealers like Mr. Blankenbeckler that wish to continue a
relationship are given a fair opportunity to present their
case. I hope you will do that. Thank you, Chairman Stupak.
Mr. Stupak. Thank you, Mr. Barton.
Mr. Braley for questions.
Mr. Braley. Mr. Press, do you know a Jennifer Fox?
Mr. Press. I don't know. I may.
Mr. Braley. Do you know a Jennifer Fox who works in
Chrysler's Washington, D.C., office?
Mr. Press. Yes. I don't know her last name.
Mr. Braley. I assume if she uses an e-mail address that
ends in Chrysler.com, that's an employee of Chrysler.
Mr. Press. I assume, yes.
Mr. Braley. Are you aware that Chrysler is attempting to
convince Chrysler dealers who have not been terminated to
engage in a lobbying effort to point out the positive aspects
of the consolidation through bankruptcy that has been going on?
Mr. Press. I'm aware of the fact that because of the
publicity that has been provided, that there are 2,391 dealers
who have benefited, and are dealers, and give to Little League,
and long-time, 100-year-long dealers who want an opportunity to
also make their position known, sir.
Mr. Braley. Are you aware Chrysler has been sending out
talking points under a heading ``Key Messages Memo'' that says
things like Chrysler LLC made the appropriate business decision
to move forward with the dealer network that overall can be
thriving and profitable; and the automobile industry cannot
support the number of dealers that currently exist; and dealers
have known that Chrysler wanted to consolidate dealerships and
locate all three brands under one roof. They started the
process more than 100 years ago. And we understand that the
process to evaluate the dealers was a thorough process based on
data-driven metrics. And as a dealer moving forward with the
new company, I plan to purchase some of the eligible inventory
of some of the rejected dealers.
Were you aware that was going on?
Mr. Press. That's all in our testimony submitted to you.
It's part of the consistent communication of those points. A
number of dealers asked that they would like to be able to make
their voice known as well through this.
Mr. Braley. Let me just ask you about the one point, that
dealers have known--this has come up during the testimony
today--that Chrysler wanted to consolidate dealerships for more
than 10 years.
If that is truly the case, sir, then can you tell us why
that didn't happen in the numbers we have seen until this
bankruptcy arose?
Mr. Press. It has been happening, yes, sir. A great
question. I can understand why you would ask that.
The fact of consolidation has been an ongoing process for a
number of years. In fact, a year and a half ago when I came, we
actually had meetings, and dealers were identified. They know
which dealers were going forward, which locations would be
going forward. We gave them a toolbox of things in terms of
real estate, of tax planning to facilitate those discussions
and transactions. And some of them did.
Mr. Braley. You have to agree with me that the volume of
closed dealerships over that 10-year period paled in comparison
to the announcement that grew out of the bankruptcy; isn't that
true?
Mr. Press. That's because the bankruptcy was caused by the
fact that we were made to support specific vehicles for
standalone dealers. And the fact that we are a failed
enterprise, that didn't get carried forward. A new company was
formed that is going to go forward.
Mr. Braley. I understand that. And I only have 5 minutes,
so I'm going to move on to something else. You talked in that
statement about these data-driven metrics. Is that the plan,
the criteria that Mr. Dingell and Mr. Barton requested? Will
those contain the data-driven metrics that you have justified
in this memo?
Mr. Press. Yes. And we have submitted in our testimony what
the criteria is, and will provide additional data as requested.
Mr. Braley. In your testimony before the Senate Commerce
Committee, you said that Chrysler loses over a billion dollars
annually and lost sales opportunities because of
underperforming dealers. And, Mr. Henderson, you claimed in
similar testimony that dealers add $1,000 of cost to every
vehicle.
So my question for both of you is: Do you have financial
analysis that was conducted before the decision was made to
terminate these dealer franchises that supports those
allegations you made in your testimony?
Mr. Press?
Mr. Press. Yes, we have the analysis of the sales
situation. That does exist. We knew what the number was.
Mr. Braley. Was that submitted as part of your testimony
for today's hearing? Do we have that information?
Mr. Press. You do not have it by dealer.
Mr. Braley. Can you provide it to the committee?
Mr. Press. There is confidentiality in data that we receive
from dealers.
Mr. Braley. Well, I know that there are means to redact
information to protect confidentiality and still provide the
information that I'm seeking. If there's a way to arrange that,
would you agree to provide it to the committee?
Mr. Press. Yes, as long as it can be done within protecting
the dealers' rights.
Mr. Braley. The committee, I'm sure, will be happy to work
with you.
Mr. Henderson, the same question for you. Does GM have the
data to support this statement that you made that these dealers
are costing your company $1,000 per vehicle?
Mr. Henderson. Sir, as I mentioned in my testimony, we have
an overall cost of $1,000 per vehicle. That cost is articulated
in the same package that we submitted last night. It's
approximately $2 billion, 2 million units.
Mr. Braley. Do you have the underlying data that was used
to make that calculation, and is it in the materials that we
have received?
Mr. Henderson. Yes, sir.
Mr. Braley. You can identify that for the committee.
Mr. Henderson. On page 9, sir.
Mr. Braley. All right. And so on that page where you made
the calculation, do you have supporting documentation for the
conclusions that show the portion for dealer margin, incentives
paid directly to dealers, standards for excellence, and on and
on? Those numbers aren't just published somewhere as a standard
cost factor associated with the sales of each vehicle, are
they?
Mr. Henderson. What I outlined in my testimony, sir, is
that these are costs which over time have come into our
structure to provide direct support to dealers. Over time.
Those are not identified per individual dealer because, in
fact, they're provided to all of our dealers. But to the best
of our knowledge, our best-in-class competitors do not supply
that same sort of support.
Mr. Braley. Mr. Chairman, my time has expired, but it seems
to me there are still plenty of unanswered questions that the
committee needs to explore on this subject.
Mr. Stupak. Thank you, Mr. Braley.
I ask unanimous consent to put this document that's from
General Motors that looks like they may have e-mailed last
night, 10 pages, the one we have been discussing, without
objection.
[The information was unavailable at the time of printing.]
Mr. Walden. Mr. Chairman, without objection. But I would
just make the point it might be helpful for the dealers to be
able to see a copy of this to review.
Mr. Stupak. Since it's in the record, we will go ahead and
put it on the table. If they want to look while we're going
here, that would be fine. It's part of the record.
Next, I will move Mr. Burgess for questions, please. Five
minutes.
Mr. Burgess. Thank you, Mr. Chairman.
I've got a map here of the United States. This actually
pertains just to Chrysler for the moment. It looks like what a
Republican might want the electoral map to look like.
This reflects closed Chrysler dealers. You see my State of
Texas. Although we've been relatively spared in the economic
downturn, our State has been hit pretty hard with these
closings.
Now, there's a Member in a State way up in the Northeast--I
think he's the Chairman of the House Financial Services
Committee--that was able to make a phone call and get one of
his dealerships or distributors to stay open. My question is:
What is the number that I need to call? Is it 1-800-CAR-CZAR?
Tell me who to call so that I can help the dealers that are in
my area that have been so badly hurt by this.
Mr. Press. You're asking that for Chrysler?
Mr. Burgess. Yes.
Mr. Press. I don't understand your question. With all great
respect for the office, I have to say that I'm not aware of any
dealer that was ever removed from the list that was submitted
to the judge on the 14th. I have no knowledge of that. I would
very much like to see, if I could get that.
Mr. Burgess. Well, it was in all the papers yesterday, and
I'm sure we can get a copy. Barney Frank made a call to someone
and got his dealer to stay open. Again, it's unconscionable,
with what's going on in this country. I also sit on the Joint
Economic Committee.
I beg your pardon. I was just told it was a GM dealer.
Perhaps Mr. Henderson can answer that.
Mr. Henderson. Actually, it's not a dealer at all.
Mr. Burgess. Just tell me the telephone number that I call.
That's really what I'm after here.
Mr. Henderson. Sir, what we were asked to do was look at
the timing of three after-sales warehouses which belonged to
General Motors and were part of our restructuring plan,
including facilities to be closed.
Mr. Burgess. I'm going to direct you, in the interest of
time. The fact is that a Member of Congress made a call, and a
distributorship was not closed that was slated for closure. It
is fundamentally unfair. You see the people that are sitting at
this table. You've heard their stories. They represent families
back in everyone's district across the country.
This process has to be open and transparent and fair. We
have a President who was elected on the promise of transparency
and fairness. I don't think that is being delivered right now.
Now, who wrote the language of the wind-down agreement? Can
either of you answer that?
Mr. Henderson. In our case, it would have been General
Motors, the staff of both the sales organization as well as our
counsel.
Mr. Burgess. And for Chrysler?
Mr. Press. There is no similar agreement. We have a very
different situation. We have no wind-down agreement.
Mr. Burgess. With whom in the White House have either of
you communicated regarding the restructuring of both of your
organizations?
Mr. Press. Our restructuring plans have been part of our
bankruptcy and part of our application for funds. As the TARP
funds were available through U.S. Treasury, they have been made
aware of our process in discussions. But absolutely
operationally they have not had any input or direction in what
we're doing.
Mr. Burgess. Would this committee be able to get access to
the e-mails between your company and the White House regarding
the restructuring and, in the case of General Motors, the wind-
down?
Mr. Press. Yes, absolutely.
Mr. Burgess. Will it be necessary--we, of course, can
subpoena, if I can convince the Chairman to do so, but it would
be easier if that could just be made available to us.
Mr. Henderson. Sir, in our case I have no idea how many
that is. But we have been keeping--we would keep some of them
that would be subject to litigation hold and some that wouldn't
be. I will come back to you.
Mr. Burgess. Let me ask you this: Have either of you ever
spoken to Brian Deese?
Mr. Henderson. I have.
Mr. Press. Yes.
Mr. Burgess. Have you exchanged e-mails with this
individual?
Mr. Henderson. I think so, yes.
Mr. Press. I don't think I've ever addressed one to him. I
may have seen some e-mail.
Mr. Burgess. Mr. Chairman, I would just submit that I would
be particularly interested in those e-mails to be made
available to the committee and made part of the record.
And I do want to spend some time with Mr. Golick before I
finish up.
Here's the deal. TARP funds, taxpayer funds, taxpayer funds
paid by the employees of these dealerships have gone to fund
the closing of these dealerships. I sit on the Joint Economic
Committee. We saw unemployment numbers for last month in excess
of 9 percent, heading for 10. And what's that number going to
look like after you decimate these dealers across the country?
Now, that's a rhetorical question. I don't expect an answer.
Mr. Golick, I do need to ask you--and I didn't intend to
ask this--but your story is so similar to a story I heard down
in my district; a gentleman being required, badgered, brow-beat
into buying a dealership, and now he's faced with having to
close his original dealership and the one he purchased.
Are you aware of other areas in the country where that
occurred?
Mr. Golick. Now, it's general--for some reason there's
always some kind of animosity between the factory and the
dealer. It doesn't need to be. Ford right now has--there's no
animosity between the factory and the dealerships. I think
they're going to come out of this OK.
Mr. Burgess. Let me ask you this before my time is up: Are
you getting remuneration from the manufacturer to dispose of
your inventory and your light bulbs?
Mr. Golick. I'd love to tell you about that. Mr. Press
makes it sound like sunshine and lollipops. Your exact words
were: Invoice minus $350. We're selling the cars for invoice,
minus the holdback, minus the floor plan, minus the PPA, then
minus the $350. We're selling the cars for $1,500 below
invoice, on average.
We normally sell to the public at invoice. That's
generally--right around there. So we're selling the cars for
$1,500 less than we normally do to the other dealers.
Mr. Burgess. What about your parts inventory?
Mr. Golick. Mine hasn't been addressed yet. I don't know.
I'm still in a state of shock over everything.
Mr. Burgess. I was told when Chrysler came in to see me
yesterday evening in anticipation of this hearing, I was told
they took care of all their dealers that they were closing;
inventories would be purchased, cars would be purchased, parts
inventories would be purchased. Is that your experience?
Mr. Golick. What needs to be understood, there's no written
procedure as to how we're going to get paid for these cars.
Thank God I only have two new cars left, but some people have a
half a million dollars worth of cars. From what we hear, cars
are going to be trucked away, and then we're going to wait for
the money somehow. I haven't seen anything on paper that says
how we're going to get paid. Now, that's a very important
aspect of everything here. Is there a written procedure?
Mr. Press. First of all----
Mr. Stupak. Last question, Mr. Burgess.
Go ahead, Mr. Press.
Mr. Press. I'd really like to respond to the issue about
the reimbursement. The dealers are being reimbursed what they
paid for the vehicle--what the vehicle cost them, less $350.
The word invoice--when we invoice the dealer, their invoice
includes these holdbacks that we collect and give back to them.
But they're being paid what they paid us, less $350.
Mr. Stupak. That's just for 2009; $1,500 for 2008.
Mr. Press. Yes. In terms of the process, we have published
to the dealers the process for the redistribution. We have
asked the dealers to sign an agreement that would allow us to
take that responsibility. Some of the dealers have done that,
some of them haven't. About 78 still haven't. But all the other
dealers have been notified what the process is. It's available
for them to understand that that can be used.
Mr. Stupak. Mr. Spitzer, I know you're jumping here to jump
in on this one.
Mr. Spitzer. You'd asked the question if Mr. Golick knew of
other dealers in similar situations. Of our seven stores that
were terminated, three of them were Project Genesis stores. One
of them was underway. We purchased a piece of land at
Chrysler's insistence for $1.6 million in the reorganization of
the Akron market, and that store was in an area that they
wanted to get away from.
And we were operating interim while we were undergoing
construction, and they agreed to hold off construction because
of the market conditions for 1 more year, and then they
canceled the franchise. We still own the dirt, and they are
penalizing us for results in an area that they want us to get
out of.
Mr. Burgess. Mr. Chairman, I know my time is up. This just
cries out for further investigation. I hope this committee will
do a much--very thorough job as to what's been going on here.
Again, in Texas it looks like we've cleared the decks. I don't
know how we're clearing them from. Someone is likely to make a
great deal of money off the reemergence of Chrysler. I'd like
to know who that is and what's in the plan and what's in the
works.
I have a nagging suspicion that there is a political
calculation here. And it is extremely distasteful when you look
at these gentlemen who have had what I think unconstitutional
takings of their private property.
And I'll yield back.
Mr. Stupak. Ms. DeGette for questions, please.
Ms. DeGette. Mr. Press, I wanted to ask you if Chrysler has
a similar set of written criteria as GM does for its closures.
Mr. Press. I'm not familiar with this document.
Ms. DeGette. Let me ask you this: Does GM have a written
set of--I'm sorry, does Chrysler have a written set of
procedures for its closures? Yes or no?
Mr. Press. Yes. We've published that.
Ms. DeGette. Does this committee have that?
Mr. Press. It's been published.
Ms. DeGette. Do you know if this committee has it, yes or
no?
Mr. Press. I can't answer that.
Ms. DeGette. Mr. Dingell suggests that we have you submit
that for the record. And we would appreciate that.
Mr. Press. If you don't have it, I will.
Ms. DeGette. Thank you very much.
Secondly, I heard both of you, Mr. Henderson's and Mr.
Press's testimony, about what could make a dealer profitable;
that it could be coming from selling used cars or parts or
service or other things. I guess my question, and I will start
with you, Mr. Henderson, is: If a dealer is profitable, and
it's buying cars from the manufacturer, which it's then
selling, what does it matter if that profit center is derived
from the service center, used sales, or new cars?
Mr. Henderson?
Mr. Henderson. Good question.
Ms. DeGette. Thank you.
Mr. Henderson. First, in the case of the dealers who are
impacted in our wind-down situation, 69 percent of them were
not profitable.
Ms. DeGette. My question is: If a dealership is profitable,
then what should you care about what center that profit is
deriving from? Very quickly, please.
Mr. Henderson. In general, we look at overall
profitability, not individual centers.
Ms. DeGette. Right. But if a dealer is profitable from
whatever source, and buying cars from GM, why would you care
if--I mean, if it's profitable, why not let it stay in
business?
Mr. Henderson. If a dealer is profitable we don't care if
it's from parts----
Ms. DeGette. Right. But why would you close a dealership
like that?
Mr. Henderson. Not in all cases our profitable dealers, for
example, have high levels of customer satisfaction.
Ms. DeGette. So now it's customer satisfaction.
Mr. Henderson. There were multiple criteria, yes.
Ms. DeGette. What about you, Mr. Press. What's your answer
to that question?
Mr. Press. My answer is, first of all, we have too many
dealers.
Ms. DeGette. Why would you care if they're profitable and
buying cars from Chrysler?
Mr. Press. Because the only way we're going to survive is
to have all three franchises up under one roof. The only way
any dealers will survive will be to have tribranding, first of
all.
Ms. DeGette. So one criteria is they have to have all three
brands under one roof, right?
Mr. Press. Directionally. That's the position that we are
going to achieve. That's one, but not the only one.
Ms. DeGette. Then you can talk about the other one. In
Colorado, Chrysler has terminated five of the seven top-
performing dealers, including John Medved's Chrysler store in
Castle Rock, which is not in my district, but it's south of my
district. They sell all three brands under one roof, and they
are profitable.
So what would you say to them? You probably don't know each
specific.
Mr. Press. I think it's difficult to get into going through
each individual dealership.
Ms. DeGette. But what would your criteria be for a store
like that?
Mr. Press. First of all, I'm not sure if I understand. You
say the top-performing store. I don't know what that means.
Ms. DeGette. Five of the--the Chrysler dealerships are five
of the seven top-performing dealerships in Colorado. And so
this Medved dealership in Castle Rock is profitable, and it has
all three brands under one roof. So for people like them, not
them in particular, what would another criteria be?
Mr. Press. One criteria would be if it's not top
performing, its costing us sales.
Ms. DeGette. So needs to be top performing, needs to have
all three. And what else?
Mr. Press. They have to have a minimum sales responsibility
covered so that we're not losing money, revenue in that store.
Ms. DeGette. Is that minimum sales responsibility covered
in your written policies that have been distributed and what
you're going to provide to us?
Mr. Press. A minimum sales responsibility is a basic part
of our agreement. Dealers all know what that is.
Ms. DeGette. So it's in their agreement.
Mr. Press. It could also be that the market that they are
in is no longer viable. The fact of the matter is we have gone
from 2 million units to 700,000. We don't have enough available
product to support all the dealers in every market.
Ms. DeGette. I don't mean to interrupt you. I understand
what you're saying. But like Castle Rock, I'm going to tell
you, is one of the fastest-growing areas. Douglas County,
Colorado, is one of the fastest-growing counties in the
country.
So I guess, without getting into the particulars--I know
you don't know the particulars of each single one, but I heard
you say that, unlike GM, Chrysler does not have an appeal
process. So my basic question to you is: Do these dealers
know--people like Medved--do they know exactly why their
dealership was terminated? Have they been given that
information?
Mr. Press. Because of proceeding in bankruptcy and the fact
this coincided with a lawsuit, we were not in a position to
communicate. I want to clarify that, because that was asked
before, that now that we've come out of bankruptcy, we are in a
position we will communicate to the dealers and let them know
what the factors are.
And we had a very robust process that was fair and
equitable. It was tested and approved by the bankruptcy judge,
by the appeals court in New York, and the Supreme Court of the
United States. I would be more than happy to allow the
committee members to see the same information. It's difficult,
but we can go through individual dealers as you wish. We'd be
happy to do that.
Ms. DeGette. What you would say is that you did not tell
these dealers before exactly why they were terminated. So you
can understand why they are upset.
Mr. Press. I understand their anger and upset. I can
understand in my soul the whole situation. Being bankrupt is
not a spectator sport.
Ms. DeGette. Well, obviously. You know, I used to be a
lawyer in a different life. I don't know of any provision in
the bankruptcy rules that says you can't tell people. Maybe
that was the bankruptcy judge that told you not to tell people.
But it seems to me you to give people the information.
Mr. Press. There was a lawsuit filed as part of that
bankruptcy on behalf of the dealers, and it became very
difficult for information, other than discovery, to go forward.
Now that we're out of bankruptcy, we're fully prepared----
Ms. DeGette. What's your time frame for that, sir?
Mr. Press. We're fully prepared at any point to become
transparent with the dealers that would like to.
Ms. DeGette. So you can get that out, what, in the next
week you think?
Mr. Press. Perhaps sooner.
Ms. DeGette. Great. Thank you.
Thank you very much, Mr. Chairman.
Mr. Stupak. Mr. Doyle for questions.
Mr. Doyle. Thank you, Mr. Chairman.
I am a cosponsor of H.R. 2743. It took me about 2 seconds
to sign that one.
Mr. Press, I'm trying to understand this. So you're saying
that you have a very objective methodology to determine what
dealers survived and what dealers didn't. I mean, you could
feed the dealer data into a computer, and then you had this
very objective criteria, and then a computer would spit out,
without--was it that kind of a deal, or was there any
subjective part to this?
Mr. Press. We have over 200 people in the field from local
markets that were part of the process of collecting the
appropriate information. We have a data service that provides
demographic and location information and identification of
future trends. We have the process of understanding what
franchises that we have, the criteria from the dealers' own
scorecards.
It's a number of pieces of information. It wasn't just a
computer. It was vetted through a number of levels.
Mr. Doyle. OK. Thanks.
So one of the criteria is--why would a dealer who had maybe
two of your three brands and was a performing dealer and a
profitable dealer, why wouldn't they be given the opportunity
to just pick up--that you start selling the third brand to
them? What stops you from doing that?
Mr. Press. Well, there's a couple of reasons. One of them,
of course, is that you don't want to have two dealers that may
be next door to each other selling the same products. I don't
think the dealers really want that either. In fact, there are
some laws that provide 10-mile separation, which should be
respected. And so we have got to be careful to craft the right
dealer network going forward that has the distance and the
appropriate market so the dealers can survive.
Normally, many of these locations where we have the single-
brand dealerships, they're in so close proximity that they have
to be brought up into one. That means that one dealer may be
chosen, and one may not. We have here that process, where the
dealers that weren't chosen are in front of you.
Mr. Doyle. Thank you.
Mr. Golick, you sold two of the three brands, right?
Mr. Golick. Yes.
Mr. Doyle. Now, this minimum sales deal, have you met that?
Mr. Golick. Yes. I have always been--by the way, there are
two criteria--two main criteria that a manufacturer can use to
terminate a dealership under the State franchise Laws. And the
two main things are your minimum sales responsibility and your
minimum working capital requirements. We have always been at
150 percent of both of those.
There's one other criteria, and it's taking care of the
customer--your customer satisfaction. We've always been just
about the highest in the State.
Mr. Doyle. Mr. Chairman, I want to submit for the record,
there's a site called DealerRater.com, where you can go on and
look up dealerships. And they do ratings.
I have Golick Jeep here, who consistently has a 5 out of a
possible 5 customer satisfaction. Their 24-point rating, by the
way, is 5.0, the highest you can get.
I have another dealer--I won't name them out of respect for
them--also in the same market area, that was kept--that their
dealer rating is 1 on a scale of 1 to 5. This is a surviving
dealer. Mr. Golick is a dealer--I'd like to submit these
ratings for record.
Mr. Stupak. Without objection.
[The information was unavailable at the time of printing.]
Mr. Doyle. Mr. Golick, I want you to grab that book on the
table and turn to tab 14 on that book. Now, if you're looking
at tab 14, this is an article that appeared in Automotive News
on February 5, 2009, and it describes a conference call at
which Mr. Press, the president of Chrysler, urged dealers to
buy 15,000 cars from the company in order to save it.
Now, let me read you to what Mr. Press reportedly said to
the dealers: ``You have two choices. You can either help us, or
you can burn us down.''
Mr. Golick, are you familiar with this call?
Mr. Golick. Yes. Very familiar.
Mr. Doyle. The article also quotes Mr. Press as saying
this: ``If you decide not to do that, we have got a good memory
of who helped us and who didn't.'' Do you recall that, Mr.
Golick?
Mr. Golick. I very much do.
Mr. Doyle. How did you feel about that? Did you take that
as a threat?
Mr. Golick. I have never heard that from an auto executive
in my life. I've been in the business all my life. I never
heard anything like that.
Mr. Doyle. Mr. Golick, as a result, did you buy additional
cars?
Mr. Golick. You know what, I honestly can't remember. I
think if I had to look it up, I probably did not on that
particular month, but I did on the other months. I think
Chrysler could provide you with that. But I have a feeling I
did not that particular month he said that comment, as I
fluffed it off and told my family I couldn't believe this guy
said this.
Mr. Doyle. Mr. Kiekenapp, did you get a similar call? Were
you on that call?
Mr. Kiekenapp. Yes, I was.
Mr. Doyle. These quotes that were attributed to Mr. Press
in the article, do you recall hearing that?
Mr. Kiekenapp. Yes, I did.
Mr. Doyle. Did you buy cars as a result of that call?
Mr. Kiekenapp. No, I did not.
Mr. Doyle. How about you, Mr. Spitzer?
Mr. Spitzer. I was on the call. In some cases we bought
them; in some of our stores we just couldn't take them.
Mr. Doyle. After you and other dealers put up your own
money to buy these cars in order to help out the company, you
were shut down a few months later.
Mr. Spitzer. That's right.
Mr. Doyle. Let me ask you, Mr. Press, is that an accurate
quote in the paper, or you deny saying this?
Mr. Press. It's accurate.
Mr. Doyle. It's accurate.
So let me ask you something, Mr. Press. You get on the
phone and you ask your dealers to help you survive. You ask
them to buy some more cars. You basically say you've got a good
memory, and you'll remember the guys that helped you out and
the guys that didn't.
Can you tell this committee that you didn't use that as one
of your criteria--if dealers said we take that as a threat, and
we resent it, and we're not going to buy any additional cars,
would that be used to maybe retaliate against the dealers?
Mr. Press. Absolutely not, at all, in any way, shape or
form.
Mr. Doyle. How do you take a statement like: We have a good
memory of who helps us and who doesn't? If I made that call to
you and asked you that, how would you take that call?
Mr. Press. May I put that in context?
Mr. Doyle. Sure.
Mr. Press. I understand your question, and I also fully
realize the way that that could be used in a manner that may
not be accurate. But the situation was that we had a shutdown
in December before Christmas. We made no production. We had
asked for and received a very small part of our TARP funds. We
had asked for TARP funds for the first quarter. We got 1 month.
And we had to extend through February 14 our timing to submit
to get additional TARP funds.
In the month of February, we had insufficient production to
meet cash flow targets that would have caused the company to
liquidate. We had continued and were committed for everyone's
sake to avoid bankruptcy and not liquidate the company.
We did make an appeal to the dealers to please understand
that we need to buy the February production. I realize that
you're not out of cars, but if the company is going to make it
through February, and we have a chance at getting the TARP
funding--which we finally did, and we're still here today--we
would need that help.
Seventy percent of the dealers had purchased cars, 30
percent hadn't. And my quote was something like, if you don't
buy the cars today, we liquidate. We're gone. If we buy the
cars and we can stay in business, at least we have a shot at
getting to the end of this tunnel and getting some money.
It's like a bucket brigade, and everybody's got a bucket.
Mr. Press. Seventy of you have----
Mr. Doyle. That statement's fine. I don't have a problem
with that.
Mr. Press. And 30 of you don't. And then I said, those of
us in the bucket brigade will know which ones are in and which
ones aren't, using the peer pressure of all of us, recognizing
who's there.
I am a dealer guy. I would never threaten a dealer. You can
ask anybody in the United States, that I would never use that
pressure. And I promise you under any oath that there was never
an aspect. And if you ask the people that did not get approved
to go forward, they both equally either bought cars or didn't.
And that's why we were so insistent on our redistribution
program to make sure any dealer that took cars would be
reimbursed. We added incentives.
We had the best sales--in February, after that, we had a
retail month, for the first time in history we outsold Ford. We
sold those cars. We didn't want the dealers to store them. We
wanted to save the company and get to this point where we could
emerge from bankruptcy.
Mr. Doyle. Three months after those guys did that for you,
you cut those guys loose.
I see my time is up.
Mr. Stupak. Ms. Sutton of Ohio for questions, please.
Ms. Sutton. Thank you, Mr. Chairman.
There are just so many things I'd like to pursue, but I
just want to start; Mr. Henderson, you said that GM has an
appeal process. We've heard about that. I just want to ask you:
Why? Why do you have an appeal process?
Mr. Henderson. Our process was initially certainly intended
to be data driven, but the data isn't always right, which is
why I think we felt certainly compelled to have a review
process which would reconsider facts that may not have been so
clear in the data. And that review process has certainly borne
out that it was the right thing to do, because there were cases
where we were wrong.
Ms. Sutton. So would you say it was a matter of fairness?
Mr. Henderson. Yes. We thought it was the fair thing to do.
Ms. Sutton. And in those decisions where your decisions
were overturned on the appeals, can you tell us examples? We
heard the one about the devastation of the bridge that stopped
the business from going forward. Can you tell us some other
examples of what was overturned?
Mr. Henderson. Recently--I don't have the full knowledge of
the 45--but another recent example was we had a small town that
had a Buick and GM store and a Chevrolet store, and our initial
plan would be to consolidate those two. The conclusion, after
reconsideration, was no, let's leave the two, for example. That
would be another one.
Ms. Sutton. Mr. Press, in light of what we have heard Mr.
Henderson say about the need to have an appeal process because
fairness requires it, equity requires it, how do you feel about
that in light of the fact that Chrysler has no such thing for
those who have been shut out?
Mr. Press. Great question. I understand the contrast. The
fact is, though, that our situations are completely different.
Ms. Sutton. But the employees are affected the same way,
and the dealerships are affected the same way.
Mr. Press. They are both dealerships, and they are both
auto companies, but the factors that led to the appeal process
don't exist for Chrysler. That is a completely different
situation, because we don't have a term agreement that comes
up----
Ms. Sutton. With all due respect, the factor that was a
determining factor of whether or not they were going to have an
appeals process was fairness. And that applies to Chrysler as
well; does it not?
Mr. Press. In our case what we had is a situation where the
company went bankrupt.
Ms. Sutton. I understand. I understand.
Mr. Press. A new company was formed to go forward and
selected specific dealers based on criteria of beyond dealer
performance from a standpoint of a strategic dealer network,
the number of dealers, the location----
Ms. Sutton. I understand the criteria, but, again, I think
we're leaving out the point. And the point is both companies
have an obligation, I would suggest, to make sure that those
who have given a lot in working with your company for many
years, decades upon decades in some cases, an appeals process
as a matter of fairness--I understand all the underlying
issues, I understand the business perspectives here. But what
Mr. Henderson just referred to is something that applies to
both companies, and that is a matter of fairness.
I will move on, but I am a little bit perplexed because I
would suggest, Mr. Press, that regardless of your criteria, if
it were OK at the inception, and it was all perfectly
subscribed to in terms of being appropriate, you might still
make mistakes.
So, with that, we will move on.
I want to clarify a little bit more this whole idea,
because we hear from the dealers about how the dealerships
don't feel that they cost the companies a lot of money. So if I
could just get from Mr. Press and Mr. Henderson a yes or no
answer to these questions.
Is it true that the dealers pay for the cars before they
receive them?
Mr. Press. Yes.
Mr. Henderson. Yes.
Ms. Sutton. Is it true that the dealers pay to have the
cars shipped to them?
Mr. Henderson. Yes.
Ms. Sutton. Do the dealers pay for the parts as they
receive them?
Mr. Henderson. Yes, ma'am.
Ms. Sutton. And do the dealers pay for their signs?
Mr. Henderson. Yes.
Mr. Press. Yes.
Ms. Sutton. Do they pay for their buildings, including the
taxes?
Mr. Henderson. Yes, ma'am.
Ms. Sutton. Do they pay, obviously, their employees and all
of those related taxes?
Mr. Henderson. Yes, ma'am.
Ms. Sutton. Do they pay for the brochures that they hand
out in their showrooms?
Mr. Henderson. Yes.
Ms. Sutton. So, Mr. Press, last week you testified that the
dealers cost you somewhere in the neighborhood of $3 billion.
Have you provided substantiation of that number somewhere?
Mr. Press. Yes; in our testimony.
Ms. Sutton. That's what you are submitting as the
substantiation?
Mr. Press. We have submitted written testimony.
Ms. Sutton. I have your testimony. There's nothing
supplemental to provide for any additional substantiation; just
your testimony?
Mr. Press. Yes.
Ms. Sutton. Mr. Press, don't all the States allow you to
terminate dealer agreements provided that there is just cause?
Mr. Press. It depends on the State. There are different
franchise laws that exist.
Ms. Sutton. I understand. But do they all provide you with
the opportunity to terminate for just cause?
Mr. Press. I can't answer your question.
Ms. Sutton. Fair enough.
How many dealer shipments did Chrysler terminate last year
because of substandard performance?
Mr. Press. I can't answer your question. There were some,
but I don't know how many.
Ms. Sutton. Would you please provide that to me, because
now we have 789 being terminated, and it's a huge number.
Mr. Press. It's not the same reason.
Ms. Sutton. It would be interesting to see how many were
terminated under the just cause standard in the last year.
Mr. Press, did I read correctly that you said that it cost
$41,000--or in your testimony--per dealer to have staff call on
dealers, or, was it some other number?
Mr. Press. Not just staff; for providing training, to have
the computer systems, to have our Internet program up, to have
all of the record inside the dealerships inside our country;
all the audit information that we have; the computer data; the
field organization--not just a traveler, but we have a full
field office, transportation, logistics, parts, service. It's a
fairly large enterprise of administrative costs, and it's
$41,000 per dealer.
Mr. Dingell [presiding]. The Chair recognizes the
distinguished gentleman from Vermont, Mr. Welch.
Mr. Welch. Thank you very much, Mr. Chairman.
You have been hearing very clearly from Republicans and
Democrats who represent dealers that there is enormous concern
about how they have been treated and the impact on communities.
One area where there seems to be a dispute on the dais is
whether this is a decision--each of these decisions on closing
a dealer was made by Chrysler and GM, or was it orchestrated by
the White House.
I know you were asked about that in the Senate hearings,
and I just--and it's very important that it be clear who bears
the responsibility here and accepts the responsibility.
So, Mr. Henderson, let me ask you, is it, in fact, the case
that the Treasury was not involved in any way in the selection
or the development or guidance on the number of dealers that
would be closed?
Mr. Henderson. Could you repeat the question, sir? I'm
sorry.
Mr. Welch. Basically, the question is: Who made the
decision on how many dealers to close and which dealers should
close?
Mr. Henderson. Management.
Mr. Welch. And that is you, making that decision according
to your best judgment about what was in the interest of General
Motors, correct?
Mr. Henderson. Yes, sir.
Mr. Welch. The Treasury was not involved?
Mr. Henderson. Treasury was involved as a purchaser in
making sure we had a properly sized dealer body, but they were
not involved in individual decisions, nor what the exact
numbers should be.
Mr. Welch. So you will acknowledge that that decision,
whether it was right or wrong, is a decision that you made, not
the White House.
Mr. Henderson. Yes, sir.
Mr. Welch. How about you, Mr. Press? Same question.
Mr. Press. It was not made by the White House. It was made
by our company, Chrysler.
Mr. Welch. OK. The basic question here is not just a matter
of fairness, although I agree with my colleagues on that, it's
a matter of business judgment. Somebody's right, and somebody's
wrong. You two gentlemen on behalf of your companies have come
to the conclusion that closing down dealers, including dealers
in longstanding who've done a good job for a long time, in some
cases generations, that it's in the interest of the company to
close them down; is that right?
Mr. Press. In our case it's the only way we will survive
going forward.
Mr. Welch. And there's obviously a lot of evidence that's
been presented to you at this hearing that those dealers are
not costing you money, but actually can be a lifeline to
reenergize sales in their local community. So you're going to
bear the responsibility if, in fact, it turns out that you're
wrong and they're right, correct?
Mr. Henderson. Yes, we will bear the responsibility.
Mr. Welch. On this appeal question, here is the dilemma
that we have. The Bankruptcy Code is brutal. This man over
here, his grandfather was in the business, his father was in
the business, and had there not been the resort to bankruptcy
which was obviously made as a result of business situations
that developed over decades, had there not been a resort to
bankruptcy, you would have had to have a sit-down, face-to-face
interaction with people that had been loyal, effective, and
solid business partners for decades, correct?
Mr. Press. The bankruptcy was caused by a market that ended
and no credit.
Mr. Welch. I am not asking about the cause. Once you go
into bankruptcy, all of the rules that used to apply,
contracts, agreements, relationships, are thrown out the
window. The law allows that to happen, but it is the nuclear
option, correct?
Mr. Press. It was not our desire or plan, it was a failed
enterprise that stopped operating and it doesn't exist any
longer.
Mr. Welch. Right. What it did was allow the court to throw
out contract law that had applied or State statutes that
provided some equity between the dealers and the company. You
are not responsible for what bankruptcy law is.
This is the question to you and Mr. Henderson. Given the
fact that bankruptcy is a brutal tool, in some cases it may be
necessary, do you believe that that entity, General Motors and
Chrysler, which resorts to bankruptcy with the best of
intentions, I will stipulate to that at the moment, should bend
over backwards on the side of giving the benefit of the doubt
to dealers that have been loyal, effective, and largely
profitable partners to the manufacturers?
Mr. Henderson. I can't really speak on what the bankruptcy
court should or shouldn't do.
Mr. Welch. I am asking what the company should or shouldn't
do.
Mr. Henderson. The reason we developed our approach to
wind-down agreements was to try to handle this as responsibly
as we could.
Mr. Welch. The bottom line here is that the law probably
allows you to do what you are doing. I have no doubt that you
have probably made a decision which you think is consistent
with the exercise of your responsibilities. You have tough
jobs. But we have a unique situation here where the brutal
unfairness of the law is imposing enormous, frankly,
unspeakable hardship on some pretty good people. And you will
acknowledge, I am sure, that you are fallible and you made your
best judgment, but that doesn't guarantee you are right, and
the request I have of you is whether, in the exercise of your
judgment, you will give the benefit of every doubt that can
possibly be given to people who have been doing a good job for
a long time?
Mr. Press. This was not using the law. With great respect,
I understand how that could be construed. But the fact of the
matter is, a new company was formed in our particular case, and
a certain number of dealers with certain locations and certain
brand representation were selected to go forward. The cause of
this was it became a failed enterprise.
Mr. Welch. I yield back the balance of my time.
Mr. Stupak. Thank you. There is interest here, and we are
going to go another round.
Mr. Henderson, let me ask you this. Canada has part
interest in the new General Motors?
Mr. Henderson. Yes.
Mr. Stupak. Are we closing dealerships in Canada?
Mr. Henderson. Yes. We actually went through a very similar
process.
Mr. Stupak. Did you have hearings and things like that up
in Canada?
Mr. Henderson. No.
Mr. Stupak. Mr. Press, we have the new Chrysler and old
Chrysler. Will the new Chrysler dealers be required to sell
Fiats?
Mr. Press. We have not yet established a brand position and
a product plan going forward of exactly what products from our
alliance will be branded Fiat or branded some other brand.
Mr. Stupak. Was that one of Fiat's considerations for
helping our here with the new Chrysler, is to get their product
line in the United States?
Mr. Press. Well, part of the new company is definitely
going to benefit from the $10 billion worth of resources and
product development and hardware from Fiat that gives us
tremendous car entries and technologies that we will bring into
our product line.
Mr. Stupak. Sure, but are you going to be required to sell
Fiats? That is what I am asking.
Mr. Press. We are going to have cars that have Fiat
technology or engines.
Mr. Stupak. But a car that says ``Fiat''?
Mr. Press. There may be. We have not yet determined which
brands or what names will be on the vehicles. A vehicle could
have a Fiat name on it, and it may not. It may have a Chrysler
name on it.
Mr. Stupak. Mr. Barton said I hope Chrysler and General
Motors review some of these dealerships and maybe some of these
things can be reversed. In all honesty, because you went
through the bankruptcy, there is no way for any of these
Chrysler dealerships that are being closed to get their car
dealerships back; is there?
Mr. Press. That is correct. And my answer to him was that
we will be transparent and share with them the information.
Mr. Stupak. We have to be honest, none of these gentlemen
here are going to get their dealerships back?
Mr. Press. That is correct.
Mr. Stupak. And there was no appeal process for them to get
their dealerships back?
Mr. Press. That is correct.
Mr. Stupak. And in bankruptcy, those contracts were broke
and therefore you don't have to offer them anything else,
correct? Those franchise dealership agreements, they are broke,
the bankruptcy discharged them?
Mr. Press. But we took responsibility for the
redistribution of the inventories.
Mr. Stupak. That is what bothers me. Those are old Chrysler
parts, so how can the new Chrysler, if it doesn't give these
gentlemen an appeal process, or even consider taking them back,
how can the new Chrysler take stuff that was old Chrysler? It
seems like you are being selective in what you are going to
take.
Mr. Press. Sir, that is a great question. The restriction
is to dealers, not to our company. So what we did was we
provided for a distribution of the vehicles that were in old
Chrysler dealers' inventories, and they are being moved into
new Chrysler dealers' inventory.
Mr. Stupak. So there is $350 that I have to pay to get my
2009 Chrysler moved off my lot since I am being closed. Who
gets that money? Where does that money go?
Mr. Press. That goes for the inspection, the cleaning of
the vehicle, and for the transportation, the logistics. It is
an outside third party company.
Mr. Stupak. So new Chrysler doesn't receive that money or
distribute that money in any way?
Mr. Press. No, sir.
Mr. Stupak. Go ahead, Mr. Kiekenapp, if you have a
statement. No, you can't ask questions. Sorry.
Mr. Henderson, let me ask you this. Did you have a
conference call on June 10 with GM executive retirees?
Mr. Henderson. Yes.
Mr. Stupak. Two days ago?
Mr. Henderson. Yes.
Mr. Stupak. Was a statement made along the lines of no
executive level GM retiree will receive a retirement benefit
package of more than $100,000 at the direction of the Treasury
Department or the Auto Task Force?
Mr. Henderson. The discussion had to do with pensions that
applied to executives' nonqualified plans. As part of a total
number of liabilities, one of which was that, there were six
liabilities that were unfunded and unsecured. And as part of
our bankruptcy filing, the purchase and sale agreement
suggested that we would have to reduce the total amount of
those liabilities by two-thirds. Then management had the
responsibility to allocate the two-thirds reduction.
So as part of doing that, we identified a plan with respect
to the executive retirees, that any executive retiree whose
combined qualified and nonqualified benefit was less than
$100,000, they would be unaffected. And to the extent that
their benefits in total were more than $100,000, the extent of
the unqualified plan would be reduced by two-thirds.
Mr. Stupak. Was that a decision made by the new General
Motors or was that a decision made by the Treasury Department?
Mr. Henderson. The overall framework was part of the
purchase and sale agreement. So the purchaser identified what
amount of liabilities they were prepared to accept. The actual
recommendation as to how to allocate that, including this
particular recommendation, was management's.
Mr. Stupak. General Motors' management?
Mr. Henderson. Yes, sir.
Mr. Stupak. So to place the blame for that on the White
House Task Force or the Treasury Department wouldn't be
accurate?
Mr. Henderson. In the case of unqualified pensions such as
this, sir, we had indicated to our retirees that in most
bankruptcies that is zero. So in this particular case, this was
considered to be a fair approach to it.
Mr. Stupak. Today is June 12. That is the day that the
wind-down agreements have to be returned to General Motors in
Detroit, correct?
Mr. Henderson. Correct.
Mr. Stupak. So of those dealers that are going forward or
are going to be lost, closed, what happens if they don't sign
it?
Mr. Henderson. Well, first of all, 96 percent as of today,
this morning, had either signed it or had verbally said it was
coming in. We anticipate a high percentage of those dealers
will sign the wind-down agreements. A very high percentage.
In the event that they don't, those contracts would not be
assumed by the new company. They would be left in the old
company and they would be rejected.
Mr. Stupak. So they would basically be out of business
anyways?
Mr. Henderson. They could terminate their contract, yes.
Mr. Stupak. But any financial incentives that would be in
the wind-down agreement would be lost?
Mr. Henderson. Correct.
Mr. Stupak. Go ahead, Mr. Walden.
Mr. Walden. So they are not signing that under duress?
Mr. Stupak. But if there are a thousand more dealers that
are going to be closed, right, a thousand more GM dealers, so
if I don't get my contract in right away or protest too loudly,
I could be one of those 1,000 other dealers?
Mr. Henderson. In terms of the participation agreement, 99
percent of those are in, and we expect to have all of them in.
Mr. Stupak. Mr. Spitzer, did you have something to say on
this?
Mr. Spitzer. I had a couple of comments. One on the 41,000,
Mr. Press. I would submit that the cost per dealer will go up
after these dealers are terminated because first of all, I
think it is 40 percent or so get no representation at all. It
is all done electronically. The smaller dealers, there is no
personnel. I would also submit that they will cut very few
field people, if any. With fewer dealers, those costs are
almost fixed, or semi-fixed. That will go up.
The other comment that I was going to make, the minimum
sales responsibility, just to quickly educate just in a couple
of sentences the committee, they take the State average
penetration for their brands and they expect every dealer to
hit State average penetration. The problem with that is, and
just to take an example of how that can be skewed and how it is
an unfair measurement, in fact we have found at least in Ohio
there are rooms full of testimony, expert testimony, and they
have been thrown out in many cases, minimum sales
responsibility as a criteria. In Sheffield, one of the
terminated, rejected stores in Congresswoman Sutton's district,
there is a Dodge dealership in the middle of Ford country.
There are two Ford plants, one of them was just shuttered. But
still, there are still a lot of residual buyers and owners
still living there, retirees and so forth, and then a plant
still going in Avon Lake. This dealership is right between
them.
A hundred miles to the west there is another dealership
near a Jeep plant in Toledo, Ohio. The dealer in Toledo and my
dealership in Sheffield is held to exactly the same standard.
That is absurd.
Mr. Stupak. One more question, and then I will go to Mr.
Walden.
Mr. Henderson, does GMAC have part of the new GM, or does
GM still own part of GMAC Financing?
Mr. Henderson. GM will own shares in GMAC. We will own
approximately 9.9 percent. The other remaining shares of
General Motors are currently held in a trust to be sold because
as part of our passivity agreement with the Fed, we agreed that
we would sell down our interest to 9.9 percent.
Mr. Stupak. Mr. Walden for questions.
Mr. Walden. Thank you, Mr. Chairman.
I would like to pick up on the GMAC part. I have talked to
a lot of folks in my district, and one of their complaints is
the flooring issue with GMAC. I had a dealer tell me that after
GMAC got their government dollars due to flooring, they
immediately raised the interest rate by 6 percent. They made
this dealer pay $10,000 just to be able to stay on. It is
nonrefundable. He had been with them 27 years and had no
problems. In the last 7 months, they have changed his contract
14 times, always with the threat of curtailment, and then
micromanage and manipulate floor stock. He told me that they
told him he had too many cars and so he cleaned out his
inventory, sent them to auction. Then they called to say that
they had an inspection and his cars numbers were inaccurate.
He said, I did what you asked.
They said, You should call us to tell us you are doing what
we asked.
He said it would be illuminating to have a congressional
member in the room listening to the dealer conversation with
the GMAC employee.
This is not unique, unfortunately, in terms of that side of
this issue.
Well, let me go to Mr. Thomas and maybe Mr. Blankenbeckler
as well. Is this the first time you have seen the criteria upon
which the decision was made in your wind-down agreement?
Mr. Thomas. It is the first time. I have seen the DPS one
other time in the last few weeks. I have asked for things that
are in this paper prior to making the wind-down agreement
commitment, and it would appear that I made the wrong decision.
Mr. Walden. How so?
Mr. Thomas. Well, it says in the case of a rejected
dealer----
Mr. Walden. What page are you on?
Mr. Thomas. This is page 5. At the very bottom, for GM
dealers, that floor plan with GMAC, which unfortunately we are
floored with Wells Fargo, and I don't know if this would
pertain or not, but it says for GM dealers that floor plan with
GMAC, if the dealer agreement is rejected, we expect that the
dealer would turn in new vehicle inventory which GM would then
redistribute.
Now this idea of playing out for 17 months, it sounds good
and compassionate in a sense, perhaps for the employees, but it
is a hard sell to convince someone why they should buy a past
model car from you when you are not even going to be there. I
mean, that is tough.
Mr. Walden. Is it hard to sell a model car from a
manufacturer who people aren't convinced was going to be there?
Mr. Thomas. That as well.
Mr. Walden. Has that affected your sales?
Mr. Thomas. It has affected them.
Mr. Walden. Do you think that was taken into account?
Mr. Thomas. I think there is something which has been taken
into account, but I don't really see it as being sufficient. We
took four cars to auction about a year ago, two Cadillacs and
two Corvettes, and we stood to lose $65,000 on four
automobiles. If I project that forward, it is not a pretty
picture.
Mr. Walden. So do you feel like this information provided
to the committee would give you an adequate understanding of
how they evaluated the wind-down agreements versus the go-
forward agreements?
Mr. Thomas. The whole document, I asked specifically for a
definition of what would be my fate in this state of rejection,
and it was really--there are really two choices. If you were
wind-down, you could either fall into--sign the wind-down
agreement, very tough language, or fall into rejection, and no
definition of what that really meant.
Mr. Walden. So you didn't know what the option really was?
Mr. Thomas. Well, I asked for it.
Mr. Walden. Did you get it?
Mr. Thomas. I didn't get something as thorough as this. I
got rather short answers.
I had asked, on the e-mail question line, I asked about Mr.
Henderson's comments about redistributing inventory that I
think were made in the Senate hearings. The e-mail response
comes back, you are going to have to call the call center. I
call the call center. They don't have information about that
comment or its implication.
Mr. Walden. So, Mr. Henderson, do you want to answer Mr.
Thomas's question?
Mr. Henderson. Yes, sir.
In the case of vehicles, the first thing I would say is
that the total compensation in the wind-down agreement is
intended, in all cases, to be superior to termination. That is
the reason why there is such a high percentage.
Second, if someone chooses to voluntarily terminate, and we
have 50 dealers doing that today. We had 50 dealers last month
voluntarily terminate.
Mr. Walden. You say 80 a month on average will terminate.
Mr. Henderson. We had 50 last month with people knowing
this agreement was there. What happens in that case, to the
extent they floor plan their cars with GMAC, GM has an
obligation and an agreement with GMAC that the dealer could
turn the cars back to GMAC and then we will redistribute the
cars. That is how it works.
Mr. Thomas. And if you are with a bank for flooring?
Mr. Henderson. We don't have such agreement. It would have
to be bank by bank. The highest percentage of our dealers floor
plan with GMAC.
Mr. Walden. What does that mean for you, Mr. Thomas?
Mr. Thomas. I would have to talk to my bank.
Mr. Walden. Do you have that agreement with Bank of America
or Wells Fargo?
Mr. Henderson. I don't know. I would have to follow up.
This would apply only in the case of a termination as opposed
to a wind-down. In a wind-down, we would continue to work with
the dealer through October of 2010.
Mr. Walden. I guess the question, and I realize my time is
over here, but to both the GM dealers in wind-down, what effect
does it have on your ability going forward not to be able to
have the new product line going into this next year? You are
still going to be with a lot there, right?
Mr. Thomas. We will, and we won't have the current
offerings.
Mr. Walden. How does that help GM then? I don't understand
that part. What am I missing here? How does them not being able
to buy your new model vehicles help the 2010 vehicles?
Mr. Henderson. First of all, the one element of our wind-
down agreement that we needed to apply was that they could no
longer purchase new vehicles. They could purchase used
vehicles, they could purchase parts to provide service.
Mr. Walden. My question was why? Help me understand why
that makes sense? You make money by selling vehicles you make,
right?
Mr. Henderson. Yes.
Mr. Walden. And they make money by turning around and
selling those same vehicles, so why wouldn't you want them
buying their 2010 vehicles? Then it is their problem, right?
They go out of business at the end of October 2010?
Mr. Henderson. The purpose of the wind-down agreement we
did provide as part of compensation, for example, incremental
resources for the vehicles they had in inventory, and this was
for providing a 17-month period to wind down their facilities
in an orderly basis as opposed to replenishing new stock and we
would have a problem at the end of the contract.
Mr. Thomas. My sense is that when the model change occurs,
everything we have will be yesterday's news; and it will be
very hard to get from October 2009 to October 2010.
Mr. Walden. That gets to my point. I have been kidded a bit
up here because apparently I asked you if you felt terminated,
Mr. Thomas. I meant to say if you felt your dealership had been
terminated. Isn't that exactly what has happened here, in
effect? It is a much shorter term termination. I realize you
are buying some things out, but in effect, it is taking effect
this fall, right?
Mr. Thomas. That is my sense, yes.
Mr. Walden. Mr. Blankenbeckler, do you track it the same
way?
Mr. Blankenbeckler. In regards to the handout that was just
given out, I could get no information to speak of in regards to
what your fate was should you not sign the wind-down agreement.
I was repeatedly, repeatedly, repeatedly called by GM, Where's
your agreement? Where's your agreement? Do you understand? I
said I can read. I know what it says.
You ask about what are the provisions of not signing?
You will be rejected.
What does that mean? Let's talk about it.
I do have some floor. I have a lot of paid vehicles, I can
go floor every vehicle I have got, and if I can just pick the
phone up and call GMAC and tell them to come get approximately
$4 million worth of inventory, which 90 days, and right now
they are starting to produce 2010. And you have got a business
that appears to be going out. It is a long leash to 2010,
October.
I would like to make one other comment while I do have the
floor. One of the provisions of the wind-down agreement, I am
paraphrasing this, states that in my case I will produce
potentially 84 years of sales records. My customers' names,
telephone numbers, my service customers' telephone numbers, and
I am given 25 percent of my wind-down money.
I get one person, one attorney come to me and say--and the
purpose, I am paraphrasing, the purpose of these electronic
lists of all of my customers are to be used, given to another
third party, another dealer, that is how I read it, my
replacement dealer. What I have earned for 84 years, these
are--the bulk of these people are my personal friends, that I
have to give their names. And you helped me with the Federal
statute name. I am not an attorney, but I see this as a huge
liability to a dealer, to turn over their customer lists. They
are confidential. You wouldn't go to a doctor's office and ask
for somebody's medical records and get it. One customer would
more than negate the amount of money that was given.
Mr. Walden. You mean one customer that brought an action?
Mr. Blankenbeckler. Yes, brought an action against me. And
in this world, I can't see how that wouldn't happen.
My question to GM was, Why do I have to supply my
customers' names? Everything I do is sent to you
electronically. Every sale I make, I give. All of my warranty
records, I get VIN number, labor operation number. It is given
to them. Again, all of these data processing deals are thrown
back on us. We pay for those things. I would really like to
hear what Mr. Henderson would say in response to my fear of
turning over my customers' identity.
Additionally----
Mr. Walden. Can he respond to that? Does GM assume the
liability?
Mr. Henderson. GM has a privacy policy. We have had
excellent experience with being able to properly control
customer and consumer information in our corporation's history.
Mr. Blankenbeckler. It says in the agreement that it is
going to be given to a third party. If it is given to a third
party, I don't know how you have control.
Mr. Henderson. As I said, we have been able to manage
customers' identity.
Mr. Blankenbeckler. Now let me ask you this. Would GM be in
a position to indemnify me for that from a lawsuit?
Mr. Stupak. We have to do the questions from here. Sorry.
Mr. Dingell.
Mr. Dingell. Thank you, Mr. Chairman.
Mr. McEleney, what is your opinion of GM and Chrysler's
respective dealer closure plans with regard to both substance
and procedure? Would you please submit your response for the
record?
Mr. McEleney. In the case of Chrysler, I think they were
too quick and too deep in terms of numbers.
Mr. Dingell. I would like specific criticism, and I would
ask you to submit it for the record because I only have 5
minutes. And submit as part of that how could those be improved
to result in fairness, in your view, to the dealers.
Mr. McEleney. In the case of both GM and Chrysler, it was
not a transparent process. In the case of GM, there was an
appeal, which was favorable. And none with Chrysler, which I
think is problematic. I think with the information we received
today that the Chrysler dealers will be provided that criteria,
it would seem to make sense that there be an appeal process so
those Chrysler dealers who have been canceled can evaluate
that.
In the case of GM, the wind-down is much more favorable,
allowing dealers potentially through next October to sell off
their parts and inventory and tools and reasonably close their
businesses in a rational format.
In the case of Chrysler, the wind-down was very abrupt, 26
days. I think it created all kinds of problems for dealers and
their employees. So I would not think very highly of that.
Mr. Dingell. What is it going to cost per car for a GM
dealer to wind down? How much is he going to lose per car, and
how much is a Chrysler dealer going to lose per car?
Mr. McEleney. Sir, it would be very hard to project. I have
been a dealer for 36 years. I would guess in the case of GM,
there would be some cars. When you get to the tail-end of the
process, you have some of the less popular models left. Dealers
could lose several thousand dollars in those cases, but it just
depends on their own situation.
In the case of Chrysler, those dealers that have vehicles
left don't have a franchise, they don't have a license, they
can't sell them or get Chrysler incentives. The costs could be
many thousands, five, six, $10,000 per vehicle.
Mr. Dingell. What charges are in the two closure plans that
are detrimental to the dealers and how could that aspect of it
be improved?
Mr. McEleney. I am sorry, sir, I don't understand the
question.
Mr. Dingell. I am not sure I do either.
What is there in the two plans which is particularly
hurtful in terms of costs to the dealers, and how could those
matters be improved?
Mr. McEleney. Sir, in the case of both GM and Chrysler when
a dealer is losing their franchises, like these gentlemen at
the table are and so many around the table, the value of the
franchise is going to zero.
Mr. Dingell. I want to know about the specific charges per
car. In other words, Chrysler has a $350 item that they have to
pay. Are there other charges like that in either one of these
plans that would impact upon the dealer?
Mr. McEleney. Not that I am aware of. In the case of
General Motors, they are not buying the cars back but they are
providing the wind-down dealers an opportunity to sell them
down over the next 15 months.
Mr. Dingell. I am going to submit to you a letter, and
there will be other letters submitted to others, and I ask
unanimous consent, Mr. Chairman, that those letters and
responses be inserted into the record.
Mr. Stupak. Without objection.
[The information was unavailable at the time of printing.]
Mr. Dingell. Mr. McEleney, given your assertion that
dealerships do not in fact cost money to maintain, why do
foreign transplants have significantly fewer dealerships in the
United States than their domestic competitors?
Mr. McEleney. I happen to be an import dealer as well, a
Honda and Toyota dealer, so I have some perspective on that.
The business model for the import, the transplant
manufacturers, is quite a bit different than the domestics.
GM, Ford, and Chrysler have a very strong market share in
the rural markets, much like where I live in Iowa. Mr.
Henderson mentioned earlier that they have a 10-point market
share advantage in those areas. So it is a competitive
advantage for Ford, Chrysler, and GM to have representation in
communities less than say 75,000 or 100,000 people on average;
where Toyota, Honda and Nissan have no interest. They will not
go in and backfill some of these locations that are being
closed with franchises.
Mr. Dingell. Why would they choose not to back those kinds
of franchises? That is really at the root of the question.
Mr. McEleney. I can't speak for them. Based on my
experience, I would say they don't see the market opportunity
for their brands as they do in more metropolitan areas.
Mr. Dingell. Now, Mr. Press and Mr. Henderson, Mr. McEleney
has indicated in his testimony that dealer franchises in fact
do not cost manufacturers money to maintain. Do you agree with
his position or not?
Mr. Press. I do not.
Mr. Dingell. Mr. Henderson?
Mr. Henderson. I do not.
Mr. Dingell. Mr. Press, why? Mr. Henderson, why, please?
Mr. Press. In our situation, one of the main reasons that
caused our bankruptcy and weak product engineering is the
requirement that we provide individual models for each stand-
alone franchise as sister models that cost a substantial amount
of money and took resources that had negative returns, no
incremental sales, only costs, as one example. That is a huge
cost.
The second one is the fact of lost sales, lost volume. In a
market that is underperforming, those sales don't provide
revenue for us. We lose that revenue. In our case it was about
$1.5 billion.
The development of individual models is about $1.4 billion.
And so we have--and that is a very real situation.
Third, because we have so many dealers and our average
dealer loses money, we are not having a competitive dealer
network that can compete with the other manufacturers in terms
of customer satisfaction, location, facilities, trained people,
advertising, et cetera. So it is a substantial cost to the
company.
Mr. Dingell. Mr. Henderson, if you please, give me your
comments.
Mr. Henderson. Mr. Dingell, in my testimony I talked about
the costs that the company over time has incurred to provide
support for a dealer body in total that has been substantially
weakened. So there are the costs articulated in my testimony.
Second, our principal issue, General Motors' market share
in rural and small towns in the U.S. Is 10 full market share
points higher than it is on average. It is a source of strength
for us. And even when we are done with our restructuring, we
will still have the most extensive dealer body in rural
America.
What costs us today is that we have insufficient
distribution in metropolitan markets where we have many, many
locations and we have few strong ones. That is a significant
problem today.
Mr. Dingell. Mr. Press and Mr. Henderson again, it has been
estimated that the average throughput for a foreign transplant
dealer is twice that of a comparable domestic dealer. Is this
true, yes or no?
Mr. Press. I don't know exactly double, but it is
substantially higher. Perhaps in that range, yes.
Mr. Henderson. It would be our estimate that a Toyota, for
example, versus Chevrolet, would be approximately double.
Mr. Dingell. If this is true, and apparently it is, why is
that the case? Mr. Press.
Mr. Press. Well, the reason in Toyota's case is they sell
about 2 million cars and trucks a year out of 1,200 dealers.
And if we didn't have this restructuring, we would sell about
700,000 cars and trucks a year at retail out of 3,100 dealers.
So the average sales per dealer is substantially different.
In Toyota's case, as Mr. McEleney said, the product line
they have is less truck oriented. They sell mainly cars in more
metro markets or sunshine States, less presence in smaller
rural areas or secondary markets. And they also don't have an
80-year legacy of having had a substantially higher dealer body
and seeing the volume disappear.
Mr. Dingell. Mr. Henderson?
Mr. Henderson. Sir, I wouldn't have anything to add to Mr.
Press' comments.
Mr. Dingell. Gentlemen, do you believe that your respective
numbers of dealerships has been reduced per your
rerestructuring plans? And if so, has parity been achieved
through these plans in a way which will be adequate with regard
to your foreign transplant competitors?
Mr. Press. We tried to achieve a dealer network going
forward that had the minimal impact on removing dealers. There
have been critics that say that we didn't go far enough, but we
didn't want to go all of the way to have parity. We think we
are in a very good position to continue to go forward with
business and have that dealer network emerge over time.
But through the bankruptcy and through the emergence of a
new company, we have the optimum number of dealers going
forward, 3291.
Mr. Dingell. Thank you. Mr. Henderson.
Mr. Henderson. As I mentioned in my testimony, we would
expect that at 3,600 dealers approximately, even with only a
modest improvement in the market next year and conservative
market share assumptions, that throughput would almost double.
Mr. Dingell. Very quickly, gentlemen, it has been said that
the dealers should be permitted to remain open where you are
terminating them to provide service and maintenance. What is
wrong with that arrangement?
Mr. Press. In our situation, of course, because there are
existing dealers that are surrounding them that are taking, in
many cases, 555 cases, the franchise. For example, the Dodge-
Jeep dealer, may be taking the Chrysler franchise. They are
spending money and adding facility and overhead. That is part a
part of the business in terms of loyal customers and part of
the business that would travel with it.
Mr. Dingell. Are you telling me this would have an adverse
impact on adjacent and nearby dealers?
Mr. Press. It would have an adverse impact on adjacent
dealers. There are some cases where there may be a single point
that may have a real customer situation where they can't
achieve the location. Then we have always had an opportunity to
take a look at a very minimal number of companion points. But
in this particular case, it would substantially reduce the
ability of the dealers that go forward to derive the full
benefit of their business.
Mr. Dingell. Thank you. Mr. Henderson.
Mr. Henderson. I would have the same response, sir.
Mr. Dingell. Mr. Chairman, I thank you for your courtesy.
My time has expired.
Mr. Stupak. Thank you, Mr. Dingell.
Mr. Braley for questions, please.
Mr. Braley. Gentlemen, I don't think it is any coincidence
that with the exception of Mr. Walden, the remaining members
all come from States that are represented in the Big 10
Conference. Our constituents built your cars and trucks, or in
my case they built tractors and combines and heavy equipment,
and the workers who build those products are so brand loyal to
your company that they have created a dominant market share for
you in U.S. auto sales that has lasted right up to this moment
in history.
Mr. McEleney and my uncle and my brother-in-law, who are
Chevy dealers, advertise your products on Big 10 sports
networks so that your products are sold in this area where you
have this dominant brand loyalty. And yet I look at page 4, Mr.
Henderson, of your proposal, and what do I see: Wind-down
dealers by State: Pennsylvania, 90; Ohio, 79; Illinois, 66;
Wisconsin, 50; Michigan, 58; Indiana, 48; Iowa, 46.
And after your description of why these foreign automakers
are not playing in this part of the country, I find it very
difficult to believe that you will perpetuate your brand
loyalty in light of these massive dealer closures in my State,
in Representative Stupak and Congressman Dingell's State and
Congresswoman Sutton's State. I see the evaporation of your
market share because of this practice.
I just wonder whether as part of your restructuring you
have given consideration to that? Mr. Henderson?
Mr. Henderson. Sir, first of all, I am a Wolverine, born in
the State of Michigan. Second of all, when we are done, General
Motors will still have what we believe is the largest
distribution system for rural and small towns in the U.S.
Approximately 1,500 of our 3,600 dealers will be located in
those small towns, and we do believe we will be able to
maintain a strong position, sir.
Mr. Press. Actually, through the new dealer network we have
increased the share of dealers that are in rural markets and
reduced the share of dealers in metro markets. We do realize
the importance.
The difficulty is from our volume going from a peak of 2
million to 700,000, we don't produce enough vehicles to have
every dealer stay in business. It is unfortunate, but it is a
fact. We are trying to make sure that the dealers have a high
enough volume that they can stay in business and have a good
operation going forward to compete with the transplants.
Mr. Braley. Well, with all due respect to the two of you
who have accomplished much in your careers, I would submit that
the people sitting on this side of the table have a much deeper
sense for the attitude of our constituents, and I would be
shocked to see your brand loyalty maintained in light of these
shutdowns.
One of the things that we know, and Mr. Walden referenced
this in his opening statement, both companies have been doing
advertising to talk about their business strategy going
forward. And, Mr. Henderson, we have seen the GM ads that talk
about how your company is going to stand behind the products it
sells going forward. But in reality, you are not standing
behind your products because one of the things that we know as
part of these bankruptcy proceedings, every existing and future
product liability claim that your company could be responsible
for for selling a defective product is going to be
extinguished; isn't that true?
Mr. Henderson. In our case, warranty recall will all be
assumed by the new company. But in the case of product
liability, purchasers in the normal 363 process do not assume
that sort of obligation.
Mr. Braley. So they will be extinguished in the bankruptcy?
Mr. Henderson. They would be unsecured claimants of the old
General Motors.
Mr. Braley. And they will be extinguished because we all
know what happens to those unsecured claimants?
Mr. Henderson. Likely.
Mr. Braley. Yes. Now, have you informed your dealer network
that you are going to be passing on a massive cost shifting to
them because of that?
Mr. Henderson. No, we are not going to be passing on.
Mr. Braley. Yes, you are, sir, because I can tell you in
the State of Iowa Mr. McEleney is currently immune from
liability as a distributor of your product if the manufacturer
is in existence and is not in bankruptcy. That is a fact in
almost every State under State product liability law. So if you
disappear as a potential claimant in that process, every one of
these dealers is going to be on the hook, not just your
remaining dealer network, but existing dealers that no longer
have a franchise?
Mr. Henderson. In our case, both wind-down agreements as
well as the continuation agreements will be assumed by the new
General Motors and the indemnification provisions that GM has
today will continue.
Mr. Braley. The indemnification provisions. So you are
going to assume responsibility and pass that liability on?
Mr. Henderson. As part of our obligation, we will continue
to indemnify the dealers who sign a new agreement with new
General Motors.
Mr. Braley. So they are going to have to rely upon you to
step up after they have been sued and they pass that on to you,
and then they are going to have to have counsel involved
because of that status?
Mr. Henderson. Sir, I think that by virtue of the
indemnification continuing to the new company, we did that
purposely to try to avoid the situation where a dealer could be
badly hurt.
Mr. Braley. Mr. McEleney, I want to give you the last
opportunity to talk about the impact on every one of the
dealers that you represent as Chairman of NADA who haven't had
a seat at the table and haven't had an opportunity to tell
their story because I am guessing you have been getting a lot
of phone calls. What has it been like for you and what types of
concerns are you hearing?
Mr. McEleney. Well, we are hearing many of the concerns
that have been expressed earlier today by some of the dealers
on the panel. There are dealers who are sometimes third, fourth
generation. My family has been in business for 95 years.
Fortunately, we are going forward, but there are a lot of
dealers like me who are not. Most dealers, the net worth of
their enterprise, their life savings is represented in the
value of their real estate, if they own it, and the value of
their franchise.
In the case of dealers being terminated by either GM or
Chrysler, the franchise value is zero immediately. And the real
estate value with single purpose real estate, particularly in
this commercial real estate market which is pretty stressed
anyway, would be severely devalued even to the point where in
many cases dealers will owe more money on the property than it
is worth. Or they may have a lease that they are obligated to
for a number of years and have no way to generate revenue to
pay for that lease.
Those are some of the issues. There are dealers who have
made significant investments in facilities with the expectation
that they would have a franchise going forward as long as they
met the requirements of the franchise agreement that are being
left with those obligations.
So there are a myriad of stories that are very tough,
personal bankruptcies in many cases, dealers and their
employees having to take personal bankruptcy. And the
dealership employees, we haven't talked a lot about. They earn,
on average, about twice what is paid in retail. So these are
good jobs. Most of these people will not be able to go to other
dealerships and find employment, particularly in this market,
in a 10 million market, I don't know of any dealers that are
hiring people. I suspect there may be some as this
rationalization takes place and dealers have bigger market
areas. But for the most part, those 120,000, 130,000 employees
of terminated dealerships will have to find work probably
outside of the auto sector, and it is a tough market to find
employment in right now.
So there are some pretty devastating stories out there.
Mr. Stupak. Thank you, Mr. Braley.
Ms. Sutton for questions.
Ms. Sutton. Thank you, Mr. Chairman.
I was talking to Mr. Press about the appeal process and I
talked about the State law, and under State laws across this
country it is my understanding that you can terminate for just
cause. You can terminate dealerships. Is that your
understanding; Mr. Henderson? Mr. Press wasn't certain.
Mr. Henderson. I have the same recollection. I think there
are provisions, but they do depend by State. But yes, in
general for cause.
Ms. Sutton. When you say they depend, there may be
differences, but they all have some sort of just cause
standard; is that correct?
Mr. Henderson. I can't answer the question, ma'am.
Ms. Sutton. Well, I can tell you in Ohio there is a law
that allows for termination based on just cause, so we can just
go with that understanding.
Let me ask you, how many dealerships did GM close last year
based on just cause under State law?
Mr. Henderson. I would have to get back to you with an
answer.
Ms. Sutton. Do you have any idea?
Mr. Henderson. No.
Ms. Sutton. How many are you slated to close through this
bankruptcy?
Mr. Henderson. As we talked about, we will move from
approximately 6,000 dealerships to approximately 3,600 over
time.
Ms. Sutton. So 2,600; is that about right? 3,600?
Mr. Henderson. No, no. About 2,400.
Ms. Sutton. 2,400. Thank you.
Mr. Henderson. The reason, by the way, is that number isn't
perfect. So it can go anywhere from 3,400 to 3,800.
Ms. Sutton. I want to follow up on some of the discussion
that was going on a while back about information being
transferred from the dealerships that are being closed and the
discussion, you said that GM has a record of securing that data
in a way that is appropriate. It was mentioned that it is going
to go obviously to third parties. So who are those third
parties exactly? Are they all identifiable at this point?
Mr. Henderson. We can identify them for you. These would be
parties that we would typically use to sell vehicles to
customers, to make sure that their service is taken care of, to
provide surveys. There are many reasons why we would want to
contact customers.
Ms. Sutton. Right. I would appreciate you submitting all of
the third parties that might receive that information to the
committee.
Mr. Spitzer, I want to thank you again for coming to
testify today.
You spoke earlier about some of the investment that you
have put into this life's work of yours representing Chrysler
and their products. How much have you invested in Project
Genesis so far?
Mr. Spitzer. Working closely with the people from the
management of the business center, which is the Great Lakes
Business Center, it includes Michigan and Illinois, and so
forth, and has the responsibility for most of our dealerships
except one, working very much in concert with them and
sometimes almost at their direction, I won't say insistence but
let's say strongly urging, we have consolidated two Genesis
stores. One of them is in Florida with a different business
center, was the first one in the State, or very close. It
actually was called Project Alpha at that time.
We have spent in concert with Chrysler Corporation, I
think, about $6 million in acquisitions at their urging and
insistence. In fact, in two or three cases I was called by
Chrysler and they said, This is the guy you have to buy and
here is what you have to do, call them and buy them out and
that way we will consolidate. That is in just goodwill, blue
sky. That has gone away.
Over and above that, we have invested in Project Alpha--
excuse me, Project Genesis now, they changed the name somewhere
along the line. They didn't change anything but the name, but
in bricks and mortar about $10 million. That doesn't count the
land. That is just in buildings done in concert with Chrysler
to consolidate and accomplish Project Genesis.
With all due respect to Mr. Press, who I have had a healthy
respect for over the years, going back to his days with Toyota,
we have known Mr. Press for probably 30 years, the arbitrary
way in which these dealers were selected has no connection to
Project Genesis or all three brands or stand-alone.
From my own experience I can assure you of that, and also
anecdotal observations from other dealers that I know that
where stand-alones went forward where Genesis got canceled, and
all of the permutations and combinations that are out there.
Ms. Sutton. Have you received the written criteria
explaining why your dealerships have been canceled?
Mr. Spitzer. We received nothing. We didn't even receive
termination. It was on the Web. I was told about it by other
people that saw it on the Web. We didn't even get notification
of who was going forward directly.
Ms. Sutton. I see. I want to just like to give Mr.
Kiekenapp a chance to speak. If you could ask a question here
today, what would that question be?
Mr. Kiekenapp. I think what is frustrating is that we are a
very good dealership and we have done a good job and there are
other dealerships that surround us that have lost financing,
that don't have the ability to buy cars. We own all of our cars
outright. We didn't have a financing problem. And now there are
dealerships within GM and Chrysler that don't have the ability
to finance their vehicles. They are now having to get bailed
out by the Small Business Administration, and it is
frustrating. I think there are probably some things that I
might have said that created frustration with the factory and I
think it cost employees' jobs. But I think we have done a great
job.
I know that within Tacoma they want a point, and we are
applying for that point. I just hope, you know, that they take
a look at us because I think we are the dealer, and if we were
to have conversations with them in regards to maybe moving the
point to someone else, we will do whatever it takes. I believe
in the product. I believe in what they are doing is right. I
don't believe eliminating the dealer body did any good. I
believe the bankruptcy was something that was inevitable. But
the products that they make are far superior. The Dodge
Charger, the Challenger, the new 1500 are phenomenal and I
believe in the product. It is just unfortunate that when we
have such a well-run business and there are other dealers that
are out there that are substandard. You can really look at any
metrics from any dealership and shoot holes in every one of
them, and I don't believe it was----
Ms. Sutton. Fair. I appreciate your testimony. Thank you.
Mr. Stupak. Well, thank you. I am just going to follow up
and clean this hearing up a little bit and then we will
adjourn.
Mr. Henderson, if the government is going to own 68 percent
of the new General Motors, and even Mr. Press, I guess I am
concerned in my opening statement about the rural areas,
especially where I live. Some of you have talked about 100,000,
80,000. I don't have a county in my district that has 70,000. I
am vast, rural area, and I think we have like six Chrysler
dealerships being closed, maybe four or five, maybe more than
that in my district of General Motors.
How are people going to get service? I mean, if I bought a
car this year, a General Motors or a Chrysler and my dealer is
closed, how am I going to get service on that car? Am I going
to have to drive 2 hours when my service light comes on? How do
you do it?
Especially when you talk about the loyalty is in the rural
areas, you have 10 percent greater loyalty base in the rural
areas, but we are getting hard hit here.
Mr. Press. Mr. Chairman, I appreciate your concern,
especially for the customers. That is a very fair question.
Customer satisfaction is very important. In our particular
case, after the reorganization, we have actually increased the
share of our dealer body that is in rural markets. A higher
portion of metro market dealers were actually removed.
Mr. Stupak [presiding]. I guess I am saying if you improved
the rural market why did you close in my district? You cant get
much more rural than me. We lost six of them.
Mr. Press. The largest impact was on metro markets where
the dealers were too close to each other.
Mr. Stupak. I don't have any metro markets.
Mr. Press. I know that.
Mr. Stupak. Miles from my one in my district to the next.
Very few people in between.
Mr. Press. I realize that. I am very familiar with your
area. I go there on weekends often, so I appreciate that.
Actually, in terms of customer convenience, from the old dealer
group to the new dealer group, the distance from a customer to
a dealership increased 9.4 miles. So we were very careful to
make sure that we were able to retain the convenience to
customers. There may be----
Mr. Stupak. That has got to be nationwide.
Mr. Press. That is for all rural markets.
Mr. Stupak. How can it be--like 1 mile more for rural
markets?
Mr. Press. There will be a few rural markets that we will
no longer be represented in.
Mr. Stupak. The only way to do that is then you will have
to take these dealerships that you shut down and move other
dealers in their places.
Mr. Press. Well, there are other dealers that have access
to these markets or are adjacent. Especially in a case where
there is a Dodge dealership that goes out, the Dodge franchise
will go to the Jeep dealership that is in the same place. So
the distance from repairs may not increase or be very minimal
in terms of the number of locations.
And then second, I think from the standpoint of those
markets if there is a market--there may be some markets where
we are abandoning the market if there is no longer a potential
for long-term growth and with 700,000 units of production we
don't have enough vehicles to put to them.
Mr. Stupak. I trusted you guys. I bought a car this year
when the push was on. And when you abandon those markets you
abandon me. And if I remember, the Federal Government said we
are going to guarantee the warranties for 5 years. And I, the
Federal Government, am going to guarantee the warranties for 5
years when you abandoned my part of the area? I might need that
F-15.
Mr. Press. I am not aware of any F-15 trips that are
necessary for service. We did look at the average distance. But
we will sure take a look at your area and see what the distance
difference would be. The Jeep dealership that closed, the
repairs of that Jeep dealership can now be made in the Dodge-
Chrysler dealership that exists in the same market area. So the
customers will have another service outlet available.
Mr. Stupak. Mr. Henderson? Do you want to----
Mr. Henderson. Certainly. We tried as much as possible to
manage the drive times for service. We looked at State by
State. We looked at averages. We looked at averages across the
United States. If I look in the Upper Peninsula average of
Michigan, 19 to 23 minutes. In Oregon for Chevrolet--this is in
miles--from 10 to 14-1/2 miles. The issue we have is on the
extremes, because there will be situations where we clearly
will have a problem.
Mr. Walden. Mr. Chairman, if I might.
Mr. Stupak. Go ahead.
Mr. Walden. You are closing the Klamath Falls dealership.
It is probably at least 100 miles to Medford. That is the
nearest Chevy, any kind of Chevrolet. So the people in southern
Oregon will go from Klamath Falls, I suppose they could go to
Lakeview. Burns, you are closing Burns. There is 136 to
Payette, Idaho, is the nearest dealership; right?
Mr. Henderson. That is what I said. We will have situations
where we have problems and we will have to solve those
problems.
Mr. Walden. How will you solve the problems? By putting the
dealership back in?
Mr. Henderson. That actually is not our intent.
Mr. Walden. How do you solve it?
Mr. Henderson. First of all, other General Motors
franchises can provide service work.
Mr. Walden. There is not another one in Klamath Falls,
Burns----
Mr. Henderson. The second thing we said is in the event we
need to put a location back, one of the things we committed to
the Senate and I will commit to you today is if we need to
provide a spot there we will provide the existing operator an
opportunity to look at that first.
Mr. Walden. OK. Let's go to Bend, Oregon. You have closed
Bend, you closed Redmond and you leave Madras. What is the
process that is going to be put in place that allows Mr. Thomas
maybe to go get his dealership back? You are telling me you are
going to look at it and you are going to decide.
I would not be asking these questions if it weren't
taxpayer dollars funding this whole thing. I would let you all
figure it out under the laws of the land. It is not that. These
are the questions that are coming at us. I actually voted for
TARP. I didn't vote for the auto bailout. I admit it. I voted
for TARP.
Mr. Henderson. What we will do, as I said, we have location
by location. If we have made mistakes in the future and we
concluded that we cannot take care of customers in the location
and a point needs to be put back, we would go to whoever the
individual who was affected and give them the first chance to
do that.
Mr. Stupak. All right. We may follow that up further.
Because I am just looking at Chrysler and here is Michigan,
even though we have the Upper Peninsula, very small. Marquette
and Escanaba are my two biggest cities. The dealers are gone.
That is my two biggest cities in the Upper Peninsula. They are
gone. And now next one closest across the bridge is Sheboygan.
That is gone. Next one is Petoskey. That is gone. Next one is
Rogers City. That is gone. With the Cadillac dealer there is no
one in northern Michigan. Well, Traverse City--I will take that
back, no longer part of my district--there isn't a Cadillac
dealer around there with some of these ideas. Not that I drive
Cadillacs; I told you I am an Oldsmobile guy. You took that
away from me, too. So I am hurting now.
The point is the distances we have to travel I will have to
follow that up. Just looking at the map and the things that
have been closed just doesn't make sense. I know this district
and those miles in between very, very well. That is where
members say it could probably hurt you, especially in the rural
areas where you have the most loyal customer base. I agree.
Plus the Federal Government says we are going to guarantee
these warranties. I don't know how we will service them.
Any other members? Mr. Braley? Ms. Sutton?
Mr. Braley. I wanted to add one thing, Mr. Chairman. I
think that because of the concerns we have raised today about
one of the other critical aspects of these bankruptcies; that
is, the responsibility going forward for any products that may
be defective and the implications for U.S. taxpayers and the
dealers in this room, I would strongly urge the committee to
take up that issue as well and flesh it out in more detail. I
think it has enormous economic consequences even for people who
have lost their franchise, and I would like to explore that in
further detail.
Mr. Stupak. Mr. Walden?
Mr. Walden. I think that this flooring issue with GMAC--I
continue to hear from dealers about flooring in and of itself.
Just to reiterate, I know that Dr. Burgess had to leave. I know
he entered into the discussion with both you, Mr. Press, and
Mr. Henderson, about e-mail traffic to Mr.--I think Dees and
the White House and all of that, and I understood you both to
indicate you would supply that e-mail. We will follow up. I
think Dr. Burgess, the appropriate process would be for him to
follow up with a letter of request, but I sense that subject a
problem for you all to provide those e-mails.
Mr. Stupak. Ms. Sutton?
Ms. Sutton. Thank you, Mr. Chairman. I just want to add, of
course, as you can see who has stayed here at end of this
hearing. As it was pointed out, the CARS Act that we passed
this week, Representative Braley, he was an original cosponsor,
and Chairman Stupak and Chairman Dingell were involved in the
process of getting that bill done, and it is intended to have a
concrete impact because we really do believe, as Mr. Kiekenapp
said, we want Chrysler and GM to be a success because we know
how linked it is to our communities and we know how linked it
is to jobs and the food that it puts on the tables of the
people that we are so honored to represent. And so it is
painful for us to be here and in this position.
But the pain that we feel listening to this is nothing
compared to what we have heard displayed here of the folks who
are losing their dealerships, and I want to thank all of you
who came here today to put a human face and perspective about
costs of what is going on on this major problem.
So thank you all for coming. And Mr. Chairman, thank you
for holding this hearing. We do want you to be successful.
Mr. Stupak. Well, thanks. And that concludes all of the
questions from members. I think the hearings have been helpful.
Since the Senate hearing we now have a field process with
General Motors to help out some of these dealers. There is GM
and the Auto Dealers Association working together trying to do
some things. I think that is positive. I think we have further
explanations.
But we will continue to monitor this. There is H.R. 2743
sitting out there, GMAC, and others. And it has been a long
hearing and we appreciate everybody for coming. And if there is
something anyone wants to add I will give you a minute to add
something or so. We really do appreciate especially the dealers
and Mr. Henderson and Mr. Press and others coming some
distance. And I know that during this hearing once you have
raised your hand and that, but because of the rules of the
hearing I couldn't recognize you at times. So if there is
something you wanted to add--Mr. Golick, I know you did--go
ahead. Mr. Spitzer, if anyone wants to add something. Then we
will wrap this up. We will keep this brief.
Mr. Golick. I am just perplexed when Mr. Press last week
said that in the case of the dealers not being taken forward
last year they lost 55,000 units of sales. That number is real
important to them, apparently. But then like I say, they are
going to lose 140,000 units of sales when these dealers are
removed. I know that he says they can only produce 700,000
cars, but there has to be a plan in place for growth if the
market improves. I am sure he could build another 140,000 cars.
That is why--I am perplexed over that. I thought I would
throw that in.
Mr. Stupak. Thank you and thank you for coming. Mr.
Spitzer. Do you have anything?
Mr. Spitzer. Just that the marketplace was moving the
industry to a number of dealer outlets rapidly close to where
they are taking us immediately through consolidations, buy-
sells. And we, in the case of Chrysler, had all of our generous
points and projects on the table working with, buying out, or
selling out what it is, to accomplish the goal painlessly. I
don't know why it couldn't have just kept going a year or two
and we would be where we are going to be anyway.
Mr. Stupak. Mr. Kiekenapp? Mr. Press?
Mr. Press. I really appreciate the opportunity to
communicate with the committee and provide this information. It
has been a very good learning experience for us. This will be
good communications going forward. I don't know that I am
looking forward to our performance review when I come back, but
I guess this will be the forum to do that.
Thank you.
Mr. Stupak. Mr. Henderson?
Mr. Henderson. Like Mr. Press, I want to thank you, Mr.
Chairman, and the committee for your time. Thank the dealers
for joining us here very, very much. I appreciate it. Because
this is a very difficult time for all of us, I very much
appreciate the professionalism. So thank you very much.
Mr. Stupak. Mr. McEleney?
Mr. McEleney. Thank you, Mr. Chairman. Again, we appreciate
the opportunity to be here on behalf of 19,000 new car dealers
in the country. I guess I would say in this difficult
environment, and we know how tough the economy is, particularly
the auto sector, if a dealer is able to keep his doors open,
make the payroll and keep his customers coming in, floor plans,
inventories, they are probably a pretty good operator. I know
there are other elements that play into this, but that is
important to remember as we look at this.
So thank you.
Mr. Stupak. Thank you. Mr. Paddock?
Mr. Paddock. No, other than just saying thank you for
giving me the opportunity today. Thank you.
Mr. Stupak. Mr. Blankenbeckler?
Mr. Blankenbeckler. Thanks for letting me come. I think I
have a story and I think everybody who is here today has a
story. It is not a happy time. Thank you very much for
listening to me.
Mr. Thomas. I would close with a rhetorical question, and
that would be with all these closings, will other makers go to
these institutions that have facilities available and bring
their new products and convey them to the public, instead of
the established makers? Thank you very much.
Mr. Stupak. Well, thank you all and thank you very much.
That concludes our questions and concludes our hearing. I thank
all of our witnesses for coming today and for your testimony.
The committee rules provide that members have 10 days to
submit additional questions for the record. I ask unanimous
consent that the contents of our document binder, with the
exception of tabs 1 and 3, be entered into the record, provided
that committee staff may redact any information that is
business proprietary and relates to privacy concerns or is law
enforcement sensitive.
Without objection. Without objection, the documents will be
entered into the record.
[The information was unavailable at the time of printing.]
Mr. Stupak. That concludes our hearing. The meeting of this
subcommittee is adjourned.
[Whereupon, at 2:30 p.m., the subcommittee was adjourned.]
[Material submitted for inclusion in the record follows:]
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