[Senate Hearing 111-444]
[From the U.S. Government Publishing Office]



                                                        S. Hrg. 111-444

 GM AND CHRYSLER DEALERSHIP CLOSURES: PROTECTING DEALERS AND CONSUMERS

=======================================================================

                                HEARING

                               before the

                         COMMITTEE ON COMMERCE,
                      SCIENCE, AND TRANSPORTATION
                          UNITED STATES SENATE

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 3, 2009

                               __________

    Printed for the use of the Committee on Commerce, Science, and 
                             Transportation
















                  U.S. GOVERNMENT PRINTING OFFICE
52-752 PDF                WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing 
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC 
area (202) 512-1800 Fax: (202) 512-2104  Mail: Stop IDCC, Washington, DC 
20402-0001














       SENATE COMMITTEE ON COMMERCE, SCIENCE, AND TRANSPORTATION

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

            JOHN D. ROCKEFELLER IV, West Virginia, Chairman
DANIEL K. INOUYE, Hawaii             KAY BAILEY HUTCHISON, Texas, 
JOHN F. KERRY, Massachusetts             Ranking
BYRON L. DORGAN, North Dakota        OLYMPIA J. SNOWE, Maine
BARBARA BOXER, California            JOHN ENSIGN, Nevada
BILL NELSON, Florida                 JIM DeMINT, South Carolina
MARIA CANTWELL, Washington           JOHN THUNE, South Dakota
FRANK R. LAUTENBERG, New Jersey      ROGER F. WICKER, Mississippi
MARK PRYOR, Arkansas                 JOHNNY ISAKSON, Georgia
CLAIRE McCASKILL, Missouri           DAVID VITTER, Louisiana
AMY KLOBUCHAR, Minnesota             SAM BROWNBACK, Kansas
TOM UDALL, New Mexico                MEL MARTINEZ, Florida
MARK WARNER, Virginia                MIKE JOHANNS, Nebraska
MARK BEGICH, Alaska
                    Ellen L. Doneski, Chief of Staff
                   James Reid, Deputy Chief of Staff
                   Bruce H. Andrews, General Counsel
   Christine D. Kurth, Republican Staff Director and General Counsel
                  Paul Nagle, Republican Chief Counsel















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 3, 2009,....................................     1
Statement of Senator Rockefeller.................................     1
Statement of Senator Hutchison...................................     3
    Prepared statement...........................................     4
Statement of Senator Klobuchar...................................     5
Statement of Senator Johanns.....................................     7
Statement of Senator Begich......................................     8
Statement of Senator Lautenberg..................................     9
Statement of Senator Dorgan......................................     9
Statement of Senator Snowe.......................................    10
Statement of Senator Isakson.....................................    12
Statement of Senator Martinez....................................    13
Statement of Senator Brownback...................................    13
Statement of Senator Warner......................................    15
Statement of Senator McCaskill...................................    16
Statement of Senator DeMint......................................    16
Statement of Senator Wicker......................................    17
Statement of Senator Udall.......................................    18
    Prepared statement...........................................    18
Statement of Senator Pryor.......................................    19
    Letter, dated June 2, 2009 to Hon. Mark Pryor from Steve 
      Landers, Sr., President, RLJ-McLarty-Landers Automotive 
      Holdings, LLC..............................................    19
Statement of Senator Thune.......................................    20
    Prepared statement...........................................    20
Statement of Senator Nelson......................................    84

                               Witnesses

Peter Lopez, Owner/President, Spencer Auto Group.................    21
    Prepared statement...........................................    23
Russell Aubrey Whatley III, Owner/Dealer, Russell Whatley Motor 
  Company........................................................    24
    Prepared statement...........................................    25
James Press, Vice Chairman and President, Chrysler LLC...........    26
    Prepared statement...........................................    28
Fritz Henderson, President and CEO, General Motors...............    34
    Prepared statement...........................................    37
John P. McEleney, Chairman, National Automobile Dealers 
  Association....................................................    40
    Prepared statement...........................................    41

                                Appendix

Hon. John F. Kerry, U.S. Senator from Massachusetts, prepared 
  statement......................................................    91
Hon. Tom Udall, U.S. Senator from New Mexico, prepared statement.    91
Letter, dated June 12, 2009, to Hon. John D. Rockefeller IV and 
  Hon. Kay Bailey Hutchison from James Press, Vice Chairman and 
  President of Chrysler..........................................    91
Response to written questions submitted to James Press by:
    Hon. John D. Rockefeller IV..................................    93
    Hon. Daniel K. Inouye........................................    94
    Hon. John Kerry..............................................    94
    Hon. Byron Dorgan............................................    96
    Hon. Bill Nelson.............................................    97
    Hon. Maria Cantwell..........................................   100
    Hon. Mark Pryor..............................................   101
    Hon. Claire McCaskill........................................   102
    Hon. Tom Udall...............................................   104
    Hon. Mark Begich.............................................   105
    Hon. Kay Bailey Hutchison....................................   106
    Hon. Jim DeMint..............................................   108
    Hon. John Thune..............................................   108
    Hon. Roger Wicker............................................   109
Response to written question submitted to Fritz Henderson by:
    Hon. John D. Rockefeller IV..................................   113
    Hon. John Kerry..............................................   113
    Hon. Byron Dorgan............................................   114
    Hon. Barbara Boxer...........................................   114
    Hon. Bill Nelson.............................................   115
    Hon. Maria Cantwell..........................................   117
    Hon. Claire McCaskill........................................   118
    Hon. Mark Pryor..............................................   118
    Hon. Tom Udall...............................................   119
    Hon. Mark Begich.............................................   120
    Hon. Kay Bailey Hutchison....................................   122
    Hon. Jim DeMint..............................................   123
    Hon. John Thune..............................................   123
    Hon. David Vitter............................................   124
    Hon. Roger Wicker............................................   126
Response to written question submitted to John McEleney by:
    Hon. Mark Pryor..............................................   126
    Hon. Bill Nelson.............................................   126
    Hon. Maria Cantwell..........................................   127
    Hon. Mark Begich.............................................   128
    Hon. Kay Bailey Hutchison....................................   128

 
 GM AND CHRYSLER DEALERSHIP CLOSURES: PROTECTING DEALERS AND CONSUMERS

                              ----------                              


                        WEDNESDAY, JUNE 3, 2009

                                       U.S. Senate,
        Committee on Commerce, Science, and Transportation,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:34 p.m., in 
room SD-106, Dirksen Senate Office Building, Hon. John D. 
Rockefeller IV, Chairman of the Committee, presiding.

       OPENING STATEMENT OF HON. JOHN D. ROCKEFELLER IV, 
                U.S. SENATOR FROM WEST VIRGINIA

    The Chairman. This hearing will come to order. Three weeks 
ago, Chrysler announced that it was going to terminate 789 
franchises on a nationwide basis. I spoke with Pete Lopez, who 
is here with us. He is an auto dealer from Spencer, West 
Virginia. It's not the largest city in the world, but it's one 
of the finest. And it's right in rural West Virginia, and it 
just sort of sets up the whole tone of this. And he learned 
that his contract had been terminated with Chrysler. So 
obviously he was very concerned about that and we talked on the 
telephone. And he had, you know, a lot of anxiety and concern 
and worried about his people and, in a sense, in a flash his 
whole life's work, some 30 years or so, of taking care of 
people and servicing cars and selling cars both, Chrysler and 
General Motors, you know just all of the sudden it appeared to 
be very much in jeopardy. Well, so that was the way he felt. 
Then compounding that, a few days later Mr. Lopez learned that 
GM was also going to terminate their franchise with him, and a 
lot of other folks, putting more of his workers at risk.
    This story is obviously not held to Pete Lopez. It's a 
nationwide tragedy that a lot of us feel very strongly about, 
something that should not have happened, and can be corrected. 
It's a story certainly that is echoed throughout West Virginia, 
and then on a nationwide basis you got nearly 2,000 dealerships 
that are closed throughout America, 100,000 jobs at risk--those 
are not unfamiliar figures these days, but nevertheless, 
100,000 people potentially out of work--who will probably be 
out of work and are unhappy. So we have to do better. We can 
save some of these jobs and we can help some of these 
communities, and have an obligation to do that.
    Let me be very, very clear, I honestly don't believe that 
companies should be allowed to take taxpayer funds for a 
bailout, and then leave it to local dealers and their customers 
to fend for themselves, with no real plan, no real notice, no 
real help. It's just plain wrong. You don't do that. So we are 
talking about dealers who have invested everything they have, 
many who have been in it for many, many decades--a generational 
thing within families--some of whom are here today, and they 
are just looking into a black hole right now. They don't know 
what's going to happen. They don't know why this had to fall on 
them. Why were they picked? What was the process? Was it fair? 
Was it unfair? Was there pressure brought? Was there any 
politics involved? All this we will get into this afternoon.
    We are also talking about the consumer. People who worked 
just as hard as they can in West Virginia and all of our States 
here. People work uphill all the time, just striving to make 
it, to survive. Every penny counts and every mile counts. Every 
part of a car counts, if it isn't working.
    But Chrysler is eliminating 30--40 percent of its 
dealerships in my State, which is about twice the figure on the 
national average, and GM, I believe, will eliminate more than 
30 percent, which is about 40 percent more than what they are 
doing--or 60 percent more than what they are doing on a 
national basis. So this means that some consumers in West 
Virginia will have to travel much farther distances to get 
their cars serviced under warranty. Because if you don't have a 
warranty, you can't get your car serviced. And we are going to 
talk about that, too, because does that really have to define 
the terms of the crisis?
    Basic economics also says that if you are a dealership, you 
have those that are left, that are selling Chrysler or GM 
products, that there is less competition, so the price goes up. 
That's just economics. I think each company has a 
responsibility to assure this committee that it is not using 
this restructuring process to unfairly increase prices on hard 
working Americans, who have remained loyal to them over many 
generations.
    I want to emphasize today that the consequences of Chrysler 
and GM's actions are very real to so many people in West 
Virginia and other states. GM and Chrysler, we're hearing from 
Americans every day--and we want you to hear, as I am sure you 
have. We invited you to hear what people have to say. So that's 
what this hearing is about.
    So I am very glad that we have this panel. It gives you a 
chance to make your case, those of you as auto executives, as 
to why your companies are taking these actions and to tell us 
what you're going to do differently as you move forward, if you 
plan to. My concern runs very, very deep.
    I went to West Virginia as a VISTA volunteer. My heart is 
on Main Street. That's not a political cliche to me, and I 
really care about what happens to people who work hard. They 
are always fighting uphill, always fighting uphill, and somehow 
they never seem to get a fair shake. So these are the most 
challenging economic times since the Great Depression. We have 
come together to do everything we can to make sure dealers and 
employees do all right.
    And I do understand the need for Chrysler and GM to 
reorganize. That's not the question here, but to do this at the 
expense of workers and consumers in the wrong way is just plain 
wrong. This committee and the American people will not stand 
for it.
    Thank you. And I call upon the Ranking Member, Kay Bailey 
Hutchison.

            STATEMENT OF HON. KAY BAILEY HUTCHISON, 
                    U.S. SENATOR FROM TEXAS

    Senator Hutchison. Thank you, Mr. Chairman. Mr. Chairman, 
would you allow me to ask every person in the audience who is a 
dealer to stand?
    The Chairman. Of course.
    Senator Hutchison. Thank you very much. We really wanted to 
see the people who are facing the issues that we're talking 
about today. I think, Mr. Chairman, first of all, thank you for 
holding this hearing. I think that after the supplemental 
appropriation a week before last, just as I was offering my 
amendment to try to extend the time for these Chrysler dealers, 
especially, to be able to shut down their businesses in an 
orderly way, I got word that you were going to set this meeting 
for this week. And I appreciate it because I think we need to 
hear what is really happening. It has been about 10 days since 
we had the debate on the floor, and we had the assurances from 
Mr. Press, of Chrysler, that there would be contact with the 
dealers who were being closed. And I want to set the stage, 
because it was just that week before last that I was contacted 
by some of the dealers in my state who were affected, and they 
received a letter from Chrysler, dated May 13, 2009, saying 
that the agreement would be rejected with these dealers as of 
June 9. And that meant about 3 weeks notice. Here was the 
attachment to the letter.
    ``As a result of its recent bankruptcy filing, Chrysler is 
unable to repurchase your new vehicle inventory. As a result of 
its recent bankruptcy filing, Chrysler is unable to repurchase 
your Mopar parts inventory. As a result of its recent 
bankruptcy filing, Chrysler is unable to repurchase your 
Essential/Special tools.''
    So many of the dealers, some of whom have been in operation 
and have had the burden of paying the taxes, hiring employees, 
doing business in a community and being an employer that's 
providing a part of the economy of this great country, were 
notified after years of service that they had 3 weeks and 
basically no obligation from the company. So I did introduce an 
amendment to just say, 60 days, not 3 weeks, 60 days. Well, 
then as we started debating this on the floor, all of a sudden 
I had 5 co-sponsors, and then 10, and then 15, and by the end 
of the afternoon, as I was talking to the Chrysler executives, 
we had 38, bi-partisan Democrats and Republicans, cosponsoring 
the amendment. And the agreement that came forward from that 
process was that Chrysler would, indeed, do everything possible 
and make commitments to the dealers that they would take every 
piece of inventory and specialized equipment that could be 
transferred by June 9. And so I look forward today to hearing 
from Mr. Press about the progress on that and I look forward to 
hearing from the dealers about whether they believe that they 
have had that kind of outreach from Chrysler.
    In addition, just this week, General Motors has begun its 
process, saying that it would close up to 40 percent of its 
dealerships, which would be approximately 2,300, give or take, 
of the dealerships in this country, following on 789 
dealerships from Chrysler. Now just to put this in perspective, 
these families of these dealers, who have made such an 
investment and who have taken really the financial burden for 
these dealerships--they buy the inventory. They take the 
financial risk. It's a huge burden for those who have stood for 
those around the country.
    But we are also talking about 40,000 employees of these 
dealerships. So we're talking about 40,000 families, besides 
the dealers themselves.
    And we are talking about communities, because I remember 
selling ads for the high school football program in my 
hometown, and who was the first person to buy that high school 
football program for the students who came in for their first 
experience selling? It was the auto dealer in town. And in my 
hometown, we had one. And I remember that, and I know that all 
over this country people remember that.
    Who is there first, supporting the community for those less 
fortunate? It's the auto dealers and their employees. So they 
are the backbone of the community, and so every community where 
these auto dealers are going to be shut down, is going to see a 
loss; a loss of revenue, of course, because the families are 
going to have to look for other jobs, but also their own 
charitable and community events will also suffer.
    So I think it is very important that the CEOs who are here 
of our auto companies realize what is happening with these 
dealerships. And I, for one, want to know how this process is 
working. I want to know from GM how it is going to work. And I 
want to see if there is any mitigation for these communities 
and these families that will come forward. And it's not our 
place to change your decision. It is not. But it certainly is 
our place, especially where there is so much taxpayer money 
involved, for us to make sure that everyone is treated as well 
as can be in this circumstance.
    And we have heard from the people who make the cars, the 
workers, we have heard about the bond holders, we have heard 
about the stockholders, and now, today, we are going to hear 
about the dealers, because I think they had nothing to do with 
the design of cars, nothing to do with the cost of the company, 
and yet, 40,000 people from Chrysler are losing their jobs, and 
then General Motors is yet to come. And I think it is 
Congress's responsibility to look at the whole picture of this 
economic impact.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Hutchison follows:]

  Prepared Statement of Hon. Kay Bailey Hutchison, U.S. Senator from 
                                 Texas
    Thank you, Mr. Chairman. Would you allow me to ask every person in 
the audience who is a dealer to stand. We really wanted to see the 
people who are facing the issues we're talking about today. I think 
after the supplemental appropriation the week before last, just as I 
was offering my amendment to try to extend the time for these Chrysler 
dealers be able to shut down their businesses in an orderly way, I got 
word that you were going to set this meeting for this week. I 
appreciate it because I think we need to hear what is really happening. 
It's been about 10 days since we had the debate on the floor and we had 
the assurances of Mr. Press of Chrysler, that there would be contact 
with the dealers who were being closed. I want to set the stage because 
it was just the week before last that I was contacted by some of the 
dealers in my state who were affected and they received a letter from 
Chrysler dated May 13, 2009 saying that the agreement would be rejected 
with these dealers as of June 9th and that meant about 3 weeks notice. 
Here was the attachment to the letter:
    ``As a result of its recent bankruptcy filing, Chrysler is unable 
to repurchase your new vehicle inventory. As a result of its recent 
bankruptcy filing, Chrysler is unable to repurchase your parts 
inventory. As a result of its recent bankruptcy filing, Chrysler is 
unable to repurchase your Essential/Special tools.''
    Many of the dealers, some who have been in operation and have had 
the burden of paying the taxes, hiring the employees, doing business in 
a community and being an employer providing a part of the economy of 
this great country, were notified after years of service that they have 
3 weeks and basically no obligation from the company. So, I introduced 
an amendment to just say, sixty days. Not 3 weeks. Sixty days. Well, 
then as we started debating this on the floor, all of the sudden, I had 
five co-sponsors and then ten and then fifteen and by the end of the 
afternoon, as I was talking to the Chrysler executives, we had 38 
bipartisan, Democrats and Republicans who were cosponsoring the 
amendment. The agreement that came forward from that process was that 
Chrysler would indeed do everything possible and make commitments to 
the dealers, that they would take every piece of inventory and the 
specialized equipment could be transferred by June 9. And so, I looked 
forward today to hearing from Mr. Press about the progress on that and 
I look forward to hearing from the dealers about whether they believe 
that they have had that kind of outreach from Chrysler.
    In addition, just this week, General Motors has begun its process, 
saying that it would close up to 40 percent of its dealerships, which 
would be approximately 2,300, give or take, of the dealerships in this 
country following on 789 dealerships from Chrysler. Now just to put 
this in perspective, the families of these dealers who have made such 
an investment and who have taken, really, the financial burden for 
these dealerships, they buy the inventory, they take the financial 
risk. It's a huge burden for those around the country.
    But we're also talking about 40,000 employees of these dealerships. 
We're talking about 40,000 families besides the dealers themselves, and 
we're talking about communities. I remember selling ads for the high 
school football program in my hometown, and who was the first person to 
buy that high school football program for the students that came in for 
their first experience at selling? It was the auto dealer in town. In 
my hometown, we had one, and I remember that and I know all over this 
country people remember that. In United Way, who's there first 
supporting the community for those less fortunate? It's the auto 
dealers and their employees. So they're the backbone of the community. 
And so every community where these auto dealers are going to be shut 
down, it's going to be a loss, a loss of revenue, because the families 
are going to have to look for other jobs, but also their own charitable 
and community events will also suffer.
    So, I think it is very important that the CEOs, who are here, 
realize what is happening with these dealerships and I, for one, want 
to know how this process is working. I want to know from GM how it's 
going to work and I want to see if there's any mitigation for these 
communities and these families that will come forward and it's not our 
place to change your decision, it is not. But it certainly is our 
place, especially where there is so much tax payer money involved for 
us to make sure everyone is treated as well as can be in this 
circumstance and we've heard from the people who make the cars, the 
workers. We've heard about the bond holders, we've heard about the 
stockholders. And now today, we're going to hear about the dealers, 
because I think they had nothing to do with the design of cars, nothing 
to do with the cost of the company, and yet 40,000 people from Chrysler 
are losing their jobs and General Motors is yet to come. I think it is 
Congress' responsibility to look at the whole picture of this economic 
impact. Thank you Mr. Chairman.

    The Chairman. I thank the Ranking Member and I call upon 
Senator Klobuchar.

               STATEMENT OF HON. AMY KLOBUCHAR, 
                  U.S. SENATOR FROM MINNESOTA

    Senator Klobuchar. Thank you very much, Mr. Chairman, for 
holding this hearing. I look forward to hearing from the 
witnesses. I want to specifically mention my constituent 
dealers that are here today: Shakopee Chevrolet, GM dealer; 
Koronis Motors, from Paynesville, a GM dealer; Walser Buick 
Pontiac in Bloomington, a GM dealer; Scott-Preusse Motors in 
Redwood Falls, which is a Chrysler dealer; Nelson Auto Center, 
in Fergus Falls, which is a GM dealer and Fury Dodge Chrysler, 
in Lake Elmo.
    What is so puzzling for so many of our dealers in 
Minnesota, is that some of these dealers were actually doing 
pretty well. Walser Buick Pontiac for 4 out of the past 5 years 
has been number two in sales for all of Buick Pontiac GMC 
dealers in Minnesota. Fury Dodge Chrysler set an 85-year record 
for sales in January, with 103 new cars sold. They beat the 
record again in May with 113 new car sales. Koronis Motors 
increased its new car sales by 30 percent last year, and its 
service work increased by 75 percent, yet these three dealers 
received termination notices. So understandably, they have 
questions they want answered today about how these decisions 
were made, why they were given so little time and if there is 
any time that can be extended. They feel that these decisions 
may have been in the boardrooms in Detroit, but they are 
affecting people in the living rooms in Minnesota. This is 
about local communities, as Senator Hutchison so eloquently 
described and Senator Rockefeller described, throughout this 
country. And it's about homegrown locally-owned businesses, as 
well as employees and customers who depend on them. Jim and Tom 
Leonard, who are here today, are co-owners of Fury Dodge 
Chrysler. The business has been in Lake Elmo for decades, with 
40 workers, they are the largest employer.
    Because of what was going on, they actually had a rally 
this Saturday, 400 people showed up. I received 1,200 letters 
from people in this community, that want this dealership to 
stay open. And the things we are most concerned about in 
Minnesota is first of all, why there isn't there some kind of 
internal appeals process on the Chrysler side for those who 
think they have been wrongly targeted? You know, when mistakes 
have been made and acknowledged by the auto industry in the 
past, one would--it would lead one to believe that there could 
be mistakes made in decisions about which auto dealerships 
should terminated.
    We are concerned, as one of the early co-sponsors of this 
amendment, because we are concerned about the timing. Some of 
these dealerships have been in business for decades and then 
they're given 26 days--26 days.
    On the GM side they were given longer time, but then some 
of them have given these letters which only give them until 
July 12 to make a decision. Not enough time to make decisions, 
not enough time to make sure that they've sold their parts, not 
enough time to get their employees some kind of landing ground. 
And these are employees, just like there are employees in 
Detroit. They are the heart and soul of so many communities in 
our state.
    So what we would like to see is some fairness injected into 
this process. Obviously, it is your decision to make. But when 
we are talking about taxpayer dollars, we're talking about 
families in a very difficult economic time. We would like 
whatever fairness we can find to be injected into this process, 
and that's why we're here today. Thank you very much.
    The Chairman. As we always do, and so people understand, 
next will be Senator Johanns.

                STATEMENT OF HON. MIKE JOHANNS, 
                   U.S. SENATOR FROM NEBRASKA

    Senator Johanns. Mr. Chairman, thank you very much. I 
really appreciate you conducting this hearing and it's good to 
see you back.
    Here is the problem, as I see it. I think everybody has 
spoken very eloquently about the difficulties that this has 
caused back home. And we are all getting the phone calls and 
letters. I have got bullet points from one of your dealers at 
Chrysler, talking about the jobs that are going to be lost, 
explaining to me how they don't feel that they are costing 
Chrysler anything, how unfair it was to have so little time 
after being a part of the organization for so long. But here is 
the problem, the deal is done. I never would have believed, as 
a candidate for the U.S. Senate, that the U.S. Government could 
buy General Motors without a hearing, with no vote, yes or no, 
that a dealership plan could be rolled out that literally put 
people out of work--this was supposed to save jobs, I thought--
put people out of work with no oversight. I never would have 
imagined in a million years that that could be accomplished, 
and I find that to be extremely bothersome.
    There are billions and billions of dollars at stake here. 
The other thing that I will share with you--I think if I would 
have called any one of my constituents back in Nebraska on 
Friday and said to them, ``You know, I have been thinking about 
it, I think that that $1,000 that you have worked hard to save 
in your savings account should be invested in General Motors.'' 
Do you know what I think the response would have been? They 
would have laughed at me and hung up. They would have laughed 
at me and hung up, and yet on Monday our government bought 
General Motors. And by every definition I can see, that is 
probably the poorest investment that you could possibly make, 
and then this on top of all of that, with dealerships closing, 
people losing their jobs. I don't see how this makes any sense.
    So I want to hear today about your role with the 
Administration. I want to know who had this plan. I'm not 
saying who had it for approval, but who did you submit it to 
before you rolled it out that is associated in any way with the 
Administration?
    I also want to just mention as I wrap up my comments today, 
I am going to speak on the Senate floor about this tomorrow, 
but I have an amendment that basically says if you are going to 
use TARP money and you are going to end up with ownership of 
the stock of a company, you have to get Congressional approval. 
You see, I think it's time to bring some transparency to this, 
to shine a bright light on what's going on here. Because it's 
not fair to these dealers. You know, they see Chrysler going 
into bankruptcy. They see General Motors going into bankruptcy. 
And they can't even answer the question if they are going to be 
one of the ones getting a letter. And that's not fair to them. 
That simply is not fair.
    So I appreciate the Chairman's courage in taking this issue 
on. I think it's enormously important, not only to folks back 
home, but how we operate as a Nation and the impact on our 
economy when we nationalize something like the auto industry. 
Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator, very much. Senator 
Begich.

                STATEMENT OF HON. MARK BEGICH, 
                    U.S. SENATOR FROM ALASKA

    Senator Begich. Thank you very much, Mr. Chairman.
    And I appreciate the hearing also, welcome back. Thank you 
for one of the meetings I was allowed, as were a couple of 
freshmen, allowed to take the gavel. Don't worry, we are not 
going to get used to it. But I appreciate the opportunity.
    To the folks that are here, thank you for attending. I am 
not going to go through a long list or speech here on the whole 
issue, but I do have questions that I want to ask. I am going 
to ask them in my presentation here so you can start thinking 
about them, because I think all of us will have issues and 
concerns. I think Alaska is actually been on the best end of 
it, if you can call there is any best end, and that is, I think 
in Chrysler we had none that were requested to close dealers, 
and in GM, we are not sure yet.
    But the issue to me is where do we go from here? How do you 
ensure the long-term growth of the companies, if at all? How do 
you expand the dealerships? Because if the assumption is that 
these companies are to be reorganized and grow, then in theory, 
dealership growth will occur with it.
    What you doing with regards to dealerships--and I can't 
remember the exact dates--but in June, when they are no longer 
an authorized dealer and they still have inventory? Are there 
situations where you are going to allow them to extend their 
time, so they can sell off that inventory in order to recoup 
their cost and investment?
    Are you doing any mitigation? Just as you would do in a 
layoff situation or a furlough, you might give a package to the 
employee.
    What are you doing for the dealerships to ensure that they 
have capacity to deal with the transition they may have to 
make?
    How do you ensure that the individuals that have warranties 
in small towns have a place to go to get their work done?
    Are there ideas that the companies are considering to be 
even a hybrid of some of these dealerships, to make sure that 
there are warranty dealerships available to communities that 
may have to go several miles--in my community it could be 
hundreds of miles--to get a vehicle taken care of?
    To me, those are the issues I am looking to. What's the 
foreward? I can complain a lot about what happened; where we 
are, who caused it. The people who are paying the price now are 
a lot of dealers who sitting in this room, a lot of employees 
of those dealerships. I know in my community, dealers are the 
back bone of a lot of our nonprofit work, or community work. 
They are the ones you see at the Rotary's, the Lions Club. They 
are the people out there making the community happen. They are 
the people that, I know as a former mayor, they would go to and 
they would be the first on deck to help us to make a difference 
in their community.
    So I'm interested in what you are doing to help this 
transition, but also how are you going to grow your business to 
ensure more dealers in the future exist. And also, what 
mitigation are you going to do to help these folks through this 
transition, knowing that you would do very similar things for 
employees when you are doing lay-offs, what are you doing in 
this situation?
    I have many other questions, but my time is out. These are 
the questions I am going to ask, so that gives you a little 
food for thought, again, as we move to the question period.
    Thank you very much.
    The Chairman. Thank you, Senator Begich. Senator 
Lautenberg.

            STATEMENT OF HON. FRANK R. LAUTENBERG, 
                  U.S. SENATOR FROM NEW JERSEY

    Senator Lautenberg. Thanks, Mr. Chairman, and to those of 
you at the witness table who have leadership positions in your 
respective industries, must have a terrible conscience right 
now when you think about what's being done to dealers, small 
businesses, typically family business, businesses that have 
been endured for years. In Mercer County, New Jersey, for 
instance, Bill Coleman was informed less than 3 weeks ago by 
Chrysler that his dealership would be closed. His father 
started the family business 22 years ago. And people are losing 
their jobs, and left wondering if they are next across New 
Jersey, 30 dealerships will all face the same fate.
    I want to be clear because there is--has been double 
dealing here. There was an imposition placed on dealers by 
Chrysler, Mr. Press, who said that they had to buy, in January 
of this year, that dealers collectively would have to sell--
take another 78,000 cars to be sold in the month of February to 
help Chrysler protect its viability and to get additional loans 
from the government. I remind you that $4 billion went to 
Chrysler in December, $3 billion in financing helped in March. 
When Chrysler restructures, $4.5 billion is committed to 
restart operations. And frankly I think it's pretty simple. And 
the bankruptcy proceeding, what ought to happen is a plan there 
to say to the dealers, ``OK, we shoved this down your throat, 
and now we will take them back.'' That's part of the--what 
ought to be done to relieve the dealers of additional burdens 
beside closing their businesses and smashing their dreams and 
hopes.
    So, it's tough, and I know you don't like it, but whether 
or not you like it, the burden that you are passing on to the 
dealer network is absolutely unconscionable. And you ought to 
be figuring out a way to redeem the problems that you have 
turned to the dealers, Chrysler and General Motors, all of you 
who are part of the bankruptcy process for which the U.S. 
Government and its taxpayers is providing the way out.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Lautenberg.
    Senator Dorgan.

              STATEMENT OF HON. BYRON L. DORGAN, 
                 U.S. SENATOR FROM NORTH DAKOTA

    Senator Dorgan. Mr. Chairman, thank you very much. This is 
about the restructuring and we have heard a lot about 
restructuring recently, restructuring the financial industry, 
restructuring the auto industry, and watching it all, I am 
wondering who is making the decisions in this country about who 
is too big to fail and who is too small to matter?
    The decisions about the auto dealership network, those 
decisions belong to the manufacturer, not the government. I 
understand that. I don't think that's the point of this hearing 
to decide that we want to create some sort of vision of your 
network, but there are questions it seems to me, serious 
questions that are in order.
    I understand a desire to eliminate overlapping dealerships 
of the same brand of automobile, so that you don't have two 
dealers competing against each other to drive down your price 
for the same car. I understand that.
    What I don't understand is how the decisions have been 
made, especially with respect to rural areas. Now among the 
questions, I think, is how does it square that auto 
manufacturers that have been losing a great deal of money have 
ordered the closing of dealerships that have been making 
profits? It seems strange to me.
    And in rural states, the important question is what is the 
impact, the real impact on smaller automobile dealerships? What 
is the impact on consumers? With respect to the dealerships, 
what's the impact with respect to inventories? Automobiles that 
they have on the lot, parts inventories. Some dealers have 
shown me that in January of this year, they were encouraged by 
their particular manufacturer to buy more cars, get more cars 
on the lot; do that; it's very important that we be able to 
move cars out and have them on your lot. So now they discover, 
wait a second--so I brought the cars onto the lot and now I am 
told that I am not to exist anymore.
    What about customers in rural states? In my state, a 
customer that has bought a pickup truck, for example, or a car, 
and did so because they are brand loyal. They have been doing 
that for years. Their parents did it for years. They bought it 
from a small dealer that's been around for 70 years, selling 
the same car. And they bought it with a warranty. And now the 
question is who is going to service the warranty? And at least 
with respect to the closure of two dealerships in North Dakota, 
it appears to me that those folks will get in their pickup 
trucks and their cars and drive a three-mile round trip--excuse 
me--a 3-hour round trip--we don't consider three miles very 
much--a 3-hour round trip to get service.
    I just think those questions need to be asked of you. Did 
you consider all of that? And finally, is there a process for a 
dealer, having heard from on high at 30,000 feet, that your 
view of the ground was as you describe it? Is there a process 
for a dealer on the ground to say to you, ``You know what? You 
made a mistake this time.'' And I want to make that case to 
you. Is there a process for them to make that case, because 
perhaps you have made some mistakes. I think it's important for 
us to have you answer those questions for those dealers, many 
of whom have been loyal for many, many, many decades to the 
automobile companies represented here.
    The Chairman. Thank you, Senator. Senator Snowe.

              STATEMENT OF HON. OLYMPIA J. SNOWE, 
                    U.S. SENATOR FROM MAINE

    Senator Snowe. Thank you, Chairman Rockefeller. Welcome 
back and thank you for holding this very critical hearing 
today, Mr. Chairman, because obviously, we are all grappling 
with the devastating effects and the sad state of affairs when 
it comes to the domestic auto industry, its failures in past 
leadership that did not provide the requisite leadership, 
vision, ingenuity to transform the industry, and that 
ultimately has led us, as taxpayers to provide a massive 
infusion of more than $70 billion to Chrysler and General 
Motors.
    And now we are confronting the stark reality with the worst 
economic recession since the Depression, and of course, we are 
now hearing the news that more than 2,000 auto dealerships that 
are facing closure nationwide. More than 18 in my state are 
going to be disenfranchised, arbitrarily, through no fault of 
their own. They are loyal, and in many instances, longstanding 
small businesses in the communities, as you have already heard. 
Yet the companies represented here this afternoon have provided 
no clarity with respect to exactly how or why they've come to 
the specific decisions that they have made; let alone provide 
any transparency with respect to these decisions or the 
arbitrariness of the timeframe in which these auto dealers are 
compelled to make these decisions. So it's a very heavy handed 
approach without question.
    Moreover, the companies aren't providing any significant 
assistance in winding down. As we have heard, Chrysler is 
providing 3 weeks for dealers. Three weeks. And as you heard 
from Senator Dorgan, he's absolutely right. A lot of our 
dealers were asked would you buy more Chryslers last year, so 
that we can avoid bankruptcy? And they did. And look where they 
stand today; they are asked to close their doors. And Senator 
Hutchison has mentioned, and we thank her for her amendment 
that she offered a couple of weeks ago on the floor, to give a 
little bit more breathing room to the auto dealers, at least 60 
days. But where does that put them at the end of this whole 
process, where they have no idea what their futures are?
    General Motors has stated, for example, in its wind-down 
agreement, that they will not be buying back tools or parts 
from the dealerships that they are closing. And I got a copy of 
the wind-down agreement last night. It's 12 pages, single 
spaced. It would take a team of lawyers that obviously devised 
it, to make it as difficult and as dense as possible, so no one 
could possibly make a decision within the 10 days they were 
required to make a decision. They have to sign it within the 10 
days or they close down with no assistance whatsoever.
    There has been no detailed accounting or disclosure from 
the companies that will result in dramatic savings. It's 
interesting to note that the Washington Business Journal, for 
example, noticed dealers pay for the inventory, shipping of the 
inventory, front the cost of warranty work, purchase the repair 
equipment and parts. They also state that cutting costs was not 
a major factor in Chrysler's decision. The automaker would save 
some additional expenses by having small dealer network and 
administrative costs to oversee, but that's about it.
    And I know you, Mr. Henderson, have claimed in an interview 
yesterday that there was economic rationale for these actions. 
Well, it has been reported in neither the White House nor the 
Auto Task Force where the economic rationale behind the 
closings or precisely how they were determined.
    So what exactly is the rationale for shutting a dealership, 
like the one in Sebago Lake, Maine? I had a conversation with a 
dealer last night, a heartbreaking story, heartbreaking 
conversation. He had one of the most thoroughly trained work 
forces, highest customer service index in the State, and 
according to a letter from General Motors, they could no longer 
maintain a productive business relationship. Well, why? This is 
a business that has been in partnership with General Motors for 
80 years, third generation. And GM asked this dealer to pack up 
and relocate, and now they are targeted for closure, due, in 
part, to that relocation. This is a dealership that serves an 
area more than a 100,000 people, sells over more than $2 
million in parts. And confidentially, dealers have informed me 
that several populous areas in the State of Maine, entire 
counties, will go from multiple GM dealerships to absolutely 
none, leaving geographic areas without any dealers, without 
customers have to rely on getting the service that they depend 
upon, having to drive a hundred miles or more for service.
    Well, if you don't have service, you're not going to have 
any sales. I do not know how you re-emerge from bankruptcy and 
re-establish viability on that basis when you are reducing your 
market share to virtually nothing.
    The American taxpayer has provided billions of dollars, and 
ultimately the auto dealers are now on the front lines, with 
the harsh consequences of failure at the top. And they deserve 
better, far better than what they're getting. And I hope that 
we can address the ramifications of these decisions that have 
an enormous impact all across the country.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Snowe. Senator Isakson.

               STATEMENT OF HON. JOHNNY ISAKSON, 
                   U.S. SENATOR FROM GEORGIA

    Senator Isakson. Thank you very much, Mr. Chairman. You 
know I ran a company for 22 years. I had 800 sales people in 
the real estate brokerage business. They were very much like 
automobile dealers. They were franchisees. They made money if 
they sold. It seems like to me when you close your dealerships, 
you are firing your sales force. The dealers are not a 
liability, they are an asset, and I really don't understand the 
pervasiveness of the closures that are taking place.
    But I have two questions in case we to go too long and I 
have to leave. I want to make sure these two questions get 
answered. So I will ask them now.
    Mr. Press, on February 5, 2009, you were quoted in 
appealing to your dealers to make 15,000 additional purchases 
of Chrysler products in order to save the company. And you said 
the following, ``You have two choices. You can either help us 
or you can burn us down. Think of it this way, we are a bucket 
brigade. Right now 70 percent of the positions are filled. If 
we don't fill the other 30, we are going to burn down. If you 
decide not to do that, we've got a good memory of who helped us 
and who didn't.''
    And I think that recognizes the fact that the dealers are 
your asset and that you depended on them and now so many of 
them are being closed.
    And for General Motors, I have not seen the list, Mr. 
Henderson, and I appreciate the times you have visited my 
office along the way. But in the phone calls I have had in the 
last 3 days, it appears what Mr. Dorgan referred to, Senator 
Dorgan referred to is correct, that there is a disproportionate 
closure of rural dealerships, at least that's the way it 
appears to me.
    So I think the question of are they being 
disproportionately being closed in rural areas, number one? And 
number two, what is the rationale to fire your sales force?
    They need to be answered in this hearing. And Mr. Chairman, 
I look forward to hearing the answers to both.
    Thank you.
    The Chairman. Thank you, Senator Isakson. Senator Martinez.

                STATEMENT OF HON. MEL MARTINEZ, 
                   U.S. SENATOR FROM FLORIDA

    Senator Martinez. Mr. Chairman, thank you very much and 
thank you, and Ranking Member Hutchison, for holding this 
hearing at a very, very important time. I will echo the remarks 
of many of my colleagues about the importance of leadership of 
dealerships to communities, and also the very question that 
Senator Isakson just asked, without a sales force, how do you 
remain viable?
    What I want to zero in on, and the questions that I would 
like answered are very, very, specific, which are two examples 
of dealerships that are closed in the State of Florida. One is, 
Mr. Press, in Miami, Tamiami Chrysler Jeep Dodge. Mr. Planas 
has told me that his dealership was perhaps the top seller in 
the South Florida area, one of the top one hundred in the 
country. It seems to me the kind of dealership you would want 
to see continue.
    The other one is in Central Florida, GM, Mr. Henderson, 
Holler. Holler Chevrolet--I have grown up in Central Florida, 
and lived there all of my life. Holler is synonymous with 
Chevrolet in the central Florida region. Until Bill Heard 
Chevrolet ceased to exist, they were number 2. I presume now, 
since they are no longer around, they would be the number 1 
dealer in the Central Florida region.
    How in the world does it make sense for a dealership like 
that to also be on the list of closures? In addition to the 
fact that they're the one of the top sellers you have in 
Florida, they also have excellent customer service and 
everything else. They know how to do this business. They have 
been in it all of their lives.
    So the specifics of this is what rhyme or reason is there 
to this, because it is peoples' livelihoods? It is peoples' 
businesses. So we need to understand this so we can answer 
these questions from our constituents. I think they deserve to 
understand the rationale, why a dealership like Tamiami or 
Holler would be closed in these two communities where these 
dealers, to anyone who would see it, would seem to be 
incredibly successful dealers, the kinds of dealers you would 
want for your future company if you are going to make it.
    That's all I have. Thank you.
    The Chairman. Thank you, Senator Martinez. Senator 
Brownback.

               STATEMENT OF HON. SAM BROWNBACK, 
                    U.S. SENATOR FROM KANSAS

    Senator Brownback. Thank you, Mr. Chairman. I want to 
associate myself with the comments made so far, and also I want 
to thank the panelists for being here. This is a tough time for 
you, too. I am sure these decisions aren't easy ones that 
you've made nor that you make lightly. And I think everybody is 
pretty frustrated about what is happening and what is taking 
place.
    I do have some questions that haven't made quite made sense 
to me yet. I've have a number of dealers in my state say, ``We 
don't cost GM or Chrysler anything, so why are they cutting us 
off?'' And it seemed to me to be a legitimate question to ask. 
If your sales force isn't costing you anything, why would you 
cut them off?
    The second piece of that, though, I am sure you must have 
some numbers that say, ``Here is why we are doing this.'' I 
would like to know what it is that when you look at those 
numbers, that if you radically downsize your distribution 
network, that you are going to be able to be more profitable in 
the future by doing that? Because I understand you got more 
dealerships than Toyota, Honda, others that may have built 
their dealership network a later date than what you did, but if 
by downsizing that radically, do you substantially upscale your 
ability to be profitable? That's the question I have, if your 
dealership network, by what the dealers are saying, it really 
doesn't cost you that much. I would really like to understand 
those numbers on a better basis.
    The second piece is you're operating off of one of 
difficult car markets we have had in 50 years and you're 
looking at $9.6 million in annual sales right now. I think 
you--and Mr. Henderson, thank you for coming by my office and 
saying that $10.1 million was the latest monthly figure that 
you are running at.
    But a normal year would be a $14 million, $15 million, at 
least, in car sales. And my colleagues, we are putting up, 
Senator Stabenow and I, a scrappage bill, that in other 
countries, when they have put this forward, have increased 
sales of automobiles anywhere from 10 to 30 percent in months 
period of time.
    So if you get back anywhere close to a normal car sales 
market, do you need this sort of scrunching down of dealership, 
if you get back somewhere close to normal? This is an 
extraordinary situation we are in.
    If we help further with a scrappage program, do you really 
need to push down that dealer network?
    And just finally, we've got a lot of rural dealers in my 
state. They have been very loyal to American brands. Mr. 
Henderson, you noted that you have a 10-percent market 
penetration advantage in rural areas. You know, I would hope 
one would look at that as an asset and not a liability, and 
say, ``This is where we would really like to maintain that 
market share.'' Wal-Mart did very well going into rural areas, 
and then into the urban areas with market advantage, and here's 
a place where you've got market advantage. I would hope that 
you would give some deference to those dealerships in 
particular.
    Thank you, Chairman.
    The Chairman. Thank you very much, Senator Brownback. 
Senator Warner.

                STATEMENT OF HON. MARK WARNER, 
                   U.S. SENATOR FROM VIRGINIA

    Senator Warner. Thank you, Mr. Chairman. Welcome back. I 
want to follow up on Senator Brownback's comments, and one, 
echoing my other colleagues' concerns about the real human 
effects these decisions have had upon your dealer networks and 
their employees and families across the country. But also 
recognizing, as Senator Brownback did, the economic reality I 
think in the last couple years, national auto sales hit about 
17 million units. They are down to about 10 million. The 
economic reality means you have got to shrink.
    I also have to say, that at some level, as someone who has 
spent 20 years in the business sector before I went into public 
service, if I would have ever thought in my business life that 
I would see a group of Senators trying to micro-manage the 
workings of American industry like GM and Chrysler, I would 
have said, ``It never could happen.'' So if there was any more 
impetus to try to get back the profitability and get the 
government out of your business as soon as possible so that 
these kind of sessions don't have to happen, going forward, 
today's session ought to be that impetus. But recognizing some 
consternation about asking some of these questions, there are, 
as shareholders, as the American taxpayer being a shareholder, 
we now have that right and responsibility to ask these 
questions.
    So, Mr. Press, one of the things I have heard from some of 
our Chrysler dealers is not only is it a short timeframe, but 
then if you want to make an appeal, that there was this window 
only between May 15 and the end of the month. And the notion of 
a dealer trying to put together a whole appeal process or try 
to make the case back to corporate that maybe the wrong 
decision was made, it just seems a bit unreasonable.
    Mr. Henderson, again, I come from Virginia. We have a broad 
dealer network and an awful lot of concern about your 
requirement. I believe you--the document that you sent out, it 
has to be signed by June 12. And my question is not so much to, 
perhaps not only second guess the reason why you've got to 
shrink, but my understanding of this document will require 
basically in Virginia, we got a right to--if the dealer has got 
a problem with the manufacturing, you can go to the dealer 
board and try to have some kind of adjudication rights. Signing 
this document gets rid of those rights. Going forward, a dealer 
that signs up on this June 12 date would lose any ability to 
have a say if you choose to put some other dealer in on top of 
them, no ability to control the level of inventory coming in. 
And from a business guy to business guy, my question would be 
if somebody signs up to this new June 12-type agreement, what 
incentive would I have as a local dealer, ever to reinvest in 
my business, and try to build up my business if you, at any 
point could do away with my due process, put another competitor 
right on top of me, or force me to take inventory, even if it's 
not a good business decision?
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator Warner. Senator McCaskill.

              STATEMENT OF HON. CLAIRE McCASKILL, 
                   U.S. SENATOR FROM MISSOURI

    Senator McCaskill. First, welcome back. We missed you, Mr. 
Chairman.
    This is painful. There is a great deal of anger and 
despair, and it shouldn't shock anybody in this room that we 
are all looking for bad guys. And who we see as the bad guy 
depends on where we sit, and other considerations. Some are 
going to say the companies have been the bad guys, for creating 
a business model that depended on creating artificial demand. 
Some will say it's the unions that are the bad guys, for 
working to get agreements that allowed them and their families 
to aspire to a comfortable place in our middle class, that has 
allowed us to consume a lot of goods in this country, that has 
allowed us to have the trajectory of economic growth that we 
have had. Some will say it's the President. Some will say it's 
Congress for authorizing the funds in the first place, that are 
being utilized to invest in these companies. Some will say it's 
the people who promoted and sold sub-prime mortgages to people 
who couldn't afford them. The bottom line is we are going to 
indulge today in a little Monday morning quarterbacking.
    The alternative to what has happened is a much more drastic 
result. And if we are all honest about it, we would have to 
acknowledge that if the actions had not been taken over the 
last 30 days that have been taken, two giant American 
manufacturers would cease to exist. And there would be no 
dealers left standing and there would be no families that would 
go to work proudly on the line, making an American automobile 
for these two proud companies that have such a tradition in our 
country. And I think all of us are trying to struggle with how 
we work through this situation, full of pain and despair and 
anger, to come out at the other end with companies that are 
free of government interference, and profitable. We want you 
guys to make some money, but this hearing is very important 
today so that we understand the processes that occurred better.
    These people deserve a full vetting of what happened and 
why. And most importantly, we need to understand a lot better 
than we understand right now, what happened so we make sure we 
have not set a precedent.
    Thank you, Mr. Chairman.
    The Chairman. Thank you, Senator McCaskill. Senator DeMint.

                 STATEMENT OF HON. JIM DeMINT, 
                U.S. SENATOR FROM SOUTH CAROLINA

    Senator DeMint. Thank you, Mr. Chairman. It is good to have 
you back.
    I think it is starting to hit all of us in the face what 
government-managed economies feel like. If this was a normal 
bankruptcy situation, it would be none of our business what you 
did with your union contracts or dealers or whatever. But this 
is a political bankruptcy and the government has been a part of 
picking winners and losers. And so we are concerned, but we are 
also very much to blame for the process that has taken place.
    If we wanted to look at who to blame as far as how we ended 
up with two great companies in bankruptcy, we certainly have to 
look at management, maybe we look at the government policies, 
high levels of taxation at Federal and State levels, 
regulations that we put on our companies. Certainly union 
contracts have to be in with that mix, because some of it got 
way overboard, as far as what was affordable.
    We can see those are a mix that maybe caused some of the 
problems. But we can't blame the stockholders, the ones who 
believed in your companies and put their money in it. We can't 
blame the customers who trusted the brands and bought the cars. 
We certainly can't blame the dealers, who invested their life 
savings, their sweat equity, generations of family work. These 
were private companies out there, extending the value of your 
companies.
    And now we look at the winners and losers as the private 
doors open up. Those that caused the problem are owning 80 
percent now, nearly 80 percent of General Motors. Those that 
believed in risk and paid into it, the stockholders and 
customers, the dealers, they lose everything. That's what 
political decisionmaking does. Because that's not an economic 
decision.
    And again, I wish it was none of my business, but I am 
afraid that the political side of this has made it our 
business, and now I've got the same questions everyone else 
has. Some of you made a case that the dealers do cost you money 
because of incentives and money you put through their co-op 
plans and other things. If that's true, cut it out and give 
these dealers the option to keep their business and what they 
have invested in.
    We have all gotten calls like I got yesterday. They just 
moved into--one dealer in South Carolina just moved into a new 
$4.5 million showroom that General Motors had encouraged them 
to build, and they got the letter yesterday that they were 
losing the brands that they were going to put in there. That's 
political decisionmaking there because this is a dealer who is 
selling a whole lot of cars and investing a whole lot of money.
    So my questions are to this panel, too, obviously, is there 
anyway to take a look at this, that would actually reward those 
who have made the businesses work, and maybe take a little more 
out of those that have brought the company down? But it hurts 
me to look at this pie chart. It shows the ownership of General 
Motors today and see that those that really helped the company 
on the outside are not even in that pie.
    So, Mr. Chairman, I am just outraged out, as one of my 
constituents said, so I yield it back to you.
    The Chairman. Thank you, Senator DeMint. Senator Wicker.

              STATEMENT OF HON. ROGER F. WICKER, 
                 U.S. SENATOR FROM MISSISSIPPI

    Senator Wicker. Thank you, and I am sure our witnesses 
realize that eventually they're going to get a chance to speak 
also.
    By the way of opening statement, I want to read an e-mail 
that I got last week from a dealer in Mississippi, and I won't 
read all of it, Mr. Chair, but it dramatically outlines the 
real-life situation that this hearing is about. The e-mail 
says, ``I learned on May 14 that Chrysler is terminating my 
franchise and giving me less than 30 days to sell off an 
inventory that is bloated as a result of ordering cars at their 
request to keep them afloat. They are not buying back 
inventory, parts, special tools or specialized service 
equipment that I was required to buy. This is in violation of 
state laws in all 50 states, but is being done under bankruptcy 
because they can get away with it. My brother has a Chrysler 
Jeep next door and stands to be handed my franchise for free 
that I have spent 21 years developing.
    This is not the way free enterprise is supposed to work. I 
am solvent, well-capitalized, profitable, and employ over 50 
people. I have millions in investment in dealership specific 
real-estate to sell and service Dodge vehicles. I have been the 
number one Dodge dealer in Mississippi for 15 straight years.'' 
This is a dealership that is been terminated. ``Have an open 
floor plan line with J.P. Morgan, Chase, profitable, well-
capitalized nearly all new facilities, great location and have 
won every major award from Chrysler over the past 20-plus 
years. We are currently five star certified.''
    So I would just simply add that he is certainly hoping to 
be pulled off ``the rejected list.'' He wants to be given time 
for his brother and him to work out a reasonable deal between 
them, and operate the three brands under one roof.
    Mr. Chairman, and my colleagues, this is the type of real-
life situation that we face today, and I hope the testimony 
will answer these types of scenarios and I look forward to 
hearing the information.
    The Chairman. Thank you, Senator. And now, Senator Udall.

                 STATEMENT OF HON. TOM UDALL, 
                  U.S. SENATOR FROM NEW MEXICO

    Senator Udall. Thank you, Mr. Chairman, and also let me 
say, great to have you back, and Senator Hutchison, thank you 
for your amendment on the floor, that I think provided a--tried 
to provide a more orderly process to dealership closings.
    I agree we need to ask tough questions regarding dealership 
closings, and there is no doubt that cars have become an 
integral part of the American story. I bet if you ask any 
American, they will remember fondly their first car, even if it 
was just the old family truck. So it's tough for me to believe 
that we're here today with two of America's automakers in 
bankruptcy.
    It's more unbelievable, though, for all the folks across 
the country whose jobs depend on Chrysler and GM. Because of 
these workers and the thousands of others who depend on the 
auto industry, I support efforts to get the auto companies back 
on their feet. But I am concerned about the process. I want to 
make sure that we're going to save as many American jobs as 
possible and taxpayers are going to see a return on their 
investment.
    There are towns in New Mexico that depend on local 
dealerships for jobs and economic activity. We need to keep 
those communities in mind as we move forward.
    I hope that today we can look into the dealership closings 
with those two goals in mind: saving American jobs and watching 
out for the taxpayer.
    I look forward to hearing from the panelists and having 
them talk about those issues.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Udall follows:]

   Prepared Statement of Hon. Tom Udall, U.S. Senator from New Mexico
    I want to thank the Chairman and Ranking Member for calling this 
hearing. I agree that we need to ask tough questions regarding 
dealership closings.
    Cars have become an integral part of the American story. I bet you 
can ask any American and they'll remember fondly their first car, even 
if it was just the old family truck.
    So it's tough for me to believe that we are here--with two of 
America's automakers in bankruptcy. It's more unbelievable, though, for 
all the folks across the country whose jobs depend on Chrysler and GM 
and are wondering what these companies will look like in the future.
    Because of these workers--and the thousands of other who depend on 
the auto industry--I support efforts to get the auto companies back on 
their feet.
    But I am concerned about the process. I want to make sure that that 
we are going to save as many American jobs as possible and taxpayers 
are going to see a return on their investment. There are towns in New 
Mexico that depend on the local auto dealership for jobs and economic 
activity. We need to keep those communities in mind as we move forward.
    I hope that today we can look into the dealership closing with 
those two goals in mind: saving American jobs and watching out for the 
taxpayer.
    I look forward to hearing our panelists' thoughts on these issues 
and thank them for joining us today.

    The Chairman. Thank you, Senator Udall. And finally Senator 
Pryor.

                 STATEMENT OF HON. MARK PRYOR, 
                   U.S. SENATOR FROM ARKANSAS

    Senator Pryor. Mr. Chairman, I want to have mercy on the 
Committee. I am not going to give an opening statement. I would 
like to submit one letter from one of my car dealers into the 
record, if that is possible.
    [The information referred to follows:]

                    RLJ-McLarty-Landers Automotive Holdings
                                      Little Rock, AR, June 2, 2009
Hon. Mark Pryor,
Washington, DC.

Dear Senator Pryor:

    I am writing today in regard to the U.S. Senate Commerce 
Committee's hearing scheduled for tomorrow June 3, that will address 
the future of the local auto dealer. As you know I am President of RLJ-
McLarty-Landers Automotive Holdings that own 16 dealerships and 32 
franchises and I have personally been in the auto industry for over 35 
years. It was not easy to see our counterparts lose their sales and 
service agreements, but Chrysler LLC made the appropriate business 
decision to move forward with a dealer network that over all can be 
thriving and profitable.
    If this sale is not approved and Chrysler has to liquidate, 3,181 
dealerships in the United States won't be selling new Chrysler, Jeep or 
Dodge vehicles, which would have a devastating effect on both local and 
national economies. Under this plan, 2,392 U.S. dealers move forward 
with the new company. It doesn't mean that the 789 rejected dealers 
will close if this motion is approved by the Court. 44 percent of the 
789 ``rejected'' dealers are dueled with another (competing) new 
vehicle franchise and can continue to sell those makes of vehicles. 83 
percent of the 789 ``rejected'' dealers sell more used than new 
vehicles, many of these dealers will continue selling and servicing 
pre-owned vehicles.
    The fact of the matter is the automotive industry cannot support 
the number of dealers that currently exist. Dealers have known that 
Chrysler wanted to consolidate dealerships and locate all three brands 
under one roof; they stalled that process more than 10 years ago.
    At all six of RLJ-McLarty-Landers' Chrysler dealerships we have 
worked to consolidate Chrysler brands so that we carry all three 
(Chrysler Dodge Jeep). We have invested in exclusive Chrysler 
facilities at each location.
    We understand that the process to evaluate the dealers was a 
thorough process based on a data-driven metric that included a variety 
of factors, including a scorecard that measured sales, customer 
satisfaction and service satisfaction, among other items; facility; 
location; the market's total sales potential and if the dealer is 
dueled with a competing manufacturer.
    The roughly 2, 400 Chrysler Jeep and Dodge dealers moving forward 
with the new company account for 84 percent of the company sales 
volume. The 789 rejected dealers are 25 percent of the dealer body but 
only account for 14 percent of the sales volume. Of the 789 rejected 
dealers, 50 percent sold less than 100 new vehicles each in 2008 (fewer 
than 2 per week). When there are too many dealers competing for the 
same customers, everyone loses because there aren't enough customers 
and sales to support the number of dealers in the market.
    The move to a more efficient dealer network of 2,392 U.S. dealers 
will help dealers grow and succeed, so that we can invest in facilities 
that will improve customer service and make for a more delightful owner 
experience.
    As a dealer moving forward with the new company, I plan to purchase 
some of the eligible inventory from the rejected dealers that the 
plants aren't manufacturing. It is our hope that you will support the 
sale and plan that Chrysler LLC has worked so hard to forge. Thank you 
for your consideration of our request.
            Sincerely,
                                        Steve Landers, Sr.,
                                                         President.

    The Chairman. Well done.
    Senator Pryor. Thank you. I thought you would like that.
    The Chairman. I am sorry, Senator Thune, I didn't see you 
walk in. We welcome your statement.

                 STATEMENT OF HON. JOHN THUNE, 
                 U.S. SENATOR FROM SOUTH DAKOTA

    Senator Thune. Thank you, Mr. Chairman, and I will try and 
be merciful to our panelists, too, who have been sitting here 
for a long time, and will submit a statement for the record. 
But I look forward to hearing from the panelists today about 
their plans with respect to the dealers across our country. 
Many of us didn't support the auto bail-out legislation last 
December, but the fact remains that the taxpayers are now a 
very big part of this industry, and we have an obligation to 
make sure those resources are used well and also to make sure 
that when we make decisions to support the manufacturers, we 
also give consideration to the thousands of car dealers across 
the country who are impacted and could be losing their 
livelihoods through no fault of their own.
    So I'm anxious to hear from our panelists today and look 
forward to posing some questions later on.
    Thank you, Mr. Chairman.
    [The prepared statement of Senator Thune follows:]

 Prepared Statement of Hon. John Thune, U.S. Senator from South Dakota
    Thank you, Chairman Rockefeller, for holding today's hearing. I 
also want to thank Senator Hutchison for her leadership on this issue, 
and was pleased to join her as a co-sponsor of her floor amendment that 
helped further highlight this issue for the Senate.
    Clearly, the situation with Chrysler and General Motors (GM) is 
very fluid, with GM filing for bankruptcy just this week (on Monday), 
and announcing several hundred additional dealership closures beyond 
the first 1,100 that had already been announced in May would be closed 
by October 2010.
    While the majority of us didn't support the auto bailout 
legislation last December, the fact remains that American taxpayers are 
contributing tens of billions of dollars to help the domestic auto 
industry survive. And because of this financial investment, we have an 
obligation to ensure Federal resources are being used wisely and fairly 
and in the best interests of the taxpayers. Obviously, those dealers 
being closed in all of our states are struggling to understand why the 
government is propping up the manufacturers, and in turn, thousands of 
dealerships, while they are ending up losing their livelihoods through 
no fault of their own.
    Inevitably, some dealerships will face an organized consolidation 
or closure in light of the recent trends in the auto industry as a 
whole. Dealers, like creditors, suppliers, shareholders, labor unions, 
and auto executives, must make difficult concessions to allow these 
companies to properly restructure. However, dealers have millions of 
dollars invested in order to provide retail space to manufacturers. 
They often front the financial resources for manufacture rebates and 
carry the cost of warranty repairs and ``holdbacks'' on dealer profits. 
These Main Street family-owned businesses provide a valuable service to 
the auto manufacturers and are an important source of economic 
activity. Any plan to reduce dealerships should recognize the 
outstanding financial obligations owed to dealers and the important 
role dealers play, especially in rural America.
    That is why I look forward to hearing from GM and Chrysler on what 
they are going to do to help affected dealers. I think the original 
Chrysler plan was very unfair to the dealers--having given them a mere 
3 weeks to shut down their businesses with Chrysler and move out all 
inventory and parts, or to be stuck with anything that remains with 
them after June 9. It is appropriate that Chrysler made additional 
commitments to ensure that inventory is transferred quickly from 
closing dealerships to those that will remain open. Hopefully, both the 
manufacturers and dealers can give us an update on where things stand 
today, and what can be expected in the weeks ahead.
    I look forward to hearing from our witnesses.

    The Chairman. Thank you very much Senator Thune, and I 
would just like to say to the panel, you have waited some time 
for this and it's not every hearing that all of the members 
speak. This is the largest turnout that I can remember in 24 
years on the Commerce Committee. So there are some pretty 
deeply held feelings here, and I think it's important to allow 
everybody to say what was on their mind and what was hurting in 
their heart, and they have done so.
    I will be introducing the panel, Mr. James Press, who is 
President of Chrysler; Mr. Fritz Henderson, who is Chief 
Executive Officer of the General Motors Corporation; Mr. John 
McEleney, who is Chairman of the National Automobile Dealers 
Association; Mr. Pete Lopez, President and CEO of Spencer Auto 
Group; and Mr. Russell Aubrey Whatley, III, Owner/Dealer, 
Russell Whatley Motor Company.
    And I am going to do a little switch here. I would like to 
start by calling on the two auto dealers, and I think they will 
help us set a tone and it will be helpful to all concerned.
    So, Mr. Lopez, if you would be willing, sir, we call on you 
for your comments. Try to hold them to 5 minutes. We have done 
pretty well with that.

          STATEMENT OF PETER LOPEZ, OWNER/PRESIDENT, 
                       SPENCER AUTO GROUP

    Mr. Lopez. Senator Rockefeller and Ranking Member, I thank 
you for the opportunity today to speak before you, this 
committee, to discuss how dealership closings by GM and 
Chrysler are drastically hurting small businesses. My name is 
Pete Lopez. I am from Spencer, West Virginia, a small rural 
town, approximately 3,800 people, about an hour out of 
Charleston, West Virginia. I am the owner of Spencer Auto 
Group, which is made up of two dealerships on Main Street 
America: Chrysler, Jeep, Dodge plus Chevrolet, Pontiac, Buick 
dealerships. Our dealerships serve a six-county area in West 
Virginia, and I am the face of Chrysler and General Motors to 
my community and my customers.
    Mr. Chairman, within the last 3 weeks, I have been informed 
that both of my dealerships will be closed. My Chrysler 
dealership will be closed within 6 days now, while my Chevrolet 
dealer and franchise agreement will be terminated by the 12th, 
if I don't sign the new contract, which I haven't been there to 
see.
    I have, in fact, learned of my Chrysler dealership closure 
by a friend of mine that called me nine o'clock one morning, 
while he had the New York Times on his computer. And that's how 
I found out that we were losing our Chrysler dealership. I did 
not receive a call from Chrysler. I called our representative 
three or four times, finally at 5:55 that evening, I got a call 
from one of our Chrysler people, and they told me that I knew 
more than they did, that we were being closed, and they were 
not to comment on it.
    My investment was approximately $1 million, we paid 
$500,000 for the store. When I bought the dealership, they 
wanted us to capitalize it with $300,000 and we did $500,000.
    When I purchased dealership 2 years ago, there were 9 
employees. Currently, I have 18: 15 full-time and 3 part-time. 
My monthly payroll is $36,000 to $38,000.
    Being in a small town like Spencer, we don't sell large 
amounts like many dealers in metropolitan areas. Last year, 
Spencer Auto Group sold 57 Chryslers, 44 GM new vehicles. Given 
the size of our market, I also sell used Chrysler Financial and 
GM vehicles. Approximately 15 percent of our total revenue for 
the town of Spencer comes from Spencer Auto Group.
    Like most small town dealers, my investment goes beyond the 
show room. We actively support charitable causes, Little 
Leagues, Four-H camp, clubs, active--we even donate a car to 
Roane County High School for their driver's education. By the 
way, I want to show you an award that Mr. Bob Nardelli sent us, 
thanking us for how we participated in the Nardelli Challenge. 
In a flat market, we--they asked us to buy extra cars, sell 
extra cars, we did that exactly that. That is one of two that 
we received.
    Also, I----
    The Chairman. Mr. Lopez, I don't want to in any way disturb 
your presentation, but we do need to keep presentations to 
about 5 minutes. Your statement is already in the record, so 
just pick and choose what you want to talk about.
    Mr. Lopez. OK. I will do that. Number one, I will say there 
are many, many people--we had a senior citizen base. Our 
community, Spencer, West Virginia, the people, if you take my 
dealers--if they take my dealership--if General Motors and 
Chrysler takes my dealership, my customers--and I am a customer 
also--will have to drive an hour to an hour-and-a-half away--
there is one little lady that I love dearly, and she is 79 
years old. She lives 30 miles away from me, and I pick her car 
up, service it, and take it back to her. How many metropolitan 
area dealers are going to do that? We are the face of the 
community. And we are--we participate in everything. We have a 
wonderful community and I would like to invite everybody to 
come to Spencer, and see exactly what I am talking about.
    And I thank you.
    [The prepared statement of Mr. Lopez follows:]

 Prepared Statement of Peter Lopez, Owner/President, Spencer Auto Group
    Chairman Rockefeller and Ranking Member Hutchison, thank you for 
the opportunity to appear before the Committee to discuss how 
dealership closings by GM and Chrysler are drastically hurting small 
businesses.
    My name is Pete Lopez and I'm from Spencer, West Virginia, a small, 
rural town of approximately 3,800 people about an hour north of 
Charleston. I'm the owner of Spencer Auto Group which is made up of two 
dealerships on Main Street in Spencer--a Chrysler-Jeep-Dodge dealership 
as well as a Chevrolet-Buick-Pontiac dealership. Our dealerships 
service a 6-county area in central West Virginia.
    Mr. Chairman, within the past 3 weeks, I have been informed that 
both of my dealerships will be closed. My Chrysler dealership will be 
closed within the next 7 days while my Chevrolet dealers franchise 
agreement will be terminated next year. In fact, I learned about my 
Chrysler dealership closure from reading the New York Times at 9 a.m. 
on May 14. It wasn't until 6 p.m. that day that someone from Chrysler 
contacted me.
    My investments are approximately $1 million, having purchased the 
dealership for $500,000 2 years ago. When I bought the dealership, I 
put an additional $500,000 investment to upgrade including the 
dealership's first computer. When I purchased the dealership 2 years 
ago, there were 9 employees. Currently, I have 18 employees and their 
families who depend on me. My monthly payroll is approximately $36,000-
38,000 per month.
    Being in a small town like Spencer, we don't sell in large volumes 
like many dealers in suburban or urban areas. Last year, Spencer Auto 
Group sold 57 Chryslers and 44 GM new vehicles. Given the size of the 
market I serve, I also sell used Chrysler and GM vehicles. 
Approximately 15 percent of the total tax revenue for the town of 
Spencer is paid by my dealership.
    Like most small town auto dealers, my investment goes beyond the 
showroom walls. We actively support the community and related 
charitable causes including the Little League, 4-H Club and school 
activities, such as drivers' education.
    My current vehicle inventory consists of 45 new vehicles with an 
estimated value of approximately $1.2 million. Additionally, I have 
approximately $128,000 in GM parts and $138,000 in Chrysler parts in my 
inventories, as well as $80,000 in the specialty tools and diagnostic 
equipment which will be rendered virtually useless once my franchises 
are terminated.
    Mr. Chairman, the recent decisions to close my dealerships simply 
astounded me. When I purchased the dealership, the companies welcomed 
me with open arms.
    Since that time, I have been a faithful customer of both Chrysler 
and GM, even purchasing additional vehicle inventories earlier this 
year, at Chrysler insistence, to help the corporation through this 
economic recession. In recent months, I have also purchased additional 
used vehicles from auctions conducted by Chrysler Financial. I have met 
every financial obligation put forth by Chrysler and GM.
    Now Mr. Chairman, they want to shut me down. What gives the 
government the right to do that? I'm a taxpayer and they're getting 
taxpayer dollars. It just doesn't add up.
    Auto dealers like me are independent businesses and NOT owned by 
the manufacturers. We invest our own money to buy a franchise, buy the 
land, construct the buildings, purchase vehicle inventories and service 
vehicles. I even pay $629 every month to Chrysler to hang their sign 
out front of my dealership. My store does not cost them a penny. It 
makes them money.
    My story is just one example that is unfolding in thousands of 
towns across this country. What's happening today with America's new 
car dealerships is tragic and Congress must assert itself. I do have 
some questions which I'd like to get answered at today's hearing:

   What should I tell my customers?

   Why was my store chosen to be closed?

   Why was so little time given to close Chrysler dealers?

   Will other GM dealers be faced with similar circumstances 
        now that bankruptcy has been declared?

   Why did Chrysler force us to take additional inventories 
        earlier this year and now refuse to pay us?

    Mr. Chairman, there's no better way to describe small town America 
than the term ``Main Street''--exactly where my dealerships are located 
in Spencer. These unfair dealer closings being forced upon us by 
Chrysler and GM will cause widespread layoffs, force more people onto 
the unemployment lines, deprive towns of critical tax revenue and will 
have negative consequences on each and every Main Street in America.
    I look forward to answering your questions.

    The Chairman. Thank you, Mr. Lopez, and I call now upon Mr. 
Whatley.

           STATEMENT OF RUSSELL AUBREY WHATLEY III, 
          OWNER/DEALER, RUSSELL WHATLEY MOTOR COMPANY

    Mr. Whatley. Thank you, Mr. Chairman and Senator Hutchison 
for holding this hearing and let me tell you a little bit about 
our dealership. My name is Russell Whatley. I am the Chrysler-
Dodge-Jeep dealer in Mineral Wells, Texas. We are located 40 
miles west of Fort Worth with a population of 17,000.
    Today, over 200 towns in Texas that have franchise 
dealerships have only Chrysler, Ford, or GM stores. That is 
over two-thirds of our Texas towns with dealerships. My 
grandfather opened this dealership in 1919 and has kept it open 
through the Depression, World War II and countless economic 
setbacks. In the 90 years we have been here, 36 other new car 
dealerships have come and gone in our town. We have stayed open 
because we are committed to customer service.
    Today, Mineral Wells is a fast-growing little city, with 
five new hotel chains under construction, new schools, new 
restaurants, and many corporate relocations. To meet the needs 
of a growing city, we have purchased five acres of land on a 
busy highway. And we hired a builder and have drawn up plans 
for a new building. All these plans have been shown to the 
dealer placement people with Chrysler.
    We are not a cost to Chrysler. No dealership is a cost to 
Chrysler. We pay for everything we use and we take all the 
risk. We are Chrysler's customer. In a typical month, we pay 
Chrysler over $2,500 in fixed expenses alone, plus all the 
parts and vehicles, which are paid for in full and upfront.
    All dealers, like us, sponsor school events, Little League, 
Pee-Wee Football, rodeo and many other special events.
    We are a tiny, small store, but just in the past 40 months 
alone, our dealership has gross sales of almost $18 million or 
$443,000 per month. We have collected and paid the state and 
county over $805,000 in taxes and fees or $20,126 per month, 
plus we have paid the county $52,668 in property taxes. All of 
this in a down economy, and does not include income or payroll 
taxes.
    I was told in 2007 that our area enjoyed a 20 percent 
market share. While we do not sell every customer, local people 
still depend on our service, recalls and warranty work. We 
service 1,548 vehicles per year on average. I was told by the 
factory that if we were not here, another dealer certainly 
would be.
    To be arbitrarily closed with no compensation is wasteful 
and devastating. There is absolutely no reason to close 
profitable dealerships, which contributes to Chrysler's bottom 
line.
    But another issue here is the 3-week timeframe. You just 
cannot close a dealership in 3 weeks. It is not possible. Over 
the past 3 to 4 months, we were practically forced to order 
heavy inventories. We were told Chrysler has no cash-flow and 
they rely on the dealers, and if we do not order vehicles, we 
will all be out of business.
    We were also told explicitly, ``We will remember who did 
not help us.'' Now, we have an 8-month supply of vehicles, and 
only 3 weeks to clear them out. Other dealerships are full. 
Chrysler Financial is gone. GMAC is not onboard yet. There is 
just no place to go with these cars. Chrysler says it will try 
to put buyers and sellers together, and that they will endeavor 
to assist in selling these cars. But the contract we had to 
sign clearly states they have no responsibility and obligation 
to do anything.
    After June 9, we cannot sell these cars, as new, used, or 
even to other dealers. We need a firm, real plan, not just what 
they will try to do. Plus, we have warehouses full of parts 
that will go unidentified after June 9. They will be impossible 
to sell, just a total loss.
    And I have employees with families, who have worked at this 
dealership for years, and worry about their loss and what they 
are going to have to do.
    A 90-year investment is just gone, and neither my family 
nor my employees have any say about it. We have done nothing 
wrong here, and should not be suffering this loss.
    I certainly hope you can help us. This is a pretty 
terrifying time. And I want to thank you for your time and your 
interest.
    [The prepared statement of Mr. Whatley follows:]

    Prepared Statement of Russell Aubrey Whatley III, Owner/Dealer, 
                     Russell Whatley Motor Company
    Good Afternoon.
    My name is Russell Whatley, and I am the Chrysler-Dodge-Jeep dealer 
in Mineral Wells, TX. We are located 40 miles west of Ft Worth, and 
have a population of 17,000.
    Today, over 200 towns in Texas that have franchised dealerships 
have only Chrysler, Ford, or GM stores--that is over 2/3rds of our 
Texas towns with dealerships.
    My Grandfather opened this dealership in 1919, and kept it open 
through the depression, World War II, and countless economic setbacks.
    In the 90 years that we have been here, 36 other new-car 
dealerships have come and gone in our town. We have stayed open because 
we are committed to customer service.
    Today, Mineral Wells is a fast growing little city, with 5 new 
hotel chains under construction, new schools, new restaurants, and many 
corporate re-locations.
    To meet the needs of a growing city, we have purchased 5 acres of 
land on a busy highway, hired a builder, and drawn up plans for a new 
building. These plans have been shown to the Dealer Placement people at 
Chrysler.
    We are NOT a cost to Chrysler. We pay for everything we use, and we 
take all the risk. We are Chryslers' customer. In a typical month we 
pay Chrysler over $2500 in ``fixed expenses'' alone, plus all the 
parts, and vehicles, which are paid for, in full, up front.
    All dealers, like us, sponsor school events, Little League 
Baseball, Pee-Wee Football, Rodeo, and many other local events.
    In just the past 40 months alone, our dealership has gross sales of 
almost $18M, or $443,000 per month. We have collected, and paid, the 
State and County over $805,000 in taxes, or $20,126 per month. Plus, we 
have paid the County $52,668 in property taxes, and fees. And, this is 
all in a ``down economy'', and does not include income or payroll 
taxes.
    I was told in 2007 that our area enjoyed a 20 percent market share. 
While we did not sell every customer, local people still depend on our 
service, Recalls, and Warranty work. We service 1,548 vehicles per year 
on average. I was told that if WE were not here, another dealer 
certainly would be.
    To be arbitrarily closed, with no compensation, is wasteful and 
devastating. There is no reason to close profitable dealerships which 
contribute to Chrysler. But, another issue here is the 3 week 
timeframe.
    You just can't close a dealership in 3 weeks, it is not possible. 
Over the past 3-4 months we were practically forced to order heavy 
inventories. We were told, ``Chrysler has no cash-flow'', that they 
``Rely on the dealers'', and that if we do not order vehicles ``we will 
all be out of business''. We were also told they ``will remember who 
did not help''.
    Now, we have an 8 month supply of vehicles and only 3 weeks to 
clear them out. Other dealers are full, Chrysler Financial is gone, and 
GMAC is not on board yet. There is just no place to go. Chrysler says 
they ``will try'' to put buyers and sellers together, and they will 
``endeavor'' to ``assist'' in selling these cars, but the contract we 
had to sign clearly states they have ``no-responsibility", and have 
``no-obligation'' to do anything. After June 9th, we cannot sell these 
cars as new, used, or even to other dealers. We need a firm, real plan, 
not just what they ``will try'' to do.
    Plus, we have warehouses full of parts that cannot even be 
identified after June 9. They will be impossible to sell, just a total 
loss.
    I have employees with families who have worked at this dealership 
for years, and I worry about their loss, and what they will do. A 90-
year investment is just gone and neither my family, nor my employees 
have any say about it.
    We have done nothing wrong, and should not be suffering this loss. 
I hope you can help us.
    Thank you for your time, and interest.

    The Chairman. Thank you very much, sir. I would call now on 
Mr. James Press, who is the President of Chrysler.

STATEMENT OF JAMES PRESS, VICE CHAIRMAN AND PRESIDENT, CHRYSLER 
                              LLC

    Mr. Press. Thank you, Mr. Chairman. I appreciate it. Mr. 
Chairman, Senator Hutchison, and members of the Committee, I 
truly appreciate this opportunity to discuss why and how 
Chrysler is realigning its dealer network. I can surely 
empathize with the dealers who were not brought forward into 
the new company, and I understand their disappointment more 
than you could know. This has been the most difficult business 
decision I ever personally had to take. But the decisions had 
to be made. They were gut wrenching, but absolutely necessary 
for Chrysler's survival.
    And it's a well-documented opinion of the Administration, 
and many Members of the Congress that Chrysler, over the years, 
has not moved fast enough to make the tough choices necessary 
to remain competitive.
    There are two main elements that we can control as an 
automaker to make these changes: it's our products and our 
dealer network. Chrysler is already investing in the high-
quality fuel efficient vehicles consumers want. Our alliance 
with Fiat will make our product line-up even stronger.
    But unless we also complete a significant realignment of 
our dealer network, neither Chrysler, nor our customers could 
benefit. Chrysler maintains multiple distribution channels, 
which is an inefficient and expensive legacy of more than 80 
years of being in business. This puts us at a real disadvantage 
because it increases our cost of product development, 
distribution, marketing and advertising, as well as dealer 
administration by more than several billion dollars every year. 
As an example, we have to build and market two similar 
minivans: the Chrysler Town and Country and the Dodge Caravan, 
to satisfy multiple dealer networks. Any separate Dodge and 
Chrysler franchise in close proximity competes with each 
other--not other makes--in order to sell and later service what 
is basically the same vehicle.
    As a result, the company spends more while the dealer 
network is, as a whole, not viable and not profitable. In 2008, 
the average Chrysler dealer lost $3,431, selling only 405 new 
vehicles.
    When you look at all automakers together, the average U.S. 
dealer made a profit of $279,000 on 525 sales. Why is this 
important? Unprofitable dealers can't afford to invest in 
advertising, facilities, people, training, or a high level of 
customer satisfaction.
    As a result of the credit crisis and the global automotive 
industry depression, there is simply not enough business to go 
around. With projected annual sales in the U.S. this year of 
only $10 million to $10.5 million compared to historical levels 
$16 million, Chrysler cannot support the same number of dealers 
that we have in the past.
    The timeframe for discontinuing dealers is driven by the 
Chapter 11 process, includes the requirement to complete our 
strategic alliance with Fiat by June 15 or we liquidate the 
company. It's important to note that prior to May 1, Chrysler 
had been planning and working to avoid bankruptcy. Only after 
filing on May 1, did we begin the necessary process of actually 
identifying which dealers would go forward with the new 
company.
    The dealers were selected by a process that was rigorous, 
robust and rational. The methodology was consistently applied 
to every dealer in the United States. It included factors such 
as, sales, customers satisfaction with buying and service, 
facilities, market potential, and whether a dealer in large 
markets also sells competing makes out of the same show room.
    And while our plan reduces our overall dealer count by 25 
percent, the dealers represent 14 percent of our volume. Forty-
four percent of the discontinued dealers sell competitive 
vehicles, so they have other brands to sell. Half of the 
discontinued dealerships sell less than 100 a year, and 84 
percent of dealers sell many more used cars than new. I am 
hoping those dealers will continue selling and servicing used 
cars.
    Chrysler is working hard to assure a soft landing for all 
the discontinued dealers. Every dealer was contacted by a 
representative from his or her business center. We have offered 
help to every dealer in the disposition of vehicles, parts and 
inventory and tools.
    On May 14, there were 42,000 vehicles in stock at the 
discontinued dealers. Today, I am very happy to report that 97 
percent of those vehicles have been sold, or we have 
commitments in place to redistribute them from the affected 
dealers.
    We are grateful to the loyal Chrysler customers who have 
supported us and it's important to our future that we take care 
of their needs throughout this process. All Chrysler vehicle 
owners will receive a letter assuring them that warranty claims 
will continue to be honored. We have toll-free hot line to 
answer any questions.
    I would also like to note that Congress can give a 
significant boost to the success of our realigned dealer 
network, by passing the Fleet Modernization legislation 
discussed earlier.
    To summarize, there's no question that Chapter 11 has been 
a painful process in which many of our stake holders were 
required to make unprecedented sacrifices, including our 
dealers. Facing that reality, we used a thoughtful, fair 
process to select dealers for the new company, and we are 
working hard to minimize the impact on everyone.
    Together, the new Chrysler group and Fiat will bring 
exciting, stylish and fuel efficient vehicles to the North 
American consumers. Our realigned dealer network will be much 
stronger and make the company stronger and more profitable, 
preserving hundreds of thousands of direct and indirect jobs in 
every community across the United States.
    I thank you for this time and I look forward to answering 
your questions.
    [The prepared statement of Mr. Press follows:]

    Prepared Statement of James Press, Vice Chairman and President, 
                              Chrysler LLC
Introduction
    Chairman Rockefeller, Senator Hutchison and Members of the 
Committee, I appreciate this opportunity to discuss how and why the new 
Chrysler Group is realigning its dealer network. Chrysler LLC's 
decision about which of the company's 3,181 dealers would be brought 
forward to the new company was gut wrenching, but it was an absolutely 
necessary part of our effort to assure the long-term viability of the 
new Chrysler Group. The goal of the sale of our assets to a new company 
is to position Chrysler to move forward as a strong, financially sound 
automotive company serving our customers with a broader and more 
competitive lineup of environmentally friendly, fuel-efficient, high-
quality vehicles, and an equally high level of customer service through 
an efficient dealer network.
    The last thing Chrysler wanted to do was enter into Chapter 11. I 
can empathize with the dealers who were not brought forward into the 
new company, and can understand their disappointment. This has been the 
most difficult business action I have personally ever had to take. But 
the optimization of Chrysler's dealer restructuring plan is necessary 
to save the company. In an opinion filed May 31, 2009, granting 
approval for Chrysler's motion to sell substantially all its assets to 
a new company in an alliance with Fiat S.p.A., U.S. Bankruptcy Court 
Judge Gonzalez stated:

        ``The underlying argument of many opposing the transaction is 
        not against the Government Entities' involvement. Rather, it is 
        the desire to have the Governmental Entities protect every 
        constituency within the auto industry from economic loss, and 
        not to limit the protection to those interests that the 
        government perceives as being essential to the survival of a 
        successful ``New Chrysler.'' For example, any dealership 
        rejection that is approved will cause hardship to the 
        particular dealership involved, but may well be necessaryifNew 
        Chrysler is to survive. These are the kinds of economic 
        decisions that have to be made in every bankruptcy case.''

    There are two main elements that we can control as an automaker: 
our products and our dealer network. It's a well-documented opinion of 
the Administration and many Members of Congress that over the years 
Chrysler has not moved fast enough to make the tough changes necessary 
to become a formidable competitor. The changes currently underway at 
Chrysler are needed for the company to produce competitive products and 
field a healthy dealer body. If we invest in better products while 
maintaining a disadvantaged dealer body, neither Chrysler nor our 
customers will benefit.
Why Optimizing Our Dealer Network Is Necessary
    At Chrysler, we are realigning our dealer network to ensure that 
the new dealer body will be strong and competitive in the future. We 
entered Chapter 11 proceedings because the automobile industry is in a 
depression, brought about by the economic slowdown and the freezing up 
of credit markets. Chrysler was unable to survive in that environment 
because our products and our dealer network were not competitive. The 
new Chrysler that will be formed as a result of the Chapter 11 process 
needs to be able to survive and compete in the face of increasing 
global competition better than the Chrysler that went into it.
    As a whole, the Chrysler dealer network is not profitable and 
therefore not viable. In 2008, the average U.S. automotive dealer sold 
525 vehicles and made a profit of $279,000 according to the National 
Automobile Dealers Association, but Chrysler dealers sold only an 
average of 405 vehicles . . . and on average lost $3,431.

      Dealer Profitability and Annual Unit Sales Comparisons--2008
------------------------------------------------------------------------
 All Automotive Dealers    All Chrysler Dealers    Discontinued Chrysler
 U.S. National Average    U.S. National Average           Dealers
------------------------------------------------------------------------
Retail Sales: 525        Retail Sales: 405        Retail Sales: 163
 Vehicles                 vehicles
Profit: $279,000         Profit: ($3,431)         Profit: ($73,000)
------------------------------------------------------------------------


                                    2008 Average Retail Sales per Dealership
----------------------------------------------------------------------------------------------------------------
                                     Chrysler LLC
       Chrysler LLC Total            Assumed only            Honda              Toyota              Nissan
----------------------------------------------------------------------------------------------------------------
405                                             640               1,219               1,292                 693
----------------------------------------------------------------------------------------------------------------
NADA and Chrysler data

    Today's automotive industry cannot support the number of dealers 
currently in the marketplace. From 1990 through 2007, the industry 
averaged 16 million new vehicles sold each year. As a result of the 
industry depression, U.S. light vehicle sales fell to 13.2 million 
vehicles in 2008, and are projected to be only 10 million to 10.5 
million vehicles in 2009. As part of the viability plan submitted to 
the administration on Feb. 17, Chrysler revised its Seasonally Adjusted 
Annual Rate (SAAR) forecast covering the next 4 years to reflect the 
reality of a declining automotive industry. The plan projected, 
commencing in 2009, a SAAR level of 10.1 million units and for years 
2009 through 2012, an average SAAR level of only 10.8 million units.
    There's not enough business for the number of dealers Chrysler has 
today, given that we have less than two-thirds of our former sales 
volume. The Chrysler dealer network faces the additional disadvantage 
of a legacy of dealers that sell only one or two of the company's three 
brands--Chrysler, Jeep' and Dodge--which have led to 
redundancies and inefficiencies in product development and marketing 
costs. Poor performing dealers within the dealer network also cost the 
company in terms of lost sales and low customer satisfaction.
    The ``overdealering'' problem has been well chronicled over the 
past several years, even before the drastic downturn in sales. In the 
May 28, 2009, Detroit Free Press, journalist Sarah Webster recalled 
writing about the problem 2 years ago:

        ``When I was working on the series in 2007, a Chrysler dealer 
        in the Boston area wanted me to visit his Dodge store so he 
        could show me what a dump it was and how badly it was hurting 
        Chrysler's image. This dealer wanted to upgrade his run-down 
        store, but, the way he saw it, Chrysler had crowded so many 
        dealerships into his area to fight over a shrinking pie that he 
        would never be able to sell enough cars and trucks to pay for 
        the renovations. Dealers clustered in an area would move 
        quickly to discount cars and trucks--sometimes taking a loss--
        just so they could close the sale and move a vehicle off their 
        lot. Cutting the price obviously hurt the dealers and the 
        automakers. But the dealers had no choice. If they didn't, 
        another nearby dealership selling the same models most 
        certainly would.''

    David Cole, chairman of the Center for Automotive Research, was 
quoted in the May 17 Crain's Detroit Business as saying the current 
dealership network is too large.

        ``The companies have lost so much volume, so they have 
        dealerships for twice that volume . . . In the end, it's 
        important to have successful dealers that can present the best 
        possible face to the consumers,'' Cole said.

    AutoNation, Inc., one of Chrysler's largest dealer groups by 
volume, will be closing seven Chrysler dealerships as a result of our 
consolidation plan. Nevertheless, Mike Jackson, Chairman and Chief 
Executive Officer of AutoNation, released this statement:

        ``We believe Chrysler's consolidation plan is a difficult but 
        positive step forward for Chrysler and the automotive retail 
        industry. Dealer consolidation is a necessary measure in 
        today's automotive industry and will strengthen America's 
        dealer network and improve dealer profitability over the long 
        term.''

    Even before the current economic crisis, Chrysler realized it 
needed a smaller dealer network. Chrysler's efforts to consolidate its 
dealer network date back to 1992, when we had 4,923 dealers, and have 
continued since.
History of Chrysler Dealer Network Optimization Initiatives


    Chrysler has consistently communicated the need for a consolidation 
of dealers to our network. Our most recent restructuring effort, 
Project Genesis, is aimed at bringing all three brands under one roof 
to go along with our plan to produce fewer products that overlap. 
Genesis was launched in 2008 with an extensive communication plan 
including a series of meetings across the United States with our 
dealers and presentations at the National Auto Dealers Association 
annual conference. In each market, we identified the optimal number of 
dealers and locations and we began working collaboratively to build a 
healthy and profitable network.
    Some have suggested that because an auto manufacturer like Chrysler 
sells cars to the dealerships, and these dealerships are independent 
businesses, they are not a cost to Chrysler. This is simply not true. 
For Chrysler, excess dealerships are costly in several ways. First is 
the problem of maintaining several dealership channels. Maintaining 
multiple distribution networks is inefficient and costly. Product 
complexity is increased because of the need to provide products in the 
same segment to different networks. For example, Chrysler currently 
supplies dealers with two similar minivans, Chrysler Town & Country and 
Dodge Grand Caravan; two similar full-size sport-utilities, Chrysler 
Aspen and Dodge Durango; two similar mid-size SUVs, Dodge Nitro and 
Jeep' Liberty; and two similar sedans, the Chrysler Sebring 
and Dodge Avenger. Based on six major vehicle launches between 2005 and 
2008, Chrysler incurred approximately $1.4 billion in incremental costs 
to develop these multiple pairs of ``sister vehicles.''
    Second, as a result of overdealering, the marketing and advertising 
messages are split between multiple products, diminishing the reach and 
frequency of each campaign. For example, in 2008 we spent about $100 
million on each of two marketing and advertising campaigns to launch 
our two redesigned minivans instead of spending half as much to support 
a single launch to attain virtually the same sales volume.
    Going forward, the new Chrysler Group LLC will reduce the number of 
overlapping products. We are moving from 27 nameplates covering 13 
product segments in 2007 calendar year to a target of 20 nameplates 
covering 17 segments by 2013 calendar year. Fewer nameplates with 
better product and customer market coverage will help improve the 
overall return on our product capital investment. This means that 
dealers need to have all three of our brands under one roof in order to 
offer a full range of products and to optimize their profit potential.

 Examples of Lost Revenue and Cost Associated with Discontinued Dealers      Product engineering and      $1.4 billion over 4 years
     development for ``sister vehicles''
     Lost sales due to dealer     $1.5 billion revenue annually
     underperformance
     Administrative cost to       $33 million annually
     maintain the 789 discontinued
     dealers
     Marketing and advertising    $150 million annuallyChrysler data

    Finally, poor performing dealers cost us customers. It's true that 
dealers are our customers, but it works both ways. If they don't sell 
cars, we don't either. Poor performing dealerships cannot afford to 
keep facilities up-to-date or hire and train the best people, resulting 
in poor customer experience and lower sales. In fact, in 2008 the 789 
discontinued dealers achieved sales of only 73 percent of the minimum 
sales responsibility, representing 55,000 lost unit sales and $1.5 
billion in lost revenue in 2008.
    A financially strong, competitive dealership should generate 
profits over $1 million a year. Profitable dealers can afford to invest 
in facilities, in people, in training, and in amenities that produce a 
high level of customer satisfaction.
    As I said earlier, we tried our best to avoid Chapter 11. Now as 
Chrysler moves through the process, we need to do our best to form a 
new company that will evolve from the process as viable as possible. We 
recognize that the U.S. Government and the American taxpayers have a 
stake in our success, and we are committed to building a new American 
automotive company that is financially sound and competitive both from 
a product and dealer perspective. This was our goal when we presented 
our viability plan in February and it is our goal in the Chapter 11 
process.
How Identified Dealers: a Data-Driven, Objective Methodology
    To achieve the necessary realignment, we are using a thoughtful, 
rigorous and objective process designed to have the least negative 
impact while still creating a new dealer footprint scaled to be viable 
and profitable for the long term. The methodology was consistently 
applied to every dealer in the company's U.S. operations. The decisions 
made to either continue or discontinue dealer contracts were based on a 
robust process that looked at all market types, Metro, Secondary and 
Rural. This analysis reviewed many factors that are unique for each 
market and dealer. The primary focus of this initiative, as it has been 
under Project Genesis, was to create a more viable network footprint 
that enhanced sales per dealer while bringing all three brands together 
within each retail outlet.
    These factors included:

   Total sales potential for each individual market.

   Each dealer's record of meeting minimum sales 
        responsibility.

   A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures.

   Facility that meets corporate standards.

   Location in regard to optimum retail growth area.

   Exclusive representation within larger markets.

    A team of people within our local business centers around the 
country as well as headquarters staff reviewed every market and dealer 
situation as a group many times. From this analysis the 2,392 dealers 
who would best carry the new company forward were identified.
    Although Chrysler submitted a plan to reduce total dealer count by 
25 percent, those dealers represent only 14 percent of our sales 
volume. Half of these dealerships sell fewer than 100 vehicles a year, 
or less than nine vehicles per month on average (that compares with 125 
vehicles sold per month on average at Toyota dealerships). About 44 
percent of the discontinued dealers who reported revenues were 
profitable, earning $84 million last year, while the remaining 56 
percent were unprofitable, losing a total of $136 million.
Chrysler 789 Discontinued Dealers at a Glance
   25 percent of total dealer network.

   14 percent of sales volume.

   50 percent sell 100 or fewer new vehicles per year.

   84 percent sell more used than new vehicles.

   44 percent are dealers dualled with a competing franchise.

    In many instances, we're moving a franchise as part of our overall 
Project Genesis consolidation that brings all three of our brands under 
one roof. So, when a Dodge dealer's contract is not assumed, that 
franchise in some cases will wind up in a nearby Chrysler/Jeep store. 
In that case the business should grow, become more profitable and have 
a beneficial impact on the community. Of our remaining 2,392 dealers, 
84 percent will carry all three of our brands compared to 62 percent 
prior to implementation of this plan. The new Chrysler Group LLC dealer 
network will be in better retail locations with more modern facilities 
that are convenient and better positioned to serve customers. With the 
opportunity for increased sales per outlet, dealers should experience 
an enhanced franchise value resulting in more willingness to invest in 
facilities, people and their local communities.
Chrysler Customers Will Still Have Convenient Access to Improved Dealer 
        Network
    Of the 789 discontinued dealers, 284 are within 10 miles of a same-
line dealer that is being retained. Based on registration data, our 
customers reside an average of 6.67 miles from the nearest Chrysler, 
Jeep or Dodge dealer now; this distance will increase to 7.09 miles 
after the consolidation. With regard to rural dealers, the distance 
increases from 10 to 11 miles. Even with the consolidation, our dealers 
on average are more conveniently located to customers than Toyota or 
Honda dealers are to their customers.

                                         Customer Convenience Comparison
                      Average distance in miles a customer must drive to reach a dealership
----------------------------------------------------------------------------------------------------------------
                                            Old         New
                                         Chrysler    Chrysler    Change    Toyota     Honda     Chevy     Ford
----------------------------------------------------------------------------------------------------------------
Metro                                        4.45        4.82      0.37      5.01      5.11      4.10      4.23
----------------------------------------------------------------------------------------------------------------
Secondary                                    6.08        6.44      0.36      7.38      7.58      5.69      5.76
----------------------------------------------------------------------------------------------------------------
Rural                                        9.72       10.70      0.98     19.27     24.27      8.04      8.69
----------------------------------------------------------------------------------------------------------------
Total                                        6.28        6.80      0.52      9.11     10.31      5.58      5.81
----------------------------------------------------------------------------------------------------------------
Urban Science 2008

    It's vital to Chrysler's future that we take care of our customers' 
needs during this process. We have a comprehensive communications plan 
to be launched by the new company that will include a letter to all 
owners, explaining our alliance with Fiat and emergence as a vibrant 
new company. These letters also will assure customers that all warranty 
claims will continue to be honored and provide a toll-free hot line 
number to a call center to answer their questions. Those owners who are 
customers of terminated dealers will receive another letter a few days 
after the terminations are official, providing information on other 
dealers in their area as well as a service offer.
Timing of the Dealer Consolidation
    The time-frame for discontinuing dealers was driven by the Chapter 
11 process and the need for speed in order to preserve maximum value 
for Chrysler. Prior to May 1, Chrysler had planned to avoid bankruptcy. 
Only after filing did we begin the necessary process of actually 
identifying which dealers could go forward with the new company. Timing 
was mandated by the Chapter 11 proceeding, including the requirement to 
complete our strategic alliance with Fiat by June 15. It was important 
to Chrysler and Fiat that a new and stronger dealer network would be in 
place by the closing date. On May 14, we notified the dealers of our 
decisions, and later filed the list of discontinued dealers with the 
court.
    In his approval of the sale motion, Judge Gonzalez confirmed, 
``while in Chapter 11, Chrysler is a wasting asset,''--meaning that 
while we're not building cars, our assets are deteriorating and 
customers are losing confidence.
    It is in the best interest of Chrysler and discontinued dealers to 
move quickly through this process. The number of days' notice provided 
to discontinued dealers was similar to the 30 days provided under the 
Chrysler voluntary termination process, and it provided for a quick 
process in everyone's best interest. Financial commitments from both 
the U.S. and Canadian governments require our alliance with Fiat be 
completed by June 15. This deadline determined a number of other 
deadlines, including the June 9 termination date for rejected dealers. 
That termination date is needed to ensure that our new dealership 
structure will be firmly in place at or about the time the new company 
is formed with Fiat--something understandably important to Fiat.
    The success of our new enterprise depends in large part on this new 
dealer body, and we must focus our limited resources on this. 
Similarly, we do not want customers to have any confusion about who is 
and who is not a dealer for the new company. The termination date for 
discontinued dealers was chosen, therefore, to meet the demands of our 
creditors and partners, to bring our new dealer network online as 
quickly as possible, and to strongly signal customers that the new 
dealer body will meet their needs.
What Chrysler Is Doing to Provide Relief for Discontinued Dealers
    We have worked hard to assure as soft a landing as possible for the 
dealers whose contracts have not been assumed. We quickly put together 
a program with GMAC to provide wholesale financing so the inventory 
could be redistributed to the dealers going forward. Under this 
program, a dealer would receive the invoice price less holdback and 
other fees the dealer was already paid, less a $350 dollar fee for 
inspection, cleaning and transportation of each vehicle. Since the 
inventory is owned by a dealer, their approval is required for Chrysler 
to assist in the redistribution process. Every dealer was asked to sign 
an ``Inventory Assistance Acknowledgement Form'' indicating that he or 
she understood the process and wanted our assistance. There were 42,000 
vehicles in stock at discontinued dealers on May 14, and working 
together, we've already sold or redistributed 89 percent of all 
vehicles in discontinued dealer inventory.

                                    Inventory Status of Discontinued Dealers
----------------------------------------------------------------------------------------------------------------
                                                                 Sold/Re-distributed             Balance
                                              5/14/09 Dealer ---------------------------------------------------
                                                 Inventory         #            %            #            %
----------------------------------------------------------------------------------------------------------------
Total                                                 42,006       37,488          89%        4,518          11%
----------------------------------------------------------------------------------------------------------------
(memo) Dealers Accepting Assistance                   20,226       19,679          97%          547           3%
----------------------------------------------------------------------------------------------------------------
As of 6/1/09

    Every dealer on the discontinued list was contacted by a 
representative from his or her business center by close of business May 
22. Each dealer was advised of and received a letter that outlined the 
process that Chrysler developed for assisting in the disposition of 
vehicles, parts inventory, special tools and signage. While our 
objective is to have virtually all units sold or redistributed by June 
9, we will continue to work with a dealer after that date in the 
redistribution of inventory and in the processing of incentive and 
warranty claims due to the dealer.
    The potential job losses associated with discontinued dealers are 
far less than some of the public speculation you have seen. Based on 
our data, we estimate a total of 29,982 are employed at the dealerships 
that we proposed to discontinue. However, it is important to note that 
44 percent of these dealers are dualled with our competitors, and are 
expected to continue selling those other makes. In those dualled 
dealerships Chrysler brands represent only 12 percent of their total 
sales volume. In addition, it's important to note that 84 percent of 
these dealers sell more used vehicles than new, and many of these 
dealers will continue selling and servicing pre-owned vehicles. 
Therefore, it is a safe bet that a substantial number of these 
employees will not lose their jobs. For those that do, we're expanding 
our current online job posting hiring process to help place dealership 
employees who lose their positions. The job loss is painful and tragic, 
but is much better than the alternative of all dealers closing as a 
result of liquidation.
Shared Sacrifice Required to Save Chrysler
    There's no question that Chapter 11 has been a painful process. 
While a number of elected officials, commentators, and other observers 
of the industry have advocated bankruptcy for the company, it was not 
Chrysler's first choice. However, at this point, we are committed to do 
our best to create a new company that will succeed in the long term. We 
recognize that you and your constituents have a stake in our success, 
and that's why we are committed to take the tough but necessary actions 
to build a new Chrysler that is fully able to compete and win. To do 
that we must provide the American public fuel-efficient vehicles with 
strong consumer appeal and a strong, high-quality and viable dealer 
network: One without the other will fail.
    Does my heart go out to the dealers who will not be part of the new 
company? Absolutely. But we've had to make many hard choices to create 
a viable business and preserve jobs for tens of thousands of people. 
Many of our stakeholders have made unprecedented sacrifices. In that 
perspective, the sacrifices of the dealer network are in-line and 
appropriate considering that 27,000 Chrysler jobs were eliminated, the 
UAW accepted wage and benefit cuts that place them on a par with 
workers at transplant operations; many suppliers have experienced 
pricing reductions in addition to significant job losses resulting from 
reduced volumes, and many are retirees losing a significant portion of 
their pensions.
    Given the auto industry depression, Chrysler had no choice but to 
seek Chapter 11 protection. Facing that reality, we used a thoughtful, 
fair process, and we are doing everything possible to soften the impact 
to everyone affected.
    Realignment of our dealer network will help create a vibrant new 
company, with a stronger and leaner organization and a key partner in 
Fiat. Moving forward with 75 percent of our dealer network is far 
better than the alternative of liquidation, which Chrysler will face if 
the sale of assets is not finalized and the alliance with Fiat 
completed. Under liquidation, tens of thousands would be out of work, 
and all 3,181 of our U.S. dealerships would lose their agreements to 
sell and service Chrysler vehicles, which would have a far more 
devastating effect on scores of communities and on our national 
economy.
    We're extremely excited about our prospects going forward. Our 
alliance with Fiat will provide significant strategic advantages, 
including access to high quality, fuel-efficient small and compact 
vehicles, as well as platforms, powertrain technologies and components 
that will be produced at Chrysler manufacturing sites. Together, the 
Chrysler Group and Fiat will bring a range of exciting, new fuel-
efficient compact vehicles to North American consumers, helping 
stimulate growth in this segment. The new Chrysler Group's revamped 
dealer network will help ensure that remaining dealers and the new 
company will be stronger, and more profitable, providing a solid base 
of jobs and capable of growth going forward.
Chrysler's Special Bond with the American Public
    Throughout its 84-year history, Chrysler has had and will continue 
to have a special relationship with the American public. The ``new'' 
Chrysler Group LLC will continue to provide innovative, high-quality, 
vehicles and service to the American consumer, and also will be fully 
capable of competing in the global market. It will be an exciting time 
for the entire ``new'' Chrysler family.
    We recognize that we have a special bond with America and with 
American taxpayers, and we're committed to deliver on their investment 
by building a viable company and building high quality products with 
strong consumer appeal. We take to heart our responsibility to produce 
vehicles that serve society and contribute to getting our country and 
our national economy back on track.
    As we have testified before, several actions will help stimulate 
automotive sales. First, returning to a functioning finance environment 
for our customers and dealers will help spur sales. Second, programs 
that will increase demand such as the Drive America Forward Act 
sponsored by Senators Stabenow and Brownback would be helpful. This 
fleet modernization program will stimulate sales while improving fuel 
economy.
    A strong new Chrysler can play a key role in rebuilding the 
American manufacturing base--and manufacturing must thrive if we want 
the economy to grow in the long term. Simply put our country's health 
and security depends on our ability as a nation to make things that 
people want to buy.
    Given the fragile state of the economy, a failure of Chrysler would 
be a severe setback for the efforts to restore confidence and revive 
growth. A healthy U.S.-based automotive industry is the backbone of the 
Nation's economy--creating wealth. Every direct job at an automaker 
creates nearly 10 more jobs at suppliers and supporting industries. The 
auto industry has been a great engine for producing good-paying, 
middle-class jobs.
    We are very grateful to loyal Chrysler customers who have supported 
us throughout this process and assure them Chrysler Group is well 
prepared to produce and support quality vehicles under the 
Jeep', Dodge and Chrysler brands as well as parts under the 
Mopar' brand. We also recognize the sacrifices, unstinting 
loyalty and enduring belief in Chrysler of many stakeholders, including 
Cerberus and Daimler, the UAW and CAW leadership, employees, dealers 
and suppliers who made critical contributions to the viability of 
Chrysler Group, Chrysler Financial and their efforts with GMAC to 
provide financing, and the energy and commitment of the U.S. Treasury, 
the President's Auto Task Force, Members of Congress and 
representatives at the state and community level and Canadian Federal 
and Ontario Provincial governments in helping to move Chrysler Group 
forward. Without the extraordinary efforts of all these constituents, 
the alliance and the creation of a new Chrysler would not have been 
possible.
    All of us at Chrysler take enormous pride in the contributions that 
the company has made to our industry and country. We also are deeply 
honored by the trust that customers continue to place in us, and we 
look forward to continuing to earn their trust for many more years.
    Thank you very much.

    The Chairman. Thank you, Mr. Press. And I call now upon Mr. 
Henderson, Mr. Fritz Henderson, who is the Chief Executive 
Officer of General Motors.

STATEMENT OF FRITZ HENDERSON, PRESIDENT AND CEO, GENERAL MOTORS

    Mr. Henderson. Good afternoon, Mr. Chairman, Senator 
Hutchison. I welcome this opportunity to testify today. It's 
our obligation to be open and transparent in all that we do to 
reinvent General Motors, particularly with the American 
taxpayer as our single largest investor.
    Before I explain why and how we go about restructuring and 
consolidating our dealer network, I want to talk about the 
human story behind our plans. Our actions have forever changed 
the lives of people, families and whole communities.
    For our dealers, they are valued partners, friends, and the 
face of GM to our customers. Personally and professionally, I 
feel strong, deep ties to dealers. I have personally worked at 
dealerships in my summer, in college. My father, for 39 years, 
called on Buick dealers. My brother, 25 years, it's in my 
family.
    Throughout my career--over my career, I visited dealers in 
48 countries around the world, including the United States. I 
have walked through stores, together have shared stories with 
them. I have had dinner with them, and I have celebrated their 
success in good times and dealt with bad times.
    I don't see dealers as dots on the map or lines on a 
spreadsheet. They are members of a larger GM family, which 
makes this process so heart-wrenching for me and the 
corporation. A dealer closing is as painful as a plant closing, 
but we have no choice.
    We are all being called upon to sacrifice in order to build 
a stronger, more viable General Motors. This is our last chance 
to get it right, to fix permanently those parts of the business 
that have diverted us from consistently building winning cars 
and trucks and a consumer experience to match.
    Our dealer network must match a smaller, stronger, leaner 
GM built for today's market and competitive realities. 
Historically, much of GM's dealership network growth occurred 
in the 1950s and 1960s, when we held a dominant share of the 
U.S. auto market. Since that time, strong new competitors have 
entered this country, and our market share has shrunk, leaving 
us with too many dealerships, and in many cases, in the wrong 
locations.
    Over the years, many GM dealers could not earn enough 
profit to renovate their facilities and to retain top tier 
sales and service staffs. And for those who could raise 
capital, it made little business sense for them to invest in 
the market already saturated with GM dealers.
    Everyone agrees--even the dealers themselves--that a 
restructuring of GM's dealer network must take place. We set 
out to do this restructuring as carefully, responsibly and 
objectively as we could. We started with a thorough analysis of 
every market and every dealer throughout the U.S. to assess 
individual market requirements and dealer performance, 
especially in the metrics of sales and customer satisfaction.
    We also carefully considered our dealer network coverage in 
rural areas. We wanted to make sure that we maintained the 
strong competitive advantage we have in rural areas in some 
cases, and on average, more than ten points in market share 
above our national average.
    We also took great pains to ensure that minority dealers 
were considered equitably and proportionally.
    Most importantly, instead of terminating agreements 
immediately, we are providing advance notice and wind-down 
agreements to dealers who we could not retain in the network 
long term.
    If, and when executed, these agreements will allow dealers 
to stay in business with us until October 2010, the expiration 
date of their current dealer agreement, so they can sell down 
their vehicle inventories and provide warranty service, and 
sell down their parts inventories over time.
    We want to support our dealers, to help them wind down 
their business in an orderly fashion. We have a structured 
package and transition assistance that is intended to benefit 
them relative to their alternatives.
    Of the 1,380 letters that were sent earlier this week, 647 
have been returned already, signed. We had ten dealers who said 
they are not able to sign it and the remainder of them we are 
working with every day.
    We also have a dealer appeal process to allow us to 
consider, one-by-one, if we have made mistakes, because we 
rightly recognize we do make mistakes, and we deal with each 
and every one of those individually.
    Yes, consolidations will bring cost savings. A smaller, 
more healthy dealer network reduces GM's costs, primarily 
related to the support we provide for information technology, 
sales person incentives, field sales and service training, 
parts and advertising.
    This support is equivalent to roughly $1,000 per vehicle, 
or a multi-billion dollar expense for the company.
    But this effort is all about creating a healthier, stronger 
and profitable dealer network. One that improves our brand 
image, and increases the opportunities for sales and service 
provided by our high-performing dealers. It's about focusing 
our resources on our top performers and core brands, so we can 
attract and retain more private capital and the best dealer-
operators, and yes, new customers from our competitors.
    The end result will be between 3,500 and 3,800 U.S. GM 
dealers by the end of 2010, depending on attrition levels, with 
a retail market share of a little over 17 percent, and our 
objective in 2010 in a retail sales market of just over 10 
million units, with fleet on top of that. That means that the 
number of units sold per dealer would nearly double, compared 
to today's levels, and provide a greater return on their 
investment.
    Even with these cutbacks, GM will still have the biggest, 
most extensive dealer network in the country, more than any of 
our competitors, including Toyota, Honda, Nissan, Ford and 
Chrysler.
    To conclude, this is one of the most difficult and painful 
times in GM's history, but we see a path toward a better 
future, where, at GM, we not only survive, but thrive. And we 
want our employees, communities, and especially our dealers to 
thrive with us.
    We're grateful for your support during this critical time. 
We understand our responsibility to the American taxpayer and 
we take that very seriously. A new GM will contribute to 
America's economic strength and competitiveness. And this, of 
course, starts and ends with great cars and trucks, and great 
dealers.
    Thank you very much. I look forward to your questions.
    [The prepared statement of Mr. Henderson follows:]

       Prepared Statement of Fritz Henderson, President and CEO, 
                             General Motors
    Good afternoon, Mr. Chairman.
    I'm Fritz Henderson, President and CEO of General Motors. Thank you 
for the opportunity to discuss an important part of GM's viability 
plan, our dealer network restructuring. Simply put, a strong dealer 
body is vital to GM's success. Indeed, for many customers, our dealers 
are the ``face of GM,''--so this effort is very, very important.
    It is also an effort that--regrettably--is quite painful--for us, 
for our customers, and especially for our dealers. Many of them run 
businesses that have been in their families for generations. The impact 
of what we are doing affects them personally as well as financially. It 
also affects the communities and states where they live.
    That is why we went about this task very objectively and carefully. 
We decided not to terminate any dealers and developed a unique wind-
down process that we believe is more equitable and fair. I will share 
more details about our process later in my testimony.
    Our current dealer network in large part was established in the 
late 1940s and 1950s. Back then, before the U.S. Interstate Highway 
system was built, America was a much more rural country. GM, Ford and 
Chrysler dominated the U.S. car market.
    But times have changed. Today, I'm here to discuss why GM needs to 
have fewer, better dealers selling at higher volumes, who are able to 
better take care of customers; the costs associated with having under-
performing dealers; and the objective process we are using to make the 
changes we need to make.
    For decades, GM and our dealers have enjoyed periods of prosperity 
and have also weathered the inevitable troughs that are part of such a 
cyclical business. Over the last 20 years, we have seen particularly 
dramatic changes and pressures that have come from international trade, 
volatile energy markets, and increased competition in the U.S. market.
    Foreign manufacturers who entered this market beginning in the 
1970s had the advantage of establishing their dealer networks in line 
with modern demographics. Today, more people live in the suburbs of 
major metropolitan areas, versus rural areas or small towns.
    To meet these challenges, we've been designing new products, 
developing new technologies and restructuring our company to bring our 
fixed costs in line with these competitive market forces and shifting 
sales volumes.
    But the most recent global financial crisis--which has yet to fully 
stabilize--has made it clear that we no longer have the luxury of 
time--nor money--to continue to pursue the evolutionary approach we 
used in the past. It was an approach we hoped would bring about change, 
while minimizing the disruption change brings to everyone involved.
    Although it has been tough to hear at times, the direction we 
received from Congress, the Administration, the Automotive Task Force, 
and countless industry analysts and pundits, was clear and to the 
point: we needed a dramatic restructuring, done with speed, across all 
parts of our business, if GM was to remain viable. We were asked to 
deliver a plan to make that happen by June 1.
    The President acknowledged what we all understood from the start--
such a plan would require shared sacrifice from GM and all of our 
stakeholders. What has become clear as we execute our plan is that GM, 
our employees, and our dealers do matter to America. We are 
collectively woven throughout the economic fabric of our country.
    And this has been the most difficult part of executing our plan . . 
. the human story of the people who are affected by the painful but 
necessary actions we are taking to ensure our viability. Members of 
Congress, Treasury representatives, and the Automotive Task Force have 
seen this for themselves during their visits to our facilities and 
plant communities in recent months.
    Reinventing GM--real change--does require shared sacrifice. 
Thousands of hourly and salaried employees are losing their jobs, and 
those who remain have had their pay and benefits cut. Plant closures 
impact families and the communities where they live.
    These are tough times for everyone in the GM family. And, as a part 
of the GM family, our dealers are also being asked to bear some of the 
sacrifice in order to build a stronger, more viable GM.
    The reality of our situation is this: all parts of GM, including 
the dealer network, must become smaller and more efficient to reinvent 
GM as a company that is not only viable, but capable of surviving 
cyclical downturns. GM's viability plan calls for fewer, stronger 
brands, as well as fewer, stronger dealers.
    For years, we have heard the call that GM must adapt to today's 
global competition and market conditions or it will not survive. We 
agree.
    In the case of our dealer network, because of our long operating 
history and existing dealer locations, many dealerships now operate in 
outdated facilities that are also no longer in the prime locations to 
best serve customers.
    Much of the growth in GM's dealership network occurred in the 1950s 
and 1960s, when we held a dominant share of the U.S. auto market. Since 
that time, strong new competitors have entered this market and our 
market share has shrunk, leaving us with too many dealerships. For 
example, GM today has roughly 6,000 dealerships in the U.S., compared 
to 1,240 for Toyota and 3,358 for Ford.
    Besides the intense pressure from competitors, GM dealers also 
compete against each other. Over the years, many GM dealers could not 
earn enough profits to renovate their facilities and retain top-tier 
sales and service staffs.
    Thin profit margins and state franchise laws also prevented many 
dealers from relocating as U.S. demographics shifted from urban to 
suburban settings. The dealers that remain compete with each other for 
a shrinking share of GM sales. Current market conditions only make this 
situation worse.
    Our current plan calls for GM to have between 3,800 and 3,500 U.S. 
dealers by the end of 2010, depending on attrition levels, with a 
retail market share of 17.3 percent in a retail sales market of 10.15 
million. This means that the number of units sold per dealer would 
nearly double, compared to today's levels.
    This overall number is based on the previously announced potential 
sale of the Saturn, Hummer, and Saab, brands, or their phase-out if 
they can't be sold; dealer attrition over the next 18 months, which--as 
you might expect in these difficult times--is running at record levels; 
and the wind-down over time of the approximately 1,200 dealers we 
notified on May 15th, plus an additional 200 dealers who also received 
wind-down agreements this week.
    The Treasury noted the problems caused by GM's current dealer 
network in their assessment of our Feb. 17 viability plan on March 30. 
They said:
    ``GM has been successfully pruning unprofitable or underperforming 
dealers for several years. However, its current pace will leave it with 
too many such dealers for a long period of time while requiring 
significant closure costs that its competitors will not incur. These 
underperforming dealers create a drag on the overall brand equity of GM 
and hurt the prospects of the many stronger dealers who could help GM 
drive incremental sales.''
    Everyone agrees--even the dealers themselves--that a restructuring 
of GM's dealer network must take place.
    A smaller dealer network reduces GM's costs, primarily related to 
support we provide for information technology systems, dealer and sales 
person incentives, field sales, service and training, service parts, 
and advertising. This support costs GM roughly $1,000 per vehicle.
    However, this effort we are undertaking is not really about saving 
money--although there will be cost savings. A key to GM's success over 
the long haul--which U.S. taxpayers have a vested interest in--will be 
a healthy, strong, and profitable dealer network that can provide the 
industry's best customer service and enhance the image of our four 
remaining brands: Chevrolet, Cadillac, Buick and GMC. Dealers who are 
too small, are unprofitable, or perform only marginally well, simply 
cannot provide those things to our customers.
    The remaining dealerships will be better poised to keep their 
current GM customers, while aggressively marketing to take sales from 
competitors. The long-term benefits of a stronger, more viable dealer 
network are clear.
    We are making these hard decisions to benefit our customers. As we 
reinvent GM, we are putting the customer first in everything that we 
do. Even with these cutbacks, GM will still have the biggest, most 
extensive dealer network in the country--more than any of our 
competitors, including Toyota, Honda, Nissan, Ford and Chrysler.
    Next, I'd like to talk about the objective process we are using to 
consolidate the dealer network. We strongly believe that how we are 
doing this is as critical to our success as what we are doing. GM's 
dealer consolidation process is unique.
    First and foremost, as I stated earlier, we have not terminated any 
dealer agreements. Just this week, we sent wind-down agreements to 
dealers who we could not retain in the network long-term. When 
executed, these agreements allow them to stay in business until October 
2010--the expiration date of their current dealer agreement--so they 
can sell down their vehicle inventories and provide warranty service to 
customers, thus winding down their business in an orderly fashion.
    We also--subject to bankruptcy court approval--have some financial 
assistance in the wind-down agreements to allow the dealers to 
accomplish this. On May 15, we had previously notified most of these 
dealers about our planning. While this is not an easy process by any 
means, we think it is far preferable to an abrupt termination.
    Prior to taking any action, we conducted a thorough analysis of 
every market and every dealer throughout the U.S. to assess individual 
market requirements and dealer performance.
    Some of the key dealer performance factors that we looked at 
included:

   Customer satisfaction index

   Sales performance and volume

   Working capital

   Profitability

   Dualing patterns

   Dealership location

   Facility

    We also carefully considered our dealer network coverage in rural 
areas and small towns versus urban/suburban markets. We know that our 
strong presence in rural areas, small towns and ``hub'' towns such as 
gives us a leg up versus the competition, which we intend to maintain. 
When these dealers perform to our standards, they are a huge asset.
    We also took great pains to ensure that minority dealers were 
considered equitably and proportionally. In fact, the percentage of 
minority dealers overall may actually increase slightly after the 
consolidation takes place.
    Identifying dealerships that we want to keep in the GM dealer 
network and those with whom we will have to wind down our business 
relationships was a very difficult step. However, it is a step we had 
no other choice but to take for GM's viability.
    By reducing the number of dealers, the remaining dealers will see 
increased sales throughput at more competitive levels. This will 
provide a greater return on their investment, especially in 
metropolitan markets. They will be able to retain top sales and service 
talent, invest in their facilities, and focus on selling vehicles to 
people who don't currently own a GM car or truck. Most importantly, 
they will be able to improve the overall customer experience and retain 
current customers.
    From GM's point of view, by winding down under-performing dealers, 
we will eliminate the negative impact they have on our brand image and 
increase the opportunity for sales and service provided by our high-
performing dealers. Although we will achieve substantial cost 
reductions in the consolidation, our primary goal was to improve the 
dealer network as a whole. This will enable us to focus our resources 
on top performers and core brands so we can attract and retain more 
private capital and the best dealer operators.
    Dealers who wish to provide GM with additional information with 
regard to their performance on the key dealer performance factors have 
the opportunity to provide it to our Dealer Network Planning and 
Investments organization. We have received a number of such requests 
and are continuing to receive them.
    Our dealers are not a problem but an asset for General Motors. 
Consolidating our dealer network will make it an even stronger asset.
    Before concluding, let me mention one additional opportunity to 
help dealers and auto manufacturers in the current environment. In 
several other countries around the world, vehicle sales incentive 
programs have been implemented. These fleet modernization--or 
``scrappage''--programs provide incentives for customers to trade in 
older, less fuel-efficient vehicles for vouchers to purchase newer, 
cleaner, more fuel-efficient vehicles.
    These programs have been very successful in stimulating vehicle 
sales in other countries. We urge Congress to quickly enact legislation 
for such a program in the U.S. In particular, we support the proposal 
introduced by Senators Stabenow and Brownback. It provides the broadest 
and potentially most effective program of those being considered.
    In conclusion, GM is grateful for the support of the Congress and 
Administration as we undertake this painful, yet essential reinvention 
of our company.
    As we are experiencing first-hand, it's much easier to talk about 
the need to change in the pages of newspapers, or on cable television. 
However, dramatic change is a much more difficult and serious challenge 
to actually undertake, and requires sacrifice.
    The wholesale reinvention of GM has not been easy. But we will not 
soften our determination to see this process through because it is 
difficult or to run from sacrifice. We hope your support remains just 
as strong.
    We understand our responsibility to American taxpayers, and we take 
it very seriously. We want GM to not only survive, but thrive. And we 
want our employees, communities, and especially our dealers to thrive 
with us. This--and, of course, great cars and trucks--is the way to pay 
back our Nation's support.
    The end result will be a healthier, successful, reinvented GM that 
will not only benefit employees and dealers, but contribute to 
America's economic and competitive strength.
    Thank you. I look forward to your questions.

    The Chairman. Thank you, sir. Finally, Mr. John McEleney, 
Chairman of the National Automobile Dealers Association. 
Please, sir.

           STATEMENT OF JOHN P. McELENEY, CHAIRMAN, 
            NATIONAL AUTOMOBILE DEALERS ASSOCIATION

    Mr. McEleney. Thank you, Mr. Chairman. Mr. Chairman and 
Senator Hutchison, my name is John McEleney. I am Chairman of 
NADA, the National Automobile Dealers Association. I am also an 
automobile dealer. My dealership is McEleney Auto Center in 
Clinton, Iowa. We operate GM, Toyota and Hyundai franchises. We 
have been in business 95 years. We provide jobs for 140 people. 
My family also held a Chrysler franchise between 1984 and 2007.
    Mr. Chairman, we commend and thank you and Senator 
Hutchison for convening this hearing.
    In three face-to-face meetings with the President's Auto 
Task Force, and in numerous meetings with the manufacturers, no 
one has explained why dealer reductions will make Chrysler and 
GM more viable.
    Over 90 percent of Chrysler and GM's revenue comes from the 
dealer, because the dealer buys the cars, the parts and even 
the dealership's signs from the manufacturer. The retail 
network, the land, the building, the employees; the dealers pay 
for all of it. Dealer cuts won't save any money, because 
dealers don't cost the manufacturers any money. When a 
dealership closes, the manufacturers will tell you that they 
lose market share.
    Where is the objective standard and where is the public 
accountability for these decisions: 789 Chrysler and 1,350 
General Motors dealerships face terminations? These dealership 
employ over 100,000 people. These people deserve more.
    The Chrysler dealership terminations are particularly 
harsh. These 789 dealers were given 26 days to wind down. Also 
Chrysler has refused to buy back vehicles, parts and special 
equipment. No manufacturer has ever done this. Just 4 days 
after Chrysler dealers received the termination letters, media 
reports said that Chrysler was already on planning to re-enter 
some of the very markets that they were abandoning.
    With respect to GM, the effects were actually broader. 
Yesterday, GM delivered to my dealership, ``a participation 
letter'' which every GM dealer must sign. Even though I am one 
of the ``go forward dealers'' I will have to make significant 
changes that could threaten the viability of my dealership and 
my employees.
    Actually, GM's letter is a 24-page binding legal contract. 
Senator Snowe referred to a 12-page agreement. Mine is 24. If I 
sign it, I will be committing my business to spend hundreds of 
thousands of dollars that I know about today, and committing to 
millions of dollars of potential financial obligations in the 
future. I will also be subjecting my business to sales 
performance standards that are not specified in the contract. 
Even worse, GM can alter the terms of these requirements at any 
time, at its sole discretion.
    The final blow, I must waive any right of protest to any 
action taken by the manufacturer.
    The contract actually says ``This document shall be null 
and void if the dealer changes any term, or provision, or if it 
is not executed by the dealer on or before June 12.'' That's 
next Friday. That's 7 days from now.
    But my choice is this: sign the completely one-sided, open-
ended legal document and give up all my basic rights as a 
dealer or face the consequences of cancellation of my franchise 
during the pending bankruptcy. The other 4,000 go-forward 
dealers have the same choice.
    This really is no choice at all. It's a classic example of 
opportunistic and overreaching behavior by the manufacturers, 
that is exactly what has prompted the enactment by legislatures 
of all 50 states, the franchise laws that govern the 
relationship between dealers and manufacturers. No other 
manufacturers force dealers to sign such an onerous agreement. 
This is not necessary for GM's viability, and Federal funds are 
being used to empower GM to do this.
    This is a manipulation of the bankruptcy process to 
eviscerate the states' franchise laws; laws that inject balance 
in an inherently one-sided economic relationship between a 
dealer and the manufacturer, and they also provide consumers 
with a reliable, convenient and competitive retail auto 
network.
    So we urge the following: first, the Executive Branch 
should provide sufficient debtor and possession financing to 
enable Chrysler to buy back the parts, the inventory, the 
manufacture-specific tools from the terminated dealers. This is 
standard practice in our industry.
    Second, the terminated Chrysler dealers need more time to 
make an orderly transition. No manufacturer has ever imposed 
such onerous terms on such a tight deadline.
    Third, the terms of GM's go-forward agreements must be 
changed. No manufacturer has ever imposed such outrageous terms 
in dealer-operator agreements.
    Fourth, franchise laws of the 50 states should remain 
intact, and applicable full force and effect once Chrysler and 
GM emerge from bankruptcy.
    Since this entire bankruptcy has been negotiated by the 
Executive Branch, Congress should intervene, if necessary, to 
make sure these actions are taken.
    I thank you for holding this important hearing and thank 
you for the opportunity to testify.
    [The prepared statement of Mr. McEleney follows:]

           Prepared Statement of John P. McEleney, Chairman, 
                National Automobile Dealers Association
    Mr. Chairman, Ranking Member Hutchison, my name is John McEleney, 
and I am the Chairman of the National Automobile Dealers Association 
(NADA). I am also President of McEleney Autocenter, of Clinton, Iowa. 
We operate General Motors, Toyota and Hyundai franchises and have been 
in business for 95 years and now provide jobs for 140 people. 
Additionally, my family held a Chrysler franchise between 1984 and 
2007.
    NADA's membership consists of over 17,000 new car and truck dealers 
in the United States, both domestic and international nameplates, whose 
independently-owned businesses employ upwards of 1 million ``Main 
Street'' Americans. NADA truly is the ``Voice of the Dealer'' because 
our association represents over 93 percent of all dealers, regardless 
of make and model. To put this powerful employment model in 
perspective, the largest private sector employer in American is Wal-
Mart, with 1.3 million employees. Moreover, dealership jobs pay well. 
The typical compensation for a dealership's employee is more than twice 
the national average of jobs in the retail sector, and our jobs cannot 
be outsourced. Even more Americans are employed in businesses that 
supply goods and services to dealerships. Statistics that document the 
extent of automotive retailers contribute to our economy at the local, 
state, and national levels may be found at NADA's website.\1\
---------------------------------------------------------------------------
    \1\ (http://www.nada.org/Publications/NADADATA/DrivingUSEconomy/)
---------------------------------------------------------------------------
    Mr. Chairman, on behalf of franchised dealers all across the 
nation, we commend you and Sen. Hutchison for convening this hearing 
because we need the help of the U.S. Senate to ask some key questions 
about the treatment of dealers, their employees, their communities, and 
the customers that depend upon these local businesses. Why are dealer 
reductions necessary at this time? How did Chrysler decide which 
dealers to terminate? How will the announced dealer reductions enhance 
the viability of GM and Chrysler? To date, we have received no 
plausible answers to these most basic questions.
    At the outset of my testimony, I wish to emphasize that the overall 
state of auto retailing is dire. No previous economic challenge except 
for the Great Depression can compare to what confronts franchised 
dealers today. The automobile retail industry is highly credit-
dependent and, as such, was disproportionately hard hit by last year's 
financial crisis. Floorplan credit,\2\ the financing used by dealers to 
buy new and used vehicle inventory, has contracted dramatically, and 
even creditworthy dealers are having trouble finding access to 
floorplan financing. At the same time, we are experiencing the lowest 
new car sales rate since World War II. Unless and until these larger 
challenges are resolved, all auto manufacturers and dealers will 
continue to face problems. In fact, we will not have a meaningful 
economic recovery in this country without resolving these broader 
issues, because auto sales historically have constituted 20 percent of 
all retail spending in the United States.
---------------------------------------------------------------------------
    \2\ For more on credit and the auto industry, see the attached 
Appendix, ``Credit and the Auto Industry.''
---------------------------------------------------------------------------
    As the President's Auto Task Force has initiated the restructuring 
of two of the largest manufacturers in the United States, there has 
been a significant lack of transparency to this process. As the 
Chairman of NADA, I have represented dealers in three meetings with the 
President's Auto Task Force as well as in conference calls, and have 
provided at their request many documents and data. At our meetings with 
the Task Force, we have repeatedly explained the fact that dealers are 
not cost centers for manufacturers but rather externalize the 
manufactures' costs. Dealers are the largest source of revenue for the 
manufacturers, and to the extent there is ``overdealering'' in certain 
areas, the past 50 years the dealer population has declined every year 
due to orderly consolidations. I elaborate on these points later in 
this testimony.
    NADA has had regular meetings with the manufacturers on a wide 
variety of matters related to industry relations. During the past year 
we have met with Chrysler and GM on numerous occasions to discuss the 
specific submissions that each company made in conjunction with the 
bridge loans last year and the viability plans this year. Additionally, 
we have had numerous conference calls on the same issues.
    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. Similarly, our 
discussions with Chrysler officials during the past year did not give 
any indication of these drastic cuts proposed, much less of the onerous 
terms and conditions. To the contrary, all indications were that dealer 
reductions would be achieved in the context of the on-going Genesis 
program which relies principally upon negotiated transactions based on 
conditions in the local market.
    The potential such an orderly transition has degenerated into chaos 
for 789 Chrysler dealers. These dealerships learned on May 14 that they 
would lose their franchises within 26 days. Moreover, they were told 
that the factory would not buy back any unsold inventory of vehicles 
and parts or any of the factory-specific tools that all dealers are 
required to buy from the manufacturer. No dealer could possibly have 
anticipated this egregiously short timetable and these unprecedented 
terms. After all, the franchise agreement requires the manufacturer to 
buy back vehicles, parts, and tools. No manufacturer has ever imposed 
such onerous conditions on terminated dealers. Especially troubling is 
the fact that during the last few years, some of these terminated 
dealers were pressured by the manufacturer to build large new retail 
facilities. Moreover, within the past few months, many of the 
terminated dealers were strongly encouraged by Chrysler to take 
additional inventory even when local market demand didn't support this 
decision.. In short, many of these 789 Chrysler dealers were team 
players. They did all that was asked of them by Chrysler and in return 
were stripped of their franchises on less than 3 weeks' notice with 
virtually no recourse. In return for their loyalty, they have seen any 
goodwill in their business evaporate in a matter of days.
    Adding insult to injury, Automotive News reported just 4 days after 
the termination letters arrived that Chrysler was planning to re-enter 
some of these 789 markets. Since then, we have heard that in some areas 
prospective new dealers are even touring some of these dealerships 
targeted for closure. This certainly does not look like a strategy to 
reduce the dealer count to achieve an efficient rationalization. 
Rather, this just looks like a strategy to leverage the tremendous 
unfairness of bankruptcy to force the closure of some dealerships for 
the benefit of others.
    Apparently, at some time during the deliberations of the 
Administration Auto Task Force, the treatment of GM and Chrysler 
dealers took a drastic turn for the worse. On March 30, the Task Force 
rejected GM and Chrysler's own dealer consolidation plans, set forth in 
their respective ``viability submissions'' of February 17, based in 
part on the fact that task force officials believed their dealer 
reduction plans did not go far enough or move fast enough. The Auto 
Task Force's March 30, 2009 Viability Assessment of GM specifically 
states with respect to brands and dealers that:

        The Company is currently burdened with underperforming brands, 
        nameplates and an excess of dealers. The plan does not act 
        aggressively enough to curb these problems.\3\
---------------------------------------------------------------------------
    \3\ Auto Task Force, March 30, 2009. GM Viability Assessment--
Rejection of GM's February 17, 2009 plan. ``Brands/Dealers: The Company 
is currently burdened with underperforming brands, nameplates and an 
excess of dealers. The plan does not act aggressively enough to curb 
these problems'', p. 1.

---------------------------------------------------------------------------
    Contemporaneous news reports highlighted the same reality:

        New CEO Fritz Henderson says the Federal Auto Task Force's 
        rejection of GM's viability plan requires GM to make ``deeper 
        and faster'' cuts. GM has 60 days to submit a new, more drastic 
        restructuring plan or face bankruptcy. That means GM is pulling 
        forward its plan for dealership consolidation.\4\
---------------------------------------------------------------------------
    \4\ Automotive News, ``Henderson's GM speeds up dealer cuts'', 
April 6, 2009.

    Finally this was confirmed in GM's letter on May 14 notifying 1,100 
GM dealers of the intention not to renew their franchise agreement 
beyond October 2010 which read in part ``As we have communicated to all 
dealers, our revised restructuring plan is a result of GM being 
challenged to move more aggressively and faster in its restructuring 
efforts.''
    The Auto Task Force has taken the position that it had not mandated 
the acceleration of dealer cuts and advised that it was the companies 
that were initiating the dealer reductions. An Obama administration 
source told Politico,'' We're happy to listen, but what we will 
politely say to them is: It's not our job to tell these companies what 
dealers they should have or, or even how many.'' \5\
---------------------------------------------------------------------------
    \5\ Allen, Mike. ``Car dealer cuts coming soon.'' Politico, May 13, 
2009.
---------------------------------------------------------------------------
    While it is recognized that the Auto Task Force did not identify 
specific dealer reductions, the question remains why the manufacturers' 
position changed to mandate the drastic dealer cuts they proposed? What 
is the objective standard for these actions? Where is the public 
accountability for these decisions? These rapid dealer reductions will 
adversely affect many lives and many communities. 789 Chrysler and over 
1,100 General Motors dealerships face terminations, and these 
businesses employ 100,000 middle-class Americans. These people deserve 
more. The country, currently facing a national unemployment rate 
approaching 9 percent, deserves more. The state and local governments 
that depend on the dealerships for revenue deserve more. The Federal 
taxpayers, footing the bill for the restructuring, deserve more.
    We don't understand how these drastic dealer reductions will 
increase the viability of GM and Chrysler. Franchised dealerships are 
independently owned businesses, not the ``company owned'' stores used 
by many other industries to distribute their products. The dealer--and 
not the manufacturer--invests in the land, buildings, facility 
upgrades, personnel, and equipment necessary to sell and service 
vehicles. Because of these sizable multi-million dollar dealer 
investments, manufacturers receive a national retail distribution 
network at no capital expense and are able to externalize virtually all 
of the costs associated with the establishment and maintenance of a 
national retail distribution network for their products.
    Absent the franchised dealers, a manufacturer would have to invest 
billions of dollars to replicate the existing facilities, employees, 
and retail presence. No manufacturer, much less an automaker in 
extremis, could possibly assume this burden and hope to remain 
competitive. No manufacturer would want to assume the risk involved 
with retailing. For example, if the manufacturers make an unappealing 
vehicle, the dealers bear the brunt of that mistake and suffer the 
consequences of unsold inventory. Similarly, the dealers also bear the 
risk of the deterioration of a prime real estate location and the risk 
of a local economic downturn.
    According to the attached report that we provided to the task 
force, ``The Franchised Automobile Dealer: The Automaker's Lifeline'', 
prepared for NADA by the Casesa Shapiro Group, ``far from being a 
burden to the manufacturer it represents, the automobile dealer 
supports the manufacturer's efforts by providing a vast distribution 
channel that allows for efficient flow of the manufacturer's product to 
the public at virtually no cost to the manufacturer.'' \6\
---------------------------------------------------------------------------
    \6\ ``The Franchised Automobile Dealer: The Automaker's Lifeline.'' 
Casesa Shapiro Group, November 26, 2008 (Attached).
---------------------------------------------------------------------------
    Franchised dealers are the largest source of revenue for the 
manufacturers. In the United States, the dealer body provides 92 
percent of GM's revenue. To casual observers this may be a complete 
surprise, but the explanation is simple. A manufacturer does not sell 
cars to consumers. A manufacturer sells cars to a dealer, and the 
dealer sells the car to a consumer. Moreover, because the manufacturers 
control large streams of payments to the dealer body--all of which are 
non-interest bearing payments made in arrears for products already 
delivered or services already performed--the manufacturers can simply 
use cash management techniques to achieve ``cost of money'' savings 
that would easily offset these minimal operational expenses. In the 
aggregate, the manufacturers can use this ``float'' to earn millions of 
dollars. And there are a number of purchases that dealers are required 
to make--including signs and specialized tools--on which the 
manufacturers actually make a profit. The ``cost of money'' savings 
alone are likely to offset the minimal administrative expenses 
associated with the direct support of the dealer network.
    The rapid and destructive dealer reductions will erode market 
share. Dealers have deep roots in the community and have helped provide 
manufacturers with long-term customer relationships that create brand 
loyalty and maintain customer convenience. Therefore, reductions in 
dealer numbers will not only cut manufacturer revenue but also market 
share. Dealer closures must be done carefully to maintain the 
manufacturer's viability. ``We had 13,000 dealers 18 years ago, so 
we've already cut that in half,'' Mark LaNeve, GM's North American 
President, said at this year's North American International Auto Show 
in Detroit. ``We don't want them to close all at once because we figure 
we lose sales for 18 months after a dealership closes until other 
dealers pick up the business.'' \7\
---------------------------------------------------------------------------
    \7\ Bloomberg News, ``Small cars aren't selling as well, GM 
official says; Fuel prices send buyers back to SUVs, pickups'', January 
14, 2009.
---------------------------------------------------------------------------
    The purported administrative savings from reducing the dealer count 
will not materialize. Since the principle purpose of the franchised 
dealer network is to outsource costs, the manufacturers incur very 
little direct costs related to the dealer network. Several years ago, a 
General Motors executive observed that the sale of 10 cars per year by 
a dealer would cover the automaker's operational expenses (field 
personnel, etc.) associated with that dealer. Therefore, few savings 
are likely to be generated from dealer reductions.

   Marketing and advertising costs are not likely to be reduced 
        because of a reduction in the dealer network. Individual 
        dealers, not the manufacturer, pay for state and local 
        marketing and advertising. Also considering the initial loss in 
        market share resulting from dealer closings, marketing efforts 
        will likely have to be increased in the short run.

   Manufacturer retail incentive costs are determined by the 
        number of vehicles being sold, not the number of dealers in a 
        given market. The manufacturers provide various incentives 
        (i.e., rebates) for dealers and consumers to stimulate vehicle 
        sales to clear inventory or increase market share for a 
        particular vehicle. The only way for these costs to be reduced 
        would be a reduction in total vehicle sales.

   Manufacturers require various dealer employees to undergo 
        training, but the dealer pays for these costs, not the 
        manufacturer. The dealers will continue to absorb these costs 
        regardless of the number of dealers.

   Destination fees are standardized, so it is highly unlikely 
        that manufacturers' distribution costs will be reduced. The 
        manufacturer sets the distribution fee. And unless the 
        manufacturer plans on exiting an entire geographic region, 
        shipping costs will not significantly change. If such a drastic 
        consolidation even did occur, the manufacturer would 
        immediately suffer losses in market share, causing the per unit 
        distribution cost to rise.

   Manufacturer's interest expense will not decline, since the 
        expense is related to the number of vehicles financed, not the 
        number of dealers financing the vehicles. Most manufacturers 
        provide some financial incentives to offset the initial costs 
        of dealer borrowing (for inventory, parts, etc.). Since fewer 
        dealers would have to finance greater numbers of vehicles to 
        keep sales constant, the remaining dealers would expect to 
        continue to receive the per unit incentive to offset the 
        additional risk of financing a larger inventory.

   The dealer network requires very little incremental costs. 
        With modern electronic communications, the costs needed to 
        maintain the dealer network are minimal, as are the potential 
        savings with reducing or even eliminating dealers.

   Simplistic attempts to compare the number of dealerships or 
        the ``throughput'' of new car sales at GM and Chrysler 
        dealerships to Toyota dealerships are invalid. The task force 
        is only focused on new car sales. Yet, there are 66 million GM 
        vehicles on the road today and 33 million Chrysler vehicles 
        versus 22 million Toyota vehicles. Consumers need to service 
        and repair these vehicles, and domestic brand dealerships serve 
        more cars per location than international nameplate 
        dealerships. Drastically reduced dealers mean consumers will 
        experience higher prices from reduced competition and greater 
        inconvenience from reduced service facilities. Similarly, GM 
        and Chrysler serve far more rural areas than Toyota and--as a 
        direct result--enjoy a higher market share in rural areas.

    An orderly, market-based consolidation of the dealer network has 
been underway for more than 50 years. For decades the number of 
dealerships in the U.S. has been shrinking at a consistent pace, 
dictated by market conditions and accelerating during a recession such 
as today. In 1949 there were almost 50,000 dealerships and by 1970 that 
number was 30,800. During that time-frame virtually all of these held 
domestic franchises. In 1987, there were 25,150 new-car dealerships; by 
the end of this year, we expect that number to have dropped below 
17,000.
    The sharp reductions in domestic dealerships have occurred despite 
the fact that the size of the Nation's fleet keeps increasing. The 
number of vehicles in operation rose from approximately 125 million in 
1976 to almost 250 million in 2007. More important, the majority of the 
vehicles in operation today have domestic nameplates. Therefore, the 
number of domestic vehicles in operation per domestic dealership 
continues to rise. Even without the drastic reductions that GM and 
Chrysler seek to impose, the number of GM and Chrysler vehicles on the 
road today per dealership is at an all time high.
    While market forces have operated--and will continue to operate--to 
reduce the number of dealerships, there are important counterbalancing 
factors to consider. The foremost of these are the convenience and 
competition that consumers receive from an extensive dealer network. 
Intra-brand competition is very important to consumers. Indeed, the 
most intense competitor for, say, an individual Ford dealer is the 
nearest Ford dealer. Therefore, any precipitous decline in the size of 
the dealer network of any manufacturer could dramatically reduce 
competition for the sale and service of vehicles.
    For 100 years, the franchise system has provided a strong auto 
retail network for consumers, dealers, and vehicle manufacturers alike. 
All 50 states have enacted motor vehicle franchise laws to inject 
balance in the inherently one-sided economic relationship between a 
dealer and the manufacturer and to provide consumers a reliable, 
convenient, and competitive retail network for automobiles sales and 
service. The state franchise laws guard against a manufacturer 
unilaterally terminating a dealership without cause and unilaterally 
threatening to put the same brand on every corner. A typical state 
franchise law requires a manufacturer to show good cause in order to 
terminate a dealer agreement, provides a framework for determining a 
fair value of the franchise terminated, establishes basic rights of 
succession from generation to generation, and sets out a definition of 
relevant market area to preclude unfair proliferation of dealerships. 
Numerous courts, including the U.S. Supreme Court, have upheld the 
constitutionality of various state franchise laws.
    The state franchise laws have provided a rational framework for 
consolidation and reduction of dealerships and have not prevented the 
termination of brands. Within the past sixty years, the number of 
dealerships has declined steadily from almost 50,000 in 1949 to 17,000 
today. Even with the state franchise laws in full effect, the 
manufacturers have combined brands under one roof at the dealership 
level via channeling agreements, eliminated brands altogether, and 
terminated individual dealers.
    The unprecedented evisceration of state franchise laws under the 
guise of a structured bankruptcy is one of the most disturbing aspects 
of the treatment of GM and Chrysler dealers. This disregard of state 
franchise laws is threatening the economic stability of communities and 
eroding the national infrastructure essential to the recovery of 
troubled manufacturers. In the case of Chrysler, we have a window to 
the future unless corrective action is taken: closed businesses, 
terminated employees, increased foreclosures, and idle real estate, 
thereby deepening the current recession and threatening even the 
dealerships that the manufacturers would designate for survival.
    The more we learn of the specific facts and circumstances of the 
Chrysler closures, the more we are concerned that this forced 
bankruptcy is being used to circumvent longstanding state laws. The 
fact that the Administration is part of this process is especially 
surprising, because on May 20, 2009, the Obama Administration released 
a memorandum that stated as the general policy of the Administration: 
``preemption of State law by executive departments and agencies should 
be undertaken only with full consideration of the legitimate 
prerogatives of the States and with a sufficient legal basis for 
preemption'' Moreover, according to the memorandum, ``The Federal 
Government's role in promoting the general welfare and guarding 
individual liberties is critical, but State law and national law often 
operate concurrently to provide independent safeguards for the 
public.''
    In addition to protecting broad public interests, the state 
franchise laws actually ensure to the economic benefit of the 
manufacturers as well. Dealer investments in the retail network are 
premised on the existence of franchise law protections. If the 
franchise laws were not present to protect those investments, the 
investments would carry more risk. And that risk, in turn, would 
command a risk premium. Indeed, publicly-traded auto retailers 
routinely disclose the possible repeal of state franchise laws as a 
risk factor in their public filings. If those laws were in fact to be 
removed, that risk would become a reality and the capital investment 
markets would respond accordingly. Existing capital would seek safer 
havens, and the cost of attracting new capital would rise. While this 
would be very visible in the public capital markets, the same 
phenomenon would play out in the private capital arena as private 
dealers make decisions where to place their resources.\8\ And these 
increased costs would have to be paid somewhere in the overall industry 
value chain. Thus, far from saving manufacturers anything, the removal 
of the state franchise laws would actually raise their costs of 
operation.
---------------------------------------------------------------------------
    \8\ Similarly, dealers with franchise agreements that have limited 
durations--e.g., five or 6 years--could find it difficult (or more 
expensive) to convince finance sources to loan them money absent the 
fact that most of the state franchise laws protect non-renewals in the 
same way they protect against unwarranted terminations.
---------------------------------------------------------------------------
    In conclusion, rapid dealer reductions increase unemployment, 
threaten communities, and decrease state and local tax revenue without 
any material corresponding decrease in the automaker's costs. We don't 
understand why hundreds of small businesses are being forced out of 
business and under such onerous terms with little accountability. We 
urge the following in the case of Chrysler: The Executive Branch should 
provide sufficient debtor-in-possession financing to enable Chrysler to 
buy back the parts, inventory and manufacturer-specific tools from the 
terminated dealers. This is standard practice in the industry. Second, 
the terminated Chrysler dealers need more time to make an orderly 
transition. No manufacturer has ever imposed such onerous terms and 
such an onerous deadline. Third, franchise laws of the 50 states should 
remain intact and apply with full force and effect once Chrysler 
emerges from bankruptcy. The bankruptcy courts should not be used to 
circumvent state franchise laws. With respect to GM, we urge that the 
mistakes of Chrysler not be repeated.
    Thank you for holding this important hearing, and thank you for the 
opportunity to testify.
                                 ______
                                 

  Prepared for: National Automobile Dealers Association--November 26, 
                                  2008

       The Franchised Automobile Dealer: The Automaker's Lifeline

                        By: Casesa Shapiro Group

    ``Far from being a burden to the manufacturer it represents, the 
automobile dealer supports the manufacturer's efforts by providing a 
vast distribution channel that allows for efficient flow of the 
manufacturer's product to the public at virtually no cost to the 
manufacturer.''
Executive Summary
    The independently owned and independently financed franchised 
automobile dealer network is a critical asset to the auto 
manufacturers. U.S. auto dealers have $233.5 billion invested in their 
businesses. This capital is supplied by 20,700 independent dealerships 
that employ and train over 1.1 million people.
    The dealer body is not owned by the manufacturer but is independent 
and self financed. It serves as the link between the assembly line and 
the consumer. Far from being a burden to the manufacturers they 
represent, dealers act as an extension of the manufacturer. They 
support the manufacturers' efforts by providing, at virtually no cost 
to the manufacturer, a vast distribution channel that allows for 
efficient flow of product to the public.
    The relationship between the dealer and manufacturer is mutually 
beneficial. The dealer's significant investment allows the manufacturer 
to spend its resources on research and development of product while the 
dealer spends its resources on sales, marketing, and customer handling. 
Each group benefits from the other and neither could afford all the 
expenses of the total value chain.
Overview of U.S. Auto Retailing
    Virtually all new cars and light trucks bought in the U.S. are sold 
through franchised dealers. Dealers are independently owned, and 
combined, represent the largest retail business in the U.S., with 
approximately $693 billion in revenues in 2007. Franchised dealers 
employ over 1.1 million people, comprise nearly 20 percent of all 
retail sales in the U.S., and, in total, pay billions annually in state 
and local taxes.
Dealers are Independent Businesses
    The nation's 20,700 independent franchised new car dealerships 
comprise an industry that is fragmented and largely privately held, 
with private ownership accounting for 92 percent of the market (Chart 
A). The franchised dealership is a business independent of the auto 
manufacturer, is self financed, and serves as an extension of the 
manufacturer. Far from being a burden to the manufacturer it 
represents, it supports the manufacturer's efforts by providing a vast 
distribution channel that allows for efficient flow of the 
manufacturer's product to the public at virtually no cost to the 
manufacturer.
Chart A: Dealership Ownership in the U.S.



    Source: Merrill Lynch
Dealers Play a Complex and Essential Role

    The franchised dealership system in the U.S. is the independent 
link between the manufacturer's assembly line and the consumer and its 
functions include, but are not limited, to the following:

   Selling the product and providing information for consumers.

   Holding vehicle and parts inventory for a push oriented 
        manufacturing system.

   Performing service and providing parts to fulfill 
        manufacturer warranty obligations.

   Handling product safety recalls.

   Facilitating the exchange of used vehicles.

   Arranging financing for consumers.

   Supplying capital for new showrooms and service facilities.

   Creating advertising and marketing programs targeting local 
        markets.

   Providing market feedback to the manufacturer.

   Training employees as required by the manufacturer.
Dealer Investment on Behalf of Automakers
    In filling their essential role as the link between the assembly 
line and the consumer, franchised dealers make large investments, incur 
substantial expenses, and bear considerable financial risk that 
otherwise would be borne by the manufacturer. The scope and magnitude 
of these financial commitments is discussed below.
1. Dealer Investment
    Franchised dealers have $233.5 billion invested in their 
businesses, or an average of $11.3 million per dealership. The main 
components of this investment can be broken down into the following 
categories:

        a. Facilities and Land

        Most individual auto dealerships require several acres of land, 
        which the owner must purchase or lease. Manufacturers require 
        that the owner build or maintain a facility that houses a 
        vehicle showroom and a service and parts center, along with all 
        related customer and employee amenities. The business is real 
        estate intensive. Casesa Shapiro Group estimates, 
        conservatively, the average dealership has approximately $2.5 
        million invested in land, buildings, furniture, fixtures and 
        equipment.

        b. Inventory

        In lieu of the auto manufacturers having to do so, dealerships 
        maintain a large physical inventory of new cars. Typically, a 
        dealership will hold a 60-90 day supply of new cars. The 
        average dealership has approximately $4.9 million invested in 
        new car inventory. This number nationally is $101.3 billion.

        c. Working Capital

        Manufacturers dictate specific working capital requirements, 
        which are significant. For example, manufacturers typically 
        require that dealers carry net working capital investment equal 
        to 2 months of parts inventory value, new and used inventory 
        value, and other expenses. In addition, more capital is needed 
        to fund receivables due from manufacturers, customers, and 
        finance companies. The average dealership needs approximately 
        $3.9 million in working capital and nationally dealerships have 
        $80.4 billion invested in working capital.

    In total, U.S. franchised dealers have more capital invested in 
their businesses than the world's largest automakers, as shown in Chart 
B.
Chart B: Investment of the U.S. Franchised Dealer Body vs. Total 
        Industrial Assets of Major Automakers
$Billions



    Source: NADA Industry Analysis for September 2008; company reports 
for latest Fiscal Year; Honda and Toyota Fiscal Year ends March 31.
2. Operating Expenses
    In 2008, dealers are expected to deliver approximately 13.5 million 
new vehicles to customers. In doing so, they will incur approximately 
$80.8 billion in expenses.

        a. Personnel Expense

        The largest category of expense is for personnel, which is 
        estimated at $36.5 billion for 2008.

        b. Sales Related Expense

        In 2008, dealers will spend approximately $7.3 billion 
        advertising manufacturers' products, or more than $20 million 
        per day. These expenditures are in addition to what the 
        manufacturer spends to advertise its product, thus augmenting 
        the automakers' marketing efforts. Dealers also spend $329 
        million annually to train sales personnel to remain 
        knowledgeable about manufacturers' products. In addition, it is 
        estimated that dealers spend $873 million annually on 
        regulatory issues such as Truth in Lending and Graham Leach 
        Bliley Act/privacy compliance.

        c. Service and Parts Related Expense

        Dealers incur costs to train service technicians who repair and 
        maintain customers' vehicles. Training expense is ongoing as 
        the manufacturer continually introduces new models and 
        technologies. In addition, dealers must also comply with 
        changing OSHA and EPA requirements. The dealer body spends 
        $423.8 million per year to keep its service staff proficient, 
        or about $20,473 per dealership.

        d. Inventory Expense

        Aggregate new vehicle inventory carrying costs are $890 million 
        or $42,995 per dealership on an annual basis.

    Chart C below illustrates aggregate dealership expenses for 
dealerships in the U.S. Chart D shows the average pre-tax net margin 
for dealerships in the U.S., which is etimated to fall to 0.8 percent 
in 2008.
Chart C: Aggregate Dealership Expenses for Dealerships in the U.S.
$millions



    Source: NADA Industry Analysis.
Chart D: Pre-tax Net Margin for Dealerships in the U.S.



    Source: NADA Industry Analysis; Casesa Shapiro Group estimates
Automakers Have Externalized Significant Risks to Dealers
    In addition to making large investments and incurring substantial 
expenses to operate, dealers shield the manufacturer from various 
risks.
1. Multi Million Dollar Inventory Risk
    The manufacturer invoices the dealer for a new vehicle when it 
ships the vehicle from the plant, not when the vehicle arrives at the 
dealer. Often, time from invoicing to physical receipt can take 2 
weeks, or longer. The dealer bears the carrying cost during this 
delivery period. On the other end of the spectrum, the dealer bears the 
risk of aging inventory. While the manufacturer may provide assistance 
from time to time in the form of rebates and incentives, the dealer 
takes the risk that the vehicle may sell at a loss. The average dealer 
has approximately $4.9 million of new car inventory at risk.
2. Financing Risk
    Most dealers finance their vehicle inventory through a finance 
facility called a floorplan. Most dealer principals are personally 
responsible for this floorplan liability. Risks here are twofold: a 
floorplan lender may rescind its commitment, leaving the dealer to find 
a new lending source or being forced to pay off the note, a potentially 
devastating outcome as dealers rarely have enough cash to pay off such 
a large obligation. On the consumer side of the equation, dealers are 
at the mercy of the consumer lending market. Should lenders cease to 
lend, or tighten their lending standards, the dealer's ability to sell 
his or her inventory is greatly diminished.
3. Receivables Risk
    Receivables due from the manufacturer include vehicle holdback 
(essentially a margin payment), vehicle incentives, and warranty 
reimbursements. While the dealer must fund payment timing differences 
through working capital, the dealer is at risk in the case of a 
manufacturer bankruptcy. Receivables due from the consumer include 
payment for labor and parts for service work performed but not yet 
paid. The dealer is also at risk for receivables from financial 
institutions funding the consumer's purchase of the vehicle.
4. Real Estate Risk
    Dealers have large investments in land and facilities. Often, these 
facilities are single purpose and cannot be used for occupants other 
than auto dealerships. In addition, manufacturers often require dealers 
to undertake substantial renovation projects to their facilities for 
branded image programs. Manufacturers often wield a velvet hammer, 
attempting to use a dealer's refusal to embark on an image program to 
prevent the dealer from sharing in certain incentives available to 
those who have undertaken the program. Should a particular 
manufacturer's sales decline, or should a manufacturer exit the market, 
the return on capital invested in these programs is often poor or 
worse.
Importance to Local Communities
    Car dealerships are local businesses and provide significant sales 
tax revenues and employment opportunities to the communities in which 
they operate. Nationwide, car dealerships provide employment for 
1,114,500 people and pay billions annually in state and local taxes. In 
addition, on average, each dealership makes $25,600 in charitable 
contributions to its community.
    Appendices A and B attached provide some context on a state by 
state basis of the prevalence and reach of these businesses. At a more 
local level, a typical dealership geographic profile may look as 
follows:

                   Table A.--Estimated Economic Impact of Dealers, by Representative Town/City                                                   Estimated No.     Estimated        Estimated
                                      Population    of Dealers      Employment        Investment    Newark, OH                            47,176               9             486       $101,700,000
    Greensboro, NC                       247,193              90           4,860     $1,017,000,000
    San Jose, CA                         939,899             220          11,880     $2,486,000,000Source: Casesa Shapiro Group.

Conclusion
    U.S. franchised auto dealers have invested $233.5 billion in their 
independent businesses. This investment represents more capital than 
the total industrial assets of any of the world's largest automakers. 
These businesses employ over 1.1 million people, are supportive of 
their local communities, and pay billions annually in state and local 
taxes. They deflect certain financial risk from the manufacturers by 
putting their own capital at risk. The dealers' enormous investment 
allows the manufacturer to spend its resources on research and 
development of product while the dealers spend their resources on 
sales, marketing, and customer handling. Neither group alone could 
afford all the expenses of the total value chain. Dividing the value 
chain rationalizes the process. Automakers spend their resources 
efficiently on manufacturing and dealers spend their capital 
efficiently on serving the consumer. The independent franchised dealer 
body is the lifeblood of the automaker. While the retail consumer is 
the dealer's customer, the dealer is the manufacturer's only customer.
    Far from being a burden to the manufacturer it represents, the 
automobile dealer supports the manufacturer's efforts by providing a 
vast distribution channel that allows for efficient flow of the 
manufacturer's product to the public at virtually no cost to the 
manufacturer.

 Appendix A.--Estimated Number of New Car Dealership Employees in 2007,
                                by State
------------------------------------------------------------------------
                                              Total      Avg. number per
                                            Employees      dealership
------------------------------------------------------------------------
Alabama                                        16,471                 48
------------------------------------------------------------------------
Alaska                                          2,292                 60
------------------------------------------------------------------------
Arizona                                        29,182                114
------------------------------------------------------------------------
Arkansas                                        8,712                 33
------------------------------------------------------------------------
California                                    133,721                 84
------------------------------------------------------------------------
Colorado                                       17,076                 60
------------------------------------------------------------------------
Connecticut                                    14,388                 45
------------------------------------------------------------------------
Delaware                                        4,022                 62
------------------------------------------------------------------------
DC                                                 32                 32
------------------------------------------------------------------------
Florida                                        76,508                 81
------------------------------------------------------------------------
Georgia                                        33,858                 56
------------------------------------------------------------------------
Hawaii                                          5,105                 77
------------------------------------------------------------------------
Idaho                                           5,842                 47
------------------------------------------------------------------------
Illinois                                       43,336                 46
------------------------------------------------------------------------
Indiana                                        21,778                 42
------------------------------------------------------------------------
Iowa                                           12,020                 33
------------------------------------------------------------------------
Kansas                                         10,072                 39
------------------------------------------------------------------------
Kentucky                                       13,072                 44
------------------------------------------------------------------------
Louisiana                                      18,210                 54
------------------------------------------------------------------------
Maine                                           5,350                 37
------------------------------------------------------------------------
Maryland                                       24,131                 67
------------------------------------------------------------------------
Massachusetts                                  23,400                 49
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Michigan                                       36,258                 48
------------------------------------------------------------------------
Minnesota                                      19,500                 45
------------------------------------------------------------------------
Mississippi                                     9,460                 39
------------------------------------------------------------------------
Missouri                                       21,603                 44
------------------------------------------------------------------------
Montana                                         4,280                 32
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Nebraska                                        6,584                 31
------------------------------------------------------------------------
Nevada                                         11,025                 93
------------------------------------------------------------------------
New Hampshire                                   7,122                 42
------------------------------------------------------------------------
New Jersey                                     32,152                 56
New Mexico                                      7,458                 53
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
New York                                       49,122                 44
------------------------------------------------------------------------
North Carolina                                 32,828                 47
------------------------------------------------------------------------
North Dakota                                    3,196                 33
------------------------------------------------------------------------
Ohio                                           40,937                 43
------------------------------------------------------------------------
Oklahoma                                       19,979                 67
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Oregon                                         14,092                 51
------------------------------------------------------------------------
Pennsylvania                                   50,694                 44
------------------------------------------------------------------------
Rhode Island                                    3,308                 53
------------------------------------------------------------------------
South Carolina                                 15,042                 46
------------------------------------------------------------------------
South Dakota                                    3,480                 30
------------------------------------------------------------------------
Tennessee                                      22,121                 53
------------------------------------------------------------------------
Texas                                          86,828                 65
------------------------------------------------------------------------
Utah                                            9,340                 61
------------------------------------------------------------------------
Vermont                                         2,783                 29
------------------------------------------------------------------------
Virginia                                       33,094                 60
------------------------------------------------------------------------
Washington                                     23,317                 61
------------------------------------------------------------------------
West Virginia                                   6,227                 37
------------------------------------------------------------------------
Wisconsin                                      21,633                 36
------------------------------------------------------------------------
Wyoming                                         2,460                 35
------------------------------------------------------------------------
Total U.S.                                  1,114,501                 53
------------------------------------------------------------------------
Source: NADA Data, 2008 Edition


 Appendix B.--Relationship of New Car Dealerships to Total Retail Trade
                            in 2007, by State
------------------------------------------------------------------------
                         Dealer payroll as % of   Dealer employees as %
                        total retail payroll in      of total retail
                               the state         employment in the state
------------------------------------------------------------------------
Alabama                                   12.9%                     7.0%
------------------------------------------------------------------------
Alaska                                    11.5%                     6.8%
------------------------------------------------------------------------
Arizona                                   15.2%                     8.4%
------------------------------------------------------------------------
Arkansas                                  12.7%                     6.7%
------------------------------------------------------------------------
California                                13.9%                     7.9%
------------------------------------------------------------------------
Colorado                                  13.6%                     7.3%
------------------------------------------------------------------------
Connecticut                               14.0%                     8.0%
------------------------------------------------------------------------
Delaware                                  15.2%                     8.2%
------------------------------------------------------------------------
DC                                         1.4%                     0.7%
------------------------------------------------------------------------
Florida                                   15.1%                     7.9%
------------------------------------------------------------------------
Georgia                                   13.8%                     7.4%
------------------------------------------------------------------------
Hawaii                                    12.0%                     6.2%
------------------------------------------------------------------------
Idaho                                     12.6%                     7.3%
------------------------------------------------------------------------
Illinois                                  13.8%                     7.6%
------------------------------------------------------------------------
Indiana                                   12.9%                     7.0%
------------------------------------------------------------------------
Iowa                                      13.3%                     7.3%
------------------------------------------------------------------------
Kansas                                    13.2%                     7.2%
------------------------------------------------------------------------
Kentucky                                  11.9%                     6.4%
------------------------------------------------------------------------
Louisiana                                 14.5%                     7.5%
------------------------------------------------------------------------
Maine                                     11.8%                     6.6%
------------------------------------------------------------------------
Maryland                                  14.7%                     8.3%
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Massachusetts                             12.7%                     6.8%
------------------------------------------------------------------------
Michigan                                  15.1%                     7.7%
------------------------------------------------------------------------
Minnesota                                 12.3%                     6.8%
------------------------------------------------------------------------
Mississippi                               12.4%                     6.4%
------------------------------------------------------------------------
Missouri                                  13.9%                     7.3%
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Montana                                   12.1%                     7.0%
------------------------------------------------------------------------
Nebraska                                  12.6%                     6.9%
------------------------------------------------------------------------
Nevada                                    14.9%                     7.7%
------------------------------------------------------------------------
New Hampshire                             13.9%                     7.7%
------------------------------------------------------------------------
New Jersey                                13.4%                     7.2%
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
New Mexico                                14.0%                     7.8%
------------------------------------------------------------------------
New York                                  10.5%                     5.9%
------------------------------------------------------------------------
North Carolina                            13.8%                     7.5%
------------------------------------------------------------------------
North Dakota                              14.0%                     8.0%
------------------------------------------------------------------------
Ohio                                      12.9%                     7.3%
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
Oklahoma                                  14.6%                     7.7%
------------------------------------------------------------------------
Oregon                                    13.1%                     7.4%
------------------------------------------------------------------------
Pennsylvania                              13.8%                     8.0%
------------------------------------------------------------------------
Rhode Island                              11.9%                     6.5%
------------------------------------------------------------------------
South Carolina                            12.1%                     6.6%
------------------------------------------------------------------------
South Dakota                              13.3%                     7.5%
------------------------------------------------------------------------
Tennessee                                 13.4%                     7.3%
------------------------------------------------------------------------
Texas                                     14.6%                     7.9%
------------------------------------------------------------------------
Utah                                      11.6%                     6.2%
------------------------------------------------------------------------
Vermont                                   12.9%                     7.5%
------------------------------------------------------------------------
Virginia                                  14.6%                     7.9%
------------------------------------------------------------------------
Washington                                12.1%                     7.2%
------------------------------------------------------------------------
West Virginia                             12.7%                     7.4%
------------------------------------------------------------------------
Wisconsin                                 12.9%                     7.6%
------------------------------------------------------------------------
Wyoming                                   13.5%                     7.4%
------------------------------------------------------------------------
Total U.S.                                13.4%                     7.3%
------------------------------------------------------------------------
Source: NADA, 2008 Edition

Sources
    Casesa Shapiro Group
    Ford Motor Company
    General Motors Corporation
    Honda Motor Co.
    Merrill Lynch & Co.
    NADA Industry Analysis
    Toyota Motor Co.
    Volkswagen AG
Casesa Shapiro Group, New York, NY
                Appendix B: Credit and the Auto Industry
    Credit is the lifeblood for every franchised dealer, and the credit 
markets are still not functioning properly. Since more than 90 percent 
of vehicle purchases are financed, adequate retail credit is essential 
to facilitate auto sales. Additionally, dealers, like many other 
businesses, need sufficient working capital to maintain cash-flow. 
Finally, floorplan credit--the financing dealers use to buy new and 
used vehicle inventory--is essential. These continuing problems are not 
limited to dealers with domestic nameplates and are not limited to any 
one region of the country.
    Floorplan lending capacity has contracted dramatically during the 
past 9 months. Most of the captive finance companies have reduced their 
floorplanning activity, in large part due to liquidity constraints. At 
the same time, several regional banks have completely eliminated this 
line of business, and many of the remaining floorplan lenders are not 
adding any additional dealers. Even creditworthy dealers are having 
trouble finding access to any floorplan financing or the financing 
available to them is being offered on terms that are not competitive 
and not commensurate with the risk to the borrower. In sum, a fear-
based retrenchment in floorplan lending is underway throughout the auto 
industry despite the fact that the typical portfolio of floorplan 
loans: (1) has an excellent repayment history, (2) is highly 
collateralized, and (3) has historically carried a AAA rating when 
securitized.
    Moreover, the lack of consumer confidence is a persistent problem, 
despite the fact that there has never been a better time to buy a new 
car. The quality of vehicles being sold by our highly motivated 
retailers is better than ever, with great incentives; but the public is 
not shopping. The annualized rate of new vehicle sales for 2009 is 
hovering around 10 million. Even the replacement rate due to salvage is 
estimated to be at least 12 million per year.
    The drop in sales came in response to a variety of factors. Last 
summer, we had to deal with a massive spike in gasoline prices which 
dramatically disrupted consumer demand. For several months, the amount 
of discretionary income and the fear of sustained gasoline prices in 
excess of $4 per gallon economy altered consumer preferences so rapidly 
that the market could not adjust. As the economy deteriorated last 
fall, consumers naturally were less likely to commit to big ticket 
purchases. Then came the near meltdown of the Nation's credit markets, 
and highly publicized problems within the automotive industry. The 
events of the past year truly have been the perfect storm in auto 
retailing.

    The Chairman. Thank you very much. I will start the 
questioning, and again, we will do it in order of appearance, 
and that's more taxing for some than others.
    First of all, I just want to clear something up for the 
record. I got a note saying that some of the press or some 
others felt that Pete Lopez, that I been rude to you by 
interrupting you. That was, I don't think in view of our 
relationship, that's a fair thing to say. However, for the 
record, let me just say, that a lot of people come here and 
testify for the first time, and they have a fairly lengthy 
statement and I wasn't sure--I wanted you to get through the 
part you wanted to get through in 5 minutes.
    Mr. Lopez. That's OK. I didn't take it that way, Senator.
    The Chairman. I wanted you to have time.
    Mr. Lopez. Absolutely. I am delighted to be here.
    The Chairman. Mr. Lopez, both Chrysler and GM have 
terminated their franchise agreements with you, correct?
    Mr. Lopez. Yes, they have.
    The Chairman. Can you wind down your Chrysler dealership in 
the 26 days that they gave you?
    Mr. Lopez. No way, there's no way. I don't think you could 
do a personal bankruptcy in that amount of time. I have 1.2--I 
am down to probably 48 cars; 24 of each, and by the way, in 
February I was told by Chrysler, and I want to tell you the 
conversation. The representative calls me and says, ``I need 
you to take 35 cars.'' And I said, ``I can't do that. I am not 
going to put myself out of business.'' And she said, ``Well, 
you have to. We are in this together.'' And I said, ``No, we 
are not in this together. I will go through my inventory and I 
will take I can. I will try to help.'' She calls back, and she 
says, ``You need to take 23, we can live with 23.'' And I said, 
``Well, I can live with nine. I will take nine. I will do my 
share.'' And she said, ``Well, I will have to call Detroit.'' 
And I said, ``Well, just give me that number. Let me call 
them.'' And she calls me back in 5 minutes and says, ``Well, 
the nine will do.''
    And I wasn't going to let her put me out of business just 
like the gentleman beside me; I have employees that I care 
about. They have been with me from the beginning, and it's just 
unbelievable how we have been treated. There is no rhyme or 
reason. In West Virginia there is a dealership that sold 19 
cars last year, and he has his franchise in his front yard, and 
they take Spencer Auto Group. There's no rhyme or reason.
    The Chairman. Mr. Press, if you were an automobile dealer 
like Mr. Lopez, would you know how to close down a dealership 
in 26 days? Could you tell me how you would do it?
    Mr. Press. Well, we are in the process of working through a 
bankruptcy with Chrysler and we don't have too many more days. 
It's very difficult. It's strenuous. The fact of the matter is 
that in our situation, we did not plan or have in our minds the 
desire to have a bankruptcy.
    The Chairman. I wish you would answer my question.
    Mr. Press. OK.
    The Chairman. Would you know how to do it; could you do it 
in 26 days if you had to?
    Mr. Press. I would have to find a way to do it, yes, sir, I 
would. I would have to find a way to achieve the shut down 
required within that time period, as we are being required 
within our time period that is given to us, yes.
    The Chairman. Mr. Lopez, on January 9, I think it was, of 
2009, that being this year, Mr. Press, according to all 
reports, including newspapers within the business, did indicate 
what you said, and that is, they got a lot of people on the 
telephone and said you got to buy 78,000 cars to keep us going.
    Mr. Lopez. Absolutely.
    The Chairman. What kind of pressure did that put on you?
    Mr. Lopez. Well, of course, I said to her at the time, our 
Chrysler representative, I said, ``You know, right now I am 
not--right now I'm sitting on 6 months worth of inventory.'' 
For me to take the kind of cars that she wants me to take, I am 
not going to put myself out of business. I think I am a better 
businessman than that. I know how to run my store and I know 
what my store can sell, and what we will sell, and I just 
didn't want to--why should I put the kind of money on my floor 
plan? And I did help. We are a small dealer, like I said. I 
went through the inventory and I told her I would take nine. 
And I didn't have to take any, but she demanded that we take 
35, and then 23 and then the nine and that's what we did.
    And then the same thing the next month.
    The Chairman. Did GM threaten any action that if you did 
not sign their so called wind-down agreement? Did you feel 
coerced or threatened in any way?
    Mr. Lopez. No, sir. GM, we did not have that. In fact, GM 
has a gentleman that I have dealt with, Tony Napoleon, who has 
just done a great job with us. Now, the letter that you are 
talking about, as far as the signing by the 12th of this month, 
we just got that yesterday and I have not had a chance to look 
at it. But it's my understanding if we don't sign it, we are 
automatically gone. And by the way, GM sent us paperwork that 
said we had an appeal process. And I called Mr. Napoleon, who 
is our district manager, and he told me exactly what to do and 
how to do it. And I've done it. Now, my understanding, is there 
is no appeal. There is no appeal whatsoever. So we are all 
left--you know, from what I hear about the letter, if we sign 
it, we sign all our rights away. And one time we had a thing in 
West Virginia where consumers--we wanted to video the closings, 
so everything was above board. And I think they turned--General 
ruled on it, that we took away our consumers' rights, and I 
don't think you can do that. But that's what they're doing to 
us. They are taking our rights away.
    The Chairman. Thank you, sir. Senator Hutchison.
    Senator Hutchison. Thank you, Mr. Chairman. Mr. Whatley, 
did you get a call from Chrysler earlier this year asking you 
to buy inventory to help the company stave off bankruptcy?
    Mr. Whatley. Yes, ma'am. And we took full allocation every 
time and I believe there was 2 months. We actually over ordered 
allocation, trying to be a good soldier.
    Senator Hutchison. Mr. Press, I've heard this from other 
dealers now, several, besides Mr. Lopez and Mr. Whatley, and if 
the company called and said, ``Help us in this,'' and ``We need 
you to take these cars, and then we will stave off 
bankruptcy.'' And then going forward, of course, you're in a 
bankruptcy now, and the dealers are not getting the assurance 
that you have given to me and you have said that you have 
planned to give. It's not forthcoming to them. So could you 
explain how it is that you are going to take this inventory 
from the dealers? You have mentioned 89 or 90 percent, but that 
isn't happening, at least they don't see it. So could you help 
me with that?
    Mr. Press. Yes, I will. Thank you.
    Senator Hutchison. And perhaps help them?
    Mr. Press. Of course. We have established a program, after 
we learned of the bankruptcy, that will allow us to 
redistribute the cars from the affected dealers to those 
dealers that are going forward, as well as parts and their 
special tools.
    The process will begin when two things occur. Number 1, the 
terminations take effect, because they are not yet terminated--
the effective date has not occurred yet. The cars are not ready 
to be taken from the inventory of the affected dealers.
    And second, a floor plan source has to be put in place for 
the incoming new dealers. Again, we started that process within 
10 days and established a relationship with GMAC. They're 
putting a floor plan in position as we speak. Over 80 percent 
of the affected dealers have a floor plan available now to take 
these vehicles.
    Senator Hutchison. Do they understand--do they know that, 
because I'm not hearing that from one dealer that they 
understand that there is a plan in place that this inventory 
will be taken.
    Mr. Press. The dealers do know that. They have been called. 
We have a log, a phone log confirming the discussion with every 
dealer, e-mails have been sent. The dealers who have agreed to 
have that redistribution occur are getting daily status and we 
have now 97 percent of the vehicles committed by the dealers 
going forward, to relieve these dealers of this inventory, and 
about 51 percent of the parts.
    Senator Hutchison. Mr. Whatley or Mr. Lopez, tell me if 
that's your understanding.
    Mr. Whatley. We have had no contact with the business 
center whatsoever, until June 1, after your office had called 
them and kind of rattled them. I did get a call then that said, 
``Rest assured, we will try to come up with a plan to remove 
your inventory after June 9.'' I've seen no reports. I have not 
talked to anyone, except for one phone call that your office 
did seem to generate from them. I have no other contact 
whatsoever. I also have the official terms here of the 
agreement. It says that, ``Chrysler will assist in selling 
cars. They will request new dealers to buy cars. And that 
Chrysler is only facilitating the sale of the inventories by 
attempting to identify potential buyers.''
    On the contract that we signed and sent in, it says, 
``Dealer understands and acknowledges Chrysler has no 
obligation and is not responsible for any action or 
agreement.''
    Senator Hutchison. There is a disconnect here, Mr. Press, 
and let me add one thing to that. In Waco, Texas, a town of 
122,000, all three Chrysler dealerships are being closed. Now 
the view is that another dealer is going to come in from out of 
state, not someone who is a part of that community, and new 
dealerships are going to be created in Waco because there won't 
be dealers for Chrysler in this town of 122,000.
    Help me understand what appears to be an effort to change 
the contracts with the dealers that are in place, to make 
better contracts with new dealers coming in. That's what it 
appears. Am I wrong?
    Mr. Press. Well, actually, first of all, I would like to 
address Mr. Whatley afterwards. I'm sure we can take care of 
his issues. And as I told you, we will be redistributing the 
vehicles. I can't understand why he did not receive a phone 
call. We have proof of log that he did. So we will work through 
that, and I apologize.
    Second, we are not changing the contracts to dealers. This 
is a case where we are trying to bring, first of all, three 
brands under one roof, because by trying to run three separate 
brands, and channels and dealer bodies, we have gone broke. We 
can't do that any longer.
    And second, there other reasons for the dealer actions that 
have been taken. Within that bringing the three brands under 
one roof, we wanted to do it in a way that we bring the 
performers along that will allow us the best return on all of 
our investment.
    There are some dealers whose performance is substandard. In 
this case, we have set, and the dealers realize there is a 
minimum sales responsibility, based on market share that they 
should receive in their town.
    In the case of the dealers that have been--that have not 
been taken forward, we will lose--last year we lost 55,000 
units of sales in the deficient sales positions. That's about 
one-and-a-half billion dollars of revenue. It's better in the 
short term for us, where we have dealers that may not be able 
to perform to the market standard, to replace them at some 
point with a stronger dealer.
    The dealer is our customer in that market. We realize that, 
but if they are not able to sell to the level we need to 
generate more revenue, then obviously--and they are substandard 
from average--then obviously we need to make a stronger dealer 
body.
    Senator Hutchison. My time is up.
    Mr. Lopez. May I respond to something?
    Senator Hutchison. Mr. Chairman, my time is up. Would you 
like for him to answer that question? Mr. Lopez?
    The Chairman. Mr. Lopez, please, but briefly.
    Mr. Lopez. OK. They were talking about the two parts of the 
Dodge and the Chrysler, the vans: one is a Dodge and one is a 
Town and Country. You've got a Dodge version that is less 
expensive than the Town and Country. We are all under the same 
roof. We didn't ask them to build those two different vehicles. 
It doesn't make any difference what they build. We sell them.
    The Chairman. Thank you, sir. Senator Klobuchar.
    Senator Klobuchar. Thank you very much, Mr. Chairman. Thank 
you. I just want to make clear that everyone here wants you to 
succeed. They want General Motors to succeed. They want 
Chrysler to succeed. The dealers want you to succeed.
    And one of my focuses here is just make the process as fair 
as possible. Some of our dealers want more time and then some 
of our dealers feel that they should be able to stay in 
business because they are profitable.
    Mr. Henderson, I do appreciate that General Motors has this 
appeals process, and that you have been taking it seriously. I 
know that some decisions have been reversed; is that correct?
    And what I don't understand was the interrelationship here 
with the letters of June 12, because some of our dealers have 
appealed. They have done everything right. They want to go 
through this process. They think they have facts on their side, 
but then if they get this letter that says they have to be done 
by June 12, are they out then? Can they appeal?
    Mr. Henderson. Thank you, Senator. Let me see if I can 
explain both the process for winding down as well as the 
process for continuing.
    The reasons for the dates in this case June 12, has to do 
with the fact that we are a company in bankruptcy. And it means 
we march to a timetable--and I will try to make it clear in a 
moment why there is an aggressive timetable--but we march to a 
timetable to try to make sure that we understand which dealers 
come with us to the new General Motors and which dealers are 
unable to.
    So let me talk about the process of wind down. We have gone 
out to our dealers, as I said, almost half of the dealers 
signed it the day they received the wind-down agreement. And I 
respect the fact that it is 12 pages, but many dealers said we 
accept it because GM structured it with a set of benefits that 
were overwhelmingly better than they would have if they did not 
sign it. And that's the reason why we had 85 percent of our 
dealers, for example, sign up for it in Canada in 5 days.
    Senator Klobuchar. OK. I want to get to Chrysler, so if we 
could just--my real question here, on behalf of my dealers, is 
can they still appeal?
    Mr. Henderson. Yes.
    Senator Klobuchar. And how will they be able to do that 
when it's June 12?
    Mr. Henderson. We are actually working around the clock. We 
have a team of people dedicated----
    Senator Klobuchar.--So they should appeal before June 12?
    Mr. Henderson. Absolutely. We are dealing with these every 
single day.
    Senator Klobuchar. OK. The other question I had, and we 
have a--just to give one example. We have examples every where, 
but we have been told--this is one dealer that is location--
location, location, location--which when we have talked to you, 
that is key. They are located between Toyota and Nissan, on the 
road, near the Mall of America, 150,000 cars a day, profitable. 
One of the most profitable dealers in Minnesota, and yet, this 
is one--they are appealing--that has been decided to be closed 
down.
    So I just want you to have to remember that image in your 
mind.
    My second question is really of you, Mr. Press. You don't 
have any kind of appeals process. Is there any way you can 
institute an appeals process at Chrysler?
    Mr. Press. Our case may be different. I am not familiar 
with General Motors. What we have done, is we created a new 
company that will be formed at the end of this process, and the 
dealers that will be in that new company have been identified 
from all of the dealers that were with the old company.
    In regards to that, we have a limited period of time from 
when the bankruptcy was filed to when the new company has to be 
finalized. If we do not have a finalized dealer organization, 
the new company will not be formed, and the company will have 
to liquidate.
    We also, in terms of the process, the strategic market 
representation actions, the consolidation of single brands were 
done from a point of view not as a mistake, or what a dealer 
has or hasn't done. It isn't up to an appeal from a dealer, 
it's a strategic market rep decision of what the new company 
wants their dealer body to look like.
    Senator Klobuchar. And we have many dealers, of course, 
that invested $5 million that got the cars when you guys asked 
them to get the cars, and so they clearly feel that they 
haven't been treated fairly here. And one of the things, as I 
look at it, what can we do to help them right now, clearly the 
time would help them. Some type of an appeals process would 
help them, and I would say the other thing is I understand you 
have agreed to purchase these vehicles; is that right? To 
repurchase them to put them out on the network, but one of 
their concerns is that while you're going to take possession, 
the dealership will still have to pay interest on the loans 
used to purchase the vehicles, and in short, they are going to 
continue to hold most of the risk. And I wondered what 
assurances that you can give to the dealers, that Chrysler will 
actively market these vehicles, and what's going to happen to 
them? That's what they are concerned about, they are left, 
really holding the risk.
    Mr. Press. Of course, and I understand that. And I hope at 
some point I will get a question I can defend my comment about 
buying cars, but I will do that later. I respect the time of 
the Committee.
    With regard to this repurchase, the redistribution 
agreement, obviously, it's in our best interest to control 
these cars, so they don't get into the used car markets. They 
don't deteriorate used car values.
    Second, we have stopped making cars for the last 30 days--
for 30 days, and probably for the next 15 days. Our inventories 
are the lowest they've ever been since we have kept records in 
our company. We have plenty of homes for dealers who want to 
buy these cars, and 97 percent of them have been committed for.
    After June 9, the new--the position of our new GMAC 
relationship, we will be able to take the cars. By the middle 
of June, we will have the cars for those dealers who have 
signed the agreement to allow us to take them, they will be 
gone.
    For the dealers that haven't signed an agreement, as soon 
as they do, those cars will be gone by the first week of July. 
And we have to control those cars and that's a commitment that 
we made and we said we will continue----
    Senator Klobuchar.--And the parts? The parts?
    Mr. Press. The parts, we already have 51 percent of the 
parts committed. We continue to work on those parts, and by the 
same time period, we plan to have those accomplished as well.
    Senator Klobuchar. Thank you.
    The Chairman. Thank you. Senator Johanns.
    Senator Johanns. Thank you, Mr. Chairman. We've spent a 
fair amount of time understanding process. Now I want to dig a 
little deeper there. Let me start with Mr. Henderson. Mr. 
Henderson, just in terms of how you got to this list dealers 
survived, this list of dealers don't. How did you get to that 
list? Did you form a committee at General Motors or something 
like that?
    Mr. Henderson. We have. We went back and looked at history, 
Senator. We looked at sales effectiveness as well as customer 
service and a series of other metrics, but the two are the most 
important in terms of evaluation, looking at not simply one 
year, but going back multiple years.
    Senator Johanns. OK. And who headed that up at General 
Motors? Give me a name.
    Mr. Henderson. His name is Mark LaNeve.
    Senator Johanns. OK. And what relationship did you have 
then with the Auto Task Force, the Administration as you were 
working your way through this process?
    Mr. Henderson. The Auto Task Force was not involved in the 
process at all.
    Senator Johanns. Were they made aware of your process, or 
did you surprise them, like you surprised the dealers?
    Mr. Henderson. They were aware of the process, but they 
were not involved in it, no.
    Senator Johanns. OK. Did they ever see any of the documents 
that were produced?
    Mr. Henderson. We have not shared a list, for example. We 
don't have a list of which dealers we've decided to wind down, 
nor have they seen a list of those dealers that would go 
forward.
    So they're involved in all aspects of our business, but 
they are not driving this one.
    Senator Johanns. I'm not asking whose driving it, I'm 
asking were they aware?
    Mr. Henderson. They're aware of the process, yes.
    Senator Johanns. OK. Did they ask you to do anything 
different?
    Mr. Henderson. In their finding of March 30, I believe, 
they indicated that they felt our plans in this area were too 
slow, and that we were not aggressive enough, and that was, by 
the way, one of a half a dozen other observations which had a 
similar pattern--that we were not aggressive enough and not 
moving fast enough. And this was one of the areas where they 
had that same observation, Senator.
    Senator Johanns. And that was the Auto Task Force?
    Mr. Henderson. Yes.
    Senator Johanns. OK. Now in terms of the Administration, 
who within the White House would you have had contact with on 
this?
    Mr. Henderson. Our workings everyday with the Auto Task 
Force would include, in my case, Steve Rattner, Ron Bloom, 
Harry Wilson, it's a very small group, so we have gotten to 
know them pretty well, but those would be the three principal 
people.
    Senator Johanns. OK. And they wanted you to be even more 
aggressive than what you have displayed?
    Mr. Henderson. Well, across the board, the view of our 
plans going into March 30 was that they were not aggressive 
enough.
    Senator Johanns. OK. How much money are you going to save 
when the dust settles, and I guess these people are forced out 
of business, and a whole bunch of people like them? Tell me, on 
your books, how much money you will book as a savings.
    Mr. Henderson. This is an area, as I said before, it's 
equivalent to about $1,000 per car of total distribution costs. 
We need to work that down over time. There's no way you can 
point to one individual dealer. It can't be done that way. You 
have to look at it and say, if you can take a $1,000 out--if 
you have $1,000 per car, you can over time economize that to 
$900 per car, that's a lot of money in our case.
    And finally, this is all about actually attracting capital 
to the dealer body over time.
    Senator Johanns. Did you do any cost analysis, where you 
looked at the jobs lost, the pain caused, the impact on the 
local communities and said, boy dollars and cents, we win on 
this one?
    Mr. Henderson. Well, I think GM's brands win with the right 
sized----
    Senator Johanns.--No. Not asking that. Just asking did you 
do a cost-benefit, an analysis, an economic analysis of any 
kind? Is there something you can send to me where I can go back 
to these people say, ``You know, GM looked at this and they are 
going to save ``X'' dollars.''
    Mr. Henderson. Individual, location by location, no.
    Senator Johanns. Chrysler, did you do that?
    Mr. Press. We did not go by location. We have it for the 
total, and the new company's dealer network.
    Senator Johanns. OK. What's the total? How much is Chrysler 
going to save by shutting all these dealerships?
    Mr. Press. We are going to save approximately $1.4 billion 
in development costs, $200 million per year in marketing and 
advertising costs and about $1.5 billion of additional revenue 
from the substandard market share dealer representation and 
about--I think it's around $41,000 per dealer affected, in 
terms of costs of actually going out and calling on the dealer 
and having people come and make records and do all of that 
support.
    Senator Johanns. Would you be willing to supply that 
document to the Committee?
    Mr. Press. Sir, it's in the--it's included in the written 
testimony that I submitted.
    Senator Johanns. OK. Let me ask a question about the net 
effect of what you guys are all about. If I had a share of 
Chrysler or General Motors stock today, what's its value?
    Mr. Henderson. Its value today for the General Motors would 
be almost zero.
    Senator Johanns. Chrysler?
    Mr. Press. Also, we have no net worth. We're out of 
business at this time.
    Senator Johanns. And how many shareholders did Chrysler 
have?
    Mr. Press. Two.
    Senator Johanns. OK. And how many share holders did General 
Motors have?
    Mr. Henderson. We had 550 million shares outstanding, so 
thousands and thousands of shareholders.
    Senator Johanns. And they are just out today?
    Mr. Henderson. Yes, sir.
    Senator Johanns. These dealers, what's their dealership 
worth without the brand, and maybe somebody from the dealership 
can give me that?
    Mr. Whatley. Practically zero.
    Senator Johanns. Practically zero?
    Mr. Whatley. For most dealers, Senator, the value of the 
business would be the franchise value of the real estate. 
Essentially real estate has been seriously devalued because 
these are single purpose buildings that will not be re-occupied 
and the value of the franchise are what we call ``good will'' 
or ``blue sky,'' is virtually gone.
    Senator Johanns. Let me ask Chrysler and GM, what's the 
value of the bonds today, the indebtedness? Is it $.10 on a 
dollar, $.15 on a dollar, $.05 on a dollar?
    Mr. Henderson. In the case of our bonds, they generally all 
traded at less than $.20 on the dollar. In some cases, less 
than $.10 on the dollar.
    Senator Johanns. OK. And Chrysler?
    Mr. Press. We have no bonds. The equity holders will 
receive approximately $.29 on the dollar.
    Senator Johanns. Twenty-nine cents on the dollar. OK. 
Here's my question. The shareholders basically out of luck, 
bond holders, pennies on the dollar, dealers not doing any 
better, and I could go on and on. Does it occur to you that in 
this process, as you were putting this together with the very 
large investment of taxpayers' dollars, in Chrysler's case that 
would be how much?
    Mr. Press. We've received $3 billion and $4 billion for DIP 
financing, so far, and there will be additional funds coming 
for the outgoing company.
    Senator Johanns. OK. Don't you think there was some 
justification for Congressional oversight here?
    Mr. Press. From our standpoint, the reality is our 
relationship with the Treasury has been one as being a bank, 
being an investor in our company. They have been excellent to 
work with in terms of assisting us, as an equity fund would, 
and the funds have really been invested in a way that the 
taxpayers' interests have been looked at very carefully.
    Senator Johanns. You side stepped my question. Go ahead.
    Mr. Henderson. In our case, it's $50 billion, this is what 
we expect to receive in total from the U.S. taxpayer, number 
one.
    Number 2, our primary relationship has been with the 
Automotive Task Force.
    And number 3, as I said in my opening remarks, it's our 
commitment to remain very transparent, because we need to be--
not only because we are a company in bankruptcy, but because 
the U.S. taxpayers are our largest shareholder.
    Senator Johanns. Thank you for your indulgence.
    The Chairman. Senator Begich.
    Senator Begich. Thank you very much, Mr. Chairman. Mr. 
McEleney, can I ask you a question first, just so I understand? 
Of the GM and Chrysler dealerships, what percentage does your 
association represent?
    Mr. McEleney. Senator, we represent about 90 percent of all 
brands, both domestic and international.
    Senator Begich. Thank you very much for that. I just wanted 
to make sure I was clear on the stats. To the two gentleman 
from Chrysler and General Motors, did you ever have any 
inclination as you developed, and I will turn to both in 
regards to the documents that are required for dealers to sign, 
did you ever have any inclination to work with the Association 
to figure out what's a decent agreement that the dealerships 
could sign?
    Mr. Henderson. Let me see if I can't deal with both of the 
agreements. In the case of the wind-down agreement, as I said, 
we had done a similar exercise in Canada just recently and in 
our early returns from our dealers who are going to be wound 
down, and with the appeal process, we think we have a workable 
approach for those dealers who are going to wind down.
    Senator Begich. If I could interrupt, it's kind of a no 
choice deal?
    Mr. Henderson. It is, but in our judgment, the benefits 
that are provided in the agreement are vastly superior to the 
alternatives.
    Senator Begich. Which is death versus life support?
    Mr. Henderson. No sir, the alternative is. In this case, 
what we are going to provide them is the ability to wind down 
their franchise through October of next year. So they have 
plenty of ability to take care of customers and we provide 
compensation to them.
    Senator Begich. OK. Let me ask you that on October of next 
year; is that still the same status under the bankruptcy 
process you are going through today; you will continue to 
uphold that to 2010, October?
    Mr. Henderson. In the case of a dealer that chooses not to 
sign the wind-down agreement, they won't have a contractual 
relationship with the new General Motors. And in that case----
    Senator Begich.--So out then----
    Mr. Henderson.--so the old General Motors would reject 
their contract.
    Mr. Lopez. Senator, can I----
    Senator Begich.--Let me, if I can get Chrysler and then I 
will come back.
    Mr. Lopez. OK.
    Mr. Press. We do not have an agreement. Specifically what 
we did for our process for redistribution and for the dealer 
soft landing, is we worked with our dealer council, we worked 
with a group of other dealers within the company that were 
intimately familiar with our situation, and we were able to 
achieve good input, and then we applied it.
    Senator Begich. Let me, if I can, if I can hold the dealers 
for just a second. I got to watch my time, but I want to get a 
couple quick questions in here.
    With regards to the dealers, as I asked in my opening 
questions, there are four components, as I can understand it. 
And let me tell you, as a former mayor, they are large property 
owners--large property owners--so you take care of, to some 
degree, their inventory, parts, tools. But what happens to the 
investment on their building, as well as their lots, which 
basically become very obsolete facilities? I was also 25 years 
in the real estate business. These are properties that, in 
today's market, are going to be very hard for them--and that's 
where a big sizable amount of their long-term investments is. 
Do you have any compensation or opportunities for them, in that 
regard, in mitigation on any of that front? For me, it's a 
simple yes or no. It's not a complicated question.
    Mr. Press. It's a bankruptcy. We have none.
    Senator Begich. OK. GM?
    Mr. Henderson. Yes, we do.
    Senator Begich. So you have some compensation, mitigation 
for investment that they have in their land and building?
    Mr. Henderson. We provide 8 months of rent support to 
dealers in our wind-down agreement, sir.
    Senator Begich. Rent support. OK. Let me turn to the 
dealers, again. Do you want to respond very quickly, either one 
of you?
    Mr. Lopez. Yes, I want to tell you, a small dealership like 
us, we pay anywhere between $1,200 to $2,300 a month to 
Chrysler and GM for software, to order our parts. We rent 
signs. I rent signs that are 30 years old. They put new faces 
on them, but it's like $620 a month. You, as a consumer, when 
you buy that car, it's on the Monroney label for the--to be 
delivered to us. It does not cost them one thing to send us a 
car. We pay for the advertising. We pay even for the pamphlets 
that you come in our dealership show room and take----
    Senator Begich.--I understand that----
    Mr. Lopez.--OK. We pay for all of that, but we do not cost 
them one penny.
    Senator Begich. OK. Let me go to----
    Mr. Whatley. I just want to address the vehicle 
redistribution plan one more time. Last week I sent an e-mail 
to Southwest Business Center, specifically asking for a 
definite time line on redistribution. What am I supposed to be 
doing? What is my plan? The response back was, possibly, we 
will try have a plan by next week. Next week is the last week. 
We are out of time.
    Senator Begich. OK. Let me ask it, and again, I am going to 
run out of time here. I can feel it. The--in the time lines 
that have been granted, the June 12th time line, if I got that 
right, is there any opportunity to expand that; yes or no?
    Mr. Henderson. In our case, Senator, no.
    Senator Begich. OK. In the parts of the appeal process that 
they have before June 9 or 12, whatever that date is again, on 
appeal process, is there any opportunity to extend that beyond 
the target date of when they have to sign?
    Mr. Henderson. No.
    Senator Begich. Mr. Chairman, I have plenty of questions 
and I know I have to go to another meeting, but I guess, two 
documents I would like to have, if they can present them to us. 
One of them, I think, Senator Johanns asked a question, and 
that is, in regards to your actual savings that you will 
achieve, and Chrysler laid that out very in detail. I know I 
just looked through your testimony and it is kind of scattered 
through there, I would like a document that actually shows 
that.
    And the same thing to GM. I mean, I recognize your issue 
about $1,000 a car. I want to know what you have calculated 
into the cost factor.
    The second thing is, Mr. Henderson, you mentioned--or both 
of you did actually, kind of a process that you went through to 
determine dealerships and some criteria you used. And you made 
a comment, we don't have necessarily a list. You have to have a 
list. You have to. You just can't say, Dealer A, Dealer B. So I 
would like, and you can answer yes or no, that you can provide 
this, a list of how--or the list of the dealers in the order of 
ranking that you made in order to make your determination, who 
is there at the end of the day, and who will not be there.
    Now, if you say you don't have a list, I will not believe 
that. There is no way you could do this without a list.
    Mr. Henderson. Senator, we have a list, but we have not 
made it available to anybody because our dealers would prefer 
not to be identified as to which ones are winding down versus--
--
    Senator Begich.--Well, they are going to be identified in--
--
    Mr. Henderson. They don't want to be identified today.
    Senator Begich. Mr. Chairman, I--I would just like to see 
it and I will leave it to the Chairman of what the appropriate 
way to get that, but I think it's important for us to 
understand because this seems to be some great conflict here, 
and how you created the list, and who is on the top and who is 
not. And I think it's fair, because the reality is they are all 
going to know soon--we're all going to know, and we are going 
to come back to you and ask you again.
    The Chairman. The Senator has made a request for 3 sets of 
documents. I happen to agree with him. I think they should be 
produced for this committee, and I am asking Mr. Press and Mr. 
Henderson if they will so do.
    Mr. Press. Yes, sir.
    Mr. Henderson. Yes, sir.
    The Chairman. Thank you. Senator Lautenberg.
    Senator Lautenberg. Mr. Henderson, you used the term soft 
landing. And in the short form, would you describe what the 
soft landing is?
    Mr. Henderson. Yes, Senator. If a dealer signs the wind-
down agreement, they will have until October 2010 to wind down 
their inventory, so they will have over 12 months to sell their 
inventory, sell their parts inventory, transition, perhaps, to 
another franchise. They will be able to use the GM option so 
they can buy used cars, and they get rent support and inventory 
support compensation, part upfront and part at the end of their 
wind down.
    Senator Lautenberg. Forgive me, but a soft landing 
ultimately is like a parachute with holes and maybe it will 
slow down the trip, but the end is going to be terrible. And 
that's the conclusion one has to come to because as people 
react to the prospect of GM not being there, not having the 
parts supply--you may counteract this verbally, but the fact of 
the matter is the image that is drawn is one that says, ``Gee, 
why do we want to do that? These guys are not going to be 
around in 2010, how am I going to get part rid of the parts 
supply? What am I going to be left with?''
    You said there may be a take back at that point. I frankly 
think that a soft landing is wishful thinking at this point, 
and it's--it is temporarily, maybe keeping things going, but 
the end is clearly in sight and I think people are just going 
to get to the time when they are going to have to say to their 
families, ``We don't have the income anymore. We don't have the 
employees.'' Would you expect that the employees would hang 
around until last day so they can continue working, or do you 
think they might look for something else, to get out while the 
getting is good?
    Mr. Henderson. In all due respect Senator, one of the 
reasons why we--and we will supply it--we have not been public 
with the list of dealers who will agree to the wind-down 
agreement is because we give them 12 to 16 months to determine 
what they would like to do with their business, without having 
that hanging over them, sir.
    Senator Lautenberg. Mr. Press, you apparently said that the 
dealers either help us or burn us all down. Would having the 
availability of some degree of financing, do you think it would 
be a good idea for the company to take back the inventory 
that's out there in dealer hands?
    Mr. Press. Yes, and that's why we developed the 
redistribution process, so we could accomplish that, sir.
    Senator Lautenberg. But you are saying now you don't have 
the means by which to accomplish that?
    Mr. Press. We are. We are 97 percent complete in the 
redistribution of product and we are--it will be done before--
by the June 9 deadline.
    Senator Lautenberg. Mr. Henderson, General Motors has 
announced plans to eliminate 1,100 dealers. Under franchise 
laws in my State, New Jersey, and other states, that companies 
must compensate dealers and take back the unsold inventory if 
the franchise isn't renewed. While the bankruptcy proceeding 
may remove the legal obligation to purchase this inventory, is 
there a more of an obligation besides following the legal line 
for your company to take back this remaining inventory from 
dealers? Because you talked about when--sightings of the 
foreign car competition was coming around, and it's too bad the 
GM leadership at the time didn't see the handwriting on the 
wall; but is there, again something beyond the legal obligation 
to step in and take back the remaining inventory?
    Mr. Henderson. Sir, as I said, if the dealer signs the 
wind-down agreement, they will be able to wind down their 
inventory over that period of time.
    If they don't wish to sign the agreement, if they floor 
plan their vehicles or get their wholesale financing with GMAC 
today, they have the right to voluntarily terminate their 
agreement, return the vehicles to GMAC and it's our 
responsibility to redistribute the vehicles with GMAC; a 
responsibility that was confirmed on Monday through the 
bankruptcy court.
    Senator Lautenberg. I want to ask either of you, Mr. Press, 
Mr. Henderson, the industries fell behind as overseas companies 
developed vehicles that were more fuel efficient than those 
made in Detroit. Oil prices rose. You were stuck with trucks 
and SUVs that few people wanted. And now President Obama has 
proposed strict new efficiency standards. How can you assure us 
with a degree of reasonableness that you will be able to make 
these more fuel efficient cars and trucks, to help your 
companies return to profitability, when all of these years 
there was no credibility given to your assessment of the 
marketplace, or your engineering to beat the competition?
    Mr. Henderson. Senator, in our history, we have never 
missed a CAFE standard or a fuel economy standard in the U.S. 
or abroad.
    Senator Lautenberg. You know what kind of fight there was 
here about that?
    Mr. Henderson. Just recently--I understand. Second, just 
recently, as part of the industry, we threw our weight fully 
behind harmonizing more aggressive and more stringent fuel 
economy standards. Not only GM, but the industry pulled 
together, and we are quite confident that the men and women of 
General Motors will deliver vehicles which meet all those 
standards and excite customers.
    Senator Lautenberg. I am sure that men and women will 
deliver what is put out there, but the leadership showed that 
it didn't understand what it was going to take to be 
competitive.
    Mr. Press, do you want to comment?
    Mr. Press. Yes. Senator, in our situation, our new company 
has an alliance with Fiat. And Fiat will be the operating 
entity within the company. They have the highest--the best 
performance of all European manufacturers in CO2. 
Their technology is all available to us. We are already at work 
to adopt that technology, to build it in American plants. And 
in fact, the equity incentives that they have are based on the 
introduction of very high-mileage technology, engines and 
products in U.S. plants.
    Senator Lautenberg. Lord, help us. Thank you very much.
    The Chairman. Senator Dorgan.
    Senator Dorgan. Mr. Chairman, thank you very much. The one 
disagreement that I have heard here, among others, is that the 
auto manufacturers have responded to the dealers by suggesting 
that the dealers are a cost center, or implying that the 
dealers are a burden. The dealers have said quite the opposite, 
quite the contrary. It seems to me, to the automobile 
manufacturers, you don't have a business without dealers. I 
mean, you can manufacture, but if you don't sell them, you are 
out of business.
    So the dealers, it seems to me, are an asset. And I was 
looking at the statement on page five, Mr. Press. You talked 
about examples of lost revenue and cost associated with, in 
this case, discontinued dealers, but I assume you would 
associate them with the continued dealers as well. The 
overwhelming costs are not costs that are local to Mr. Lopez or 
Mr. Whatley. Product Engineering and development for sister 
vehicles, $1.4 billion over 4 years. Those are decisions you 
made, not the dealers. I mean the decision to build a Town and 
Country and the Dodge version of that, and you have both of 
them, that's your decision and not their decision. But lost 
sales due to dealer under-performance, $1.5 billion annually. 
And so I am going to ask a couple of questions on cost burden 
and so on.
    But you are eliminating dealers. Waco, Texas, my colleague 
says you are going to eliminate the Chrysler dealerships in 
Waco, Texas. Are you going to replace them with new dealers?
    And then another question for both General Motors and 
Chrysler, how many are in a position where you are just going 
to eliminate the local dealership, and then replace them with 
other dealers because you felt the local dealer was under-
performing?
    Can you provide us a number?
    Mr. Press. First of all, with regard to the multiple sister 
platforms, we had to do six of those, and they are not our 
request. It is because we have stand-alone dealers. If there is 
a Jeep or a Dodge stand alone only dealer, and we don't do a 
Dodge version of the van, then they can't be supported.
    We have stopped making those, and the dealer body stand-
alone is not viable any longer. So that's the reason for it. 
And the cost.
    The answer is we can provide you with a list. It's not a 
large number of those points that we are going to go back into, 
but I can give you that number.
    Senator Dorgan. Would each of the companies provide us with 
the number of the dealerships that you are going to close, and 
that you will then replace because you felt the current 
dealerships were under performing?
    I want to ask Mr. Lopez and Mr. Whatley, you heard the 
manufactures suggest that you are a burden and a cost center. 
You say you are not.
    Mr. Lopez. Yes, sir.
    Senator Dorgan. They say they advertise for you, they----
    Mr. Whatley.--I have brought dealer billing statements for 
the last couple of months, showing everything that we pay, and 
it's everything from paper clips to signs to training, a whole 
lot of things I don't even what they are. We just pay it every 
month.
    Senator Dorgan. Do they send somebody around every now and 
then and check up on you; is that right?
    Mr. Whatley. No, they send us--it's electronic billing 
statements. We are billed every month.
    Mr. Lopez. They just take it out automatically.
    Mr. Whatley. They take it out automatically. You have no 
choice.
    Mr. Lopez. You come in one day, and your account will be 
less $6,000 for parts of a vehicle that you have to work on.
    Senator Dorgan. I understand that you are leasing their 
signs and doing all those things, but they are also saying that 
we send the regional or local rep around to check up.
    Mr. Lopez. We don't have one.
    Senator Dorgan. You don't have one?
    Mr. Whatley. I haven't seen--I don't even know who our rep 
is anymore. We haven't seen one in so long.
    Senator Dorgan. OK. So that's not so expensive, is it?
    Mr. Lopez. No. We don't have one. They call us on the 
phone.
    Mr. Whatley. And we are billed for everything.
    Mr. Lopez. By the way, I paid $480 for my--and Chrysler is 
in bankruptcy. I paid $480 this month so my certified mechanics 
could take a test on the computer, $480.
    Mr. Whatley. And Senator, I just got a bill yesterday for 
$200 for sales training for next month, when I am not even a 
dealer.
    Senator Dorgan. All right. Well, some things are counter 
intuitive to me, and I understand that you want to change your 
dealership network. That is your responsibility, not the 
government's. I understand all that.
    And yet--I don't know much about big cities. That's not 
what I know much about, but I know areas out there, where 
somebody is selling 5, 8 cars-a-month. A good small business 
that some would probably say from a pie too small to matter, 
but a business in the community that's making a little money, 
doing some service, brand loyalty under customers. In my 
hometown, you've got people that stopped at the Regent Garage--
they would only buy Chevrolet and Case Tractors for the rest of 
their lives. It's just--they wouldn't stop anywhere else. When 
it's time for a car, they go back to the Chevy. Time for a 
tractor, they go back to the Case. They never think of buying a 
John Deere. And the same is true on the other side, for other 
dealerships in small towns.
    So what I don't understand is if the local dealers are not 
a burden, and it seems to me in this back and forth, boy, they 
are not much of a burden to you at all. It seems to me they 
represent the ability to sell what you manufacture, even the 
smaller ones. It's counter intuitive that you would decide, you 
know what, I am going to limit the ability to sell out there by 
reducing the number of people that are going to sell. You know, 
I went through a master's degree in business and so on, and 
they never taught that. It seems to me that you would want to 
maximize the opportunity to continue selling a product that has 
been piling up on the lots.
    Mr. Whatley, do you have a comment?
    Mr. Whatley. If--say we stock about 65 new cars. The dealer 
next to me is 30 miles away, he's completely full. He is 
already stocking everything he can stock. He is up on his floor 
plan. He is full. By eliminating me, that other dealer is not 
going to order one extra vehicle. He don't frankly care if I am 
there or not. He's doing all he can do. So they just lost my 65 
cars to production. You multiply this by 800 dealers, how much 
production are they losing?
    Senator Dorgan. All right. Mr. Lopez.
    Mr. Lopez. Well, I want to respond to what he said about as 
far as the cars that they made us take. They are sitting 
there--he says 97 percent that is taken care of. No one has 
called me. I haven't heard a thing. At that time, I had 41 
cars. Now I am down to 24. And I am selling them and I am not 
going to take a loss on them. I can't afford to. I am a small 
dealer. I am selling them at net, and I will do that. No one 
has called me and said, ``Can we help you? Can we send them to 
another dealership?'' We've done it all on our own.
    Mr. Whatley. We've seen nothing.
    Mr. Lopez. And also, I want to tell you, when you talked 
about the representative. There is no representative from 
Chrysler or GM. It's all done by phone, by computer.
    How about our inventory that we have in stock? I have 
$138,000 worth of parts from Chrysler, and 128 in General 
Motors. They are going to be worth nothing, not one penny. How 
can they say we cost them anything? We don't cost them a penny. 
In fact, we are their face. We are out there. And in our 
community, I sell cars and I am delighted to represent them. I 
want one thing--one question answered. If they do take our 
franchise, can they--can they and will they give us first 
option, if they decide to open up in that area again? We, as a 
dealer, I am a profitable dealer. I have never been 
reprimanded. I got awards. If they decided 2 years from now, to 
put a Chrysler dealership in Spencer, West Virginia, can it be 
me; why won't it be me?
    Senator Dorgan. Mr. Chairman, my time is--I have taken more 
than enough, but I appreciate the testimony, and I think we 
would very much like to get some reports back from you about 
your inventory, parts inventory, auto inventory----
    Mr. Lopez.--I would be glad to----
    Senator Dorgan.--and how it is dealt with.
    The Chairman. Thank you, Senator. Senator Snowe.
    Senator Snowe. Thank you, Mr. Chairman. Now Mr. Henderson 
and Mr. Press, was--in response to, I think it was Senator 
Johanns' question about economic analysis, Mr. Henderson, did 
you say that you did not perform any economic analysis dealer-
by-dealer in making these decisions?
    Did either of you perform an economic analysis using 
specific criteria by which you made these decisions in 
targeting these dealers?
    Mr. Henderson. The criteria used, Senator, were first sales 
effectiveness. So the dealers that were notified for wind down 
have been consistently under performing in terms of sales 
effectiveness. We feared we might make mistakes, however, and 
that's why we have the appeal process.
    And second, their customer satisfaction has generally been 
below average by a significant degree, for a significant period 
of time.
    Senator Snowe. Well, that's certainly contrary to some of 
the dealers that I have heard of in terms of where they ranked. 
In fact, I cited one specifically. So it is truly puzzling, 
given the fact that in the State of Maine, just so you 
understand, more than 50 percent of the registered vehicles are 
either GM or Chrysler. And yet, we are going to have some of 
the largest counties in Maine without any dealerships. It 
simply--it doesn't make economic sense.
    And it goes to the question that Senator Dorgan raised. The 
conversation among dealers in Maine, and rightfully so, is that 
there is speculation that eventually that you will come in and 
substitute your own dealers, eventually. Because it does not 
make sense where you are cutting out these dealers. It simply 
does not make--there is no economic rationale. I don't know 
where your economic rationale is, but it certainly didn't find 
itself in Maine.
    Mr. Henderson. A couple comments. First, in terms of our 
coverage in rural areas and smaller towns in the U.S., when 
we're done with this process, we will have between 1,500 and 
1,600 dealers in these towns. We will still have far and away, 
the broadest distribution system of any manufacturer in small 
towns.
    Senator Snowe. You know, I guess it's all relative, but 
that's not going to be true in Maine. OK? And you got loyal 
customers and you got loyal dealers, so the fact that it is 
relative, broadly speaking isn't going to help the situation in 
Maine, looking at the map. And this is what this is all about. 
And looking where you are doing it, you know, even the more 
prosperous counties. You are concentrating one dealer in the 
most populated area in the city, the largest city, and some 
don't have--some of the counties don't have any. And that's a 
wide stretch of geography, just in that part of Maine, let 
alone in the more rural parts of Maine.
    Mr. Henderson. Yes, ma'am.
    Senator Snowe. So there's not going to be any service for 
these vehicles. That's the bottom line here. And therefore, I 
do not understand how that's going to enhance your ability to 
expand your market share down the road in the future, not to 
mention the treatment of the auto dealers.
    And I have to say, it's back to this wind-down agreement. 
Can you imagine having to fill this out? Now I have heard from 
dealers that said we have an appeals process. I have heard that 
referenced here. But from what my dealers have told me, that 
yes, they sent them in--because you get the notice May 14 that 
you have by May 28--and oh, by the way, you have to get them 
back within--I guess it was by June 2 or something like that, 
and they have a 2-day turn around in response to that appeals, 
in which case there were no appeals accepted. And I wonder, are 
there any appeals nationally that you have accepted?
    Mr. Henderson. Senator, the date is June 12. Yes, there are 
appeals we have accepted.
    Senator Snowe. Well, they got their responses when the turn 
around was 2 days, from when they sent it and they got it back. 
So it must have been a very quick review.
    Mr. Henderson. We are trying to do these quickly, but we 
have reversed our decisions.
    Senator Snowe. So did you accept any of the appeals?
    Mr. Henderson. Yes, we did.
    Senator Snowe. You did? How many did you accept?
    Mr. Henderson. Through yesterday, 11.
    Senator Snowe. Eleven out of all the dealers across the 
country?
    Mr. Henderson. Yes, over 500 people appealed, and we are 
continuing to go through them as we speak.
    Senator Snowe. And what's your cost savings in all of this?
    Mr. Henderson. As I said, one of the criteria was sales 
effectiveness. These are dealers on average, and I understand 
we have to look at individual cases, which is why we have an 
appeal process, but on average, these are dealers who have 
under performed relative to their peers.
    Senator Snowe. Well, you know, and just Mr. Press and Mr. 
Henderson, you say that and that's--that also sounds well and 
good, but these are individuals who have been faithful, and the 
one I cited for 80 years, and that's been generally true, 80 
years with GM dealership, 80 years. And relocated, because at 
the urging of GM to move--at the urging of Chrysler--actually, 
one dealer told me Chrysler was actually begging them to buy 
cars last year to avoid bankruptcy.
    And let me ask you one other question. You have indicated 
that GM will be capable buying back the inventories from as 
many as 80 percent of the closed dealerships; will you be 
buying back parts and special tools as well?
    Mr. Henderson. In the case of parts and special tools, we 
expect at the conclusion--if they signed the wind-down 
agreement--at the conclusion of that wind-down agreement, they 
shouldn't have parts. They would have no problems. We don't 
plan to repurchase parts.
    The tools, at that point, in our judgment, should be fully 
amortized.
    Senator Snowe. Mr. Press?
    Mr. Press. In our redistribution plan, we do plan to have 
parts, vehicles and special tools taken from the dealers that 
are not going forward and brought into the new dealers.
    Senator Snowe. Thank you.
    Mr. Lopez. Senator, may I respond to that?
    Senator Snowe. Yes, you may.
    Mr. Lopez. As far as the parts and the tools, what we 
have--we did get an e-mail that said that it was up to us to 
sell them to other dealers. And of course, they are going to 
come in and offer us ten cents on the dollar. I haven't seen 
anything else that says Chrysler or GM would buy them back.
    Mr. Press. Obviously we have a communications issue. We 
have information----
    Mr. Lopez.--We have a big one----
    Mr. Press.--So I will address both of these gentlemen. I 
would be very happy to do that. It's our failure for not 
communicating appropriately to them. Thank you.
    Senator Snowe. Mr. Henderson, any response to that?
    Mr. Henderson. The same.
    Senator Snowe. Thank you, Mr. Chairman.
    Mr. McEleney. Mr. Chairman, I know it's not my prerogative 
to ask the questions, but a question came up earlier about the 
go forward agreement that I addressed in my testimony that I 
don't think we had an opportunity to hear a response to explain 
or defend that agreement, the 4,000 dealers will be obligated 
to going forward; if I may ask?
    The Chairman. I guess you just did.
    Mr. Henderson. I am happy to answer the question, Mr. 
Chairman, if you would like. The answer is we distributed that 
agreement this week. We have a meeting set up with the NADA 
Friday, where we intend to discuss with them the parts of the 
agreement that they have the greatest objections to and we're 
confident we will find a resolution to this, as we always have. 
So that meeting is Friday. We tried to pull it forward, and we 
will make judgments and decisions quickly, and try to address 
the legitimate concerns of the dealers. Thank you.
    The Chairman. Thank you very much, Senator Snowe. Senator 
Brownback.
    Senator Brownback. Thank you, Mr. Chairman. I hope people 
watching this see the problems with having government run a 
private sector business. When you try to get these questions 
answered in this sort of hearing, I think that's why we are in 
such a difficult, deep, problematic situation today. But the 
government is the big owner now, here, and so we've got a lot 
of questions. I don't like the process, just overall that this 
is, but we are where we are.
    I want to ask, if I could, particularly Mr. Press and Mr. 
Henderson, I have had the dealers, again, in my State and where 
I bought my Town and Country Chrysler minivan, he says to me, 
``Look, we don't cost these guys a penny. We don't cost these 
guys a dime.'' Yet, obviously you have enumerated some cost, 
and I think in Mr. Johanns' case, you are saying what they are.
    Why not go in bankruptcy a different route on this? Instead 
of cutting free these dealerships, why not say to your lower 
performing ones, as you have articulated and found them, ``We 
can't afford to subsidize and support you, so therefore, we are 
not going to provide the network of money and backing to you 
that we are going to provide to a higher performing category?'' 
So that you are not just cutting them free on this, because you 
have two guys over here saying--and they look like they are 
pretty good salesmen to me, frankly----
    Mr. Lopez. Senator, they don't subsidize us.
    Senator Brownback. What's that?
    Mr. Lopez. They do not subsidize.
    Senator Brownback. Well, but they are saying they have got 
costs associated with this large dealer network, and you guys 
are saying there is not a penny associated with us. Why not 
then bifurcate the structure in your bankruptcy filings so that 
you can maintain this dealer network that's out here, that's 
very important to many communities, and very important to rural 
communities, but you see cost associated with it? Why not look 
at it that way?
    Mr. Press. Maybe I could start, sir. I appreciate the 
question. It's not a cost issue. That's not the basis. In our 
situation, the dealer body that we're working with, the 3,100 
dealers was established right at a time when our people----
    Senator Brownback.--Well, I am going to get cut on time. If 
it's not a cost issue, then why are you even messing around 
with it?
    Mr. Press. I will get to that very quickly. This dealer 
body number was established when we were selling over two 
million a year. The new company coming out of bankruptcy will 
sell 700,000 a year. If we try to take 700,000 units of revenue 
and spread it over the dealer body necessary for two million 
revenue, the dealer body isn't--is not----
    Senator Brownback.--Wouldn't they atrophy themselves over 
time then, and why wouldn't you let it take the natural course 
and you just feed the healthier and not the least healthy?
    Mr. Press. OK. Because first of all, we are no longer able 
to produce separate models to support stand-alone dealerships. 
They all have to be under one roof. We don't have the money in 
our plan, and we will no longer spend the money. They will not 
have individual products.
    Second----
    Mr. Lopez.--We are under one roof.
    Mr. Whatley. We are one roof also.
    Mr. Press. There is a number of our dealers who are not 
under one roof.
    Second, it is important to note that the deficient volume 
dealers are costing us substantial money in markets that we 
should be doing a lot more business in.
    And third, I think even more importantly, a weak dealer 
that's close to another dealer cost them both money because 
they can't have enough profit, they can't have enough training, 
they can't have enough of an organization.
    Senator Brownback. OK. But if that's the case, why not let 
them fight it out? That really doesn't matter that much to you. 
Does it?
    Mr. Press. Great point, sir. For the last 10 years we have 
told the dealers, which dealers would be in our Genesis program 
going forward, and which ones wouldn't. A number of dealers 
have made their deals and have gone through the process. Slowly 
we have done 100 or so a year. We are out of time. Because of--
and a large factor in our bankruptcy is an inefficient, 
ineffective dealer body. We are now bankrupt. The new company 
will not have the same problem going forward and that's in the 
taxpayers' best interest.
    Senator Brownback. Mr. Henderson, your wage and benefit 
structure is going to be down, now with where Toyota and Honda 
is, in your labor structure through your bankruptcy?
    Mr. Henderson. Yes, we believe we will competitive with 
Toyota, sir.
    Senator Brownback. Your numbers will be the same, roughly, 
on your wage and benefit structure?
    Mr. Henderson. Yes.
    Senator Brownback. That's not what I am seeing in the 
numbers that I have. I will have to look at that in the 
bankruptcy filing.
    What about just providing more for the better one and less 
for the poor ones, and you let this atrophy? Because we are at 
the--the reason we are stepping into the auto market anyway is 
because we're in a catastrophe right now, as a country and as 
an auto industry. So that's why we are providing the parachute 
for the overall automakers, when a lot of us don't like that 
idea in the first place anyway. But this is a catastrophe.
    But then you go out and really exacerbate it in smaller 
communities, cutting off small businesses, and it seems like 
the consistent route here for us to go through this would be, 
OK, you provide the same, slower glide path on this that we're 
trying to do with the auto manufacturers, and that that would 
make more rational sense, given the amount of Federal dollars 
that we are putting into this overall industry sector.
    Mr. Henderson. Let me see if I can't address each of the 
points, Senator.
    First, in our case, with all due respect to my colleagues 
and partners here, 67 percent of the dealers who have received 
wind-down agreements were unprofitable, and substantially so 
last year.
    Second, we spent a lot of time talking about small markets. 
In fact, the disproportionate impact of the GM actions are in 
metropolitan markets, where, if you look at this, this has been 
our past. We basically let the dealers work through the issue 
over time, and we end up with the situation today, for example, 
where we have some major metropolitan markets with far more 
dealers than our principal competitor, Toyota, and we greatly 
under-perform because no single dealer is able to perform the 
scale. Toyota has three or four dealers in a major metropolitan 
market and they grossly out perform us. And no other dealer is 
prepared to step in and make an investment in a major 
metropolitan market because they say ``There are too many 
dealers, so there is no way I am going to justify putting 
capital into a General Motors franchise. We are going to put it 
into a Toyota franchise.'' That's what has been our history, 
and that's not a method over time that we can really operate 
in, because, in the end, there are a whole host of issues.
    Again, we have very good market position in rural markets 
and I fully understand that we may have made some mistakes, but 
the lion's share of sales in the United States are in major 
metro markets. There, we grossly under perform. In part, it's 
because our dealer system is not properly structured.
    The Chairman. Thank you, Senator. Senator McCaskill.
    Senator McCaskill. Thank you, Mr. Chairman. I think, Mr. 
Press, one thing we have discovered today that there has been a 
significant breakdown of communication, as it relates to your 
plans to relieve these dealers of their cars, and replace them 
with the dealers going forward. And these two gentlemen have 
said that they didn't know it. I am betting there are others 
that don't have all the accurate information. So I think one 
thing we have learned from this hearing is you have got a task 
in the next 24 hours, and that is to check the phone log and 
the e-mail log and make sure that you have communicated clearly 
with all of the dealers, that you have, in fact, moved 97 
percent of the vehicles and are on a path to provide some kind 
of specific assistance as it relates to tools and parts.
    Mr. Press. I will do that, Senator. Obviously, Mr. Lopez, I 
would like to work with him. He had somebody contact him 
because he did refuse to sign our agreement, and I would like 
to work with him so we could communicate.
    Senator McCaskill. OK. Fair enough. Quickly Mr. Whatley and 
Mr. Lopez, what brands do you sell, Mr. Whatley?
    Mr. Whatley. Chrysler, Dodge and Jeep.
    Senator McCaskill. OK. And Mr. Lopez?
    Mr. Lopez. I have Chrysler, Dodge and Jeep, Chevrolet, 
Pontiac and Buick.
    Senator McCaskill. OK. And Mr. McEleney, is it McEleney?
    Mr. McEleney. Yes, it is. That's correct.
    Senator McCaskill. Could you give me a percentage--what 
percentage of your dealers in your association are multipoints, 
across manufacturers?
    Mr. McEleney. I am not sure I can answer that. I can tell, 
for example, 45 percent of the Toyota dealers also have General 
Motors franchises, just for one example. The average dealer has 
roughly two dealerships on average.
    Senator McCaskill. In my former life, my first husband and 
his family had car dealerships, so I know a little bit about 
that. We had Pontiac, BMW and Chevrolet. And I know a little 
bit about the car business and under capitalization and some of 
the problems and the struggles, and I know the long going 
fights between the mother ship and the dealers. There have been 
lots and lots of battles over the years. And I understand the 
passion and the pain here. But I think we all have to 
acknowledge that these companies are broke, and they are not 
going to succeed unless they get smaller. And we have got to 
figure out a way forward that's fair to the dealers, but at the 
same time, I don't think we can micro-manage and insist they 
stay bigger. That's why they went broke.
    So let me ask this. This is a difficult question, Mr. 
Press, but I have looked in the--I have--we've got some 
information that came to us back channel about the DIP budget, 
and this is the debtor in possession budget in the bankruptcy. 
And it talks about the budget for the old company. And what 
troubles me in there, there's an acknowledgement that there may 
be up to 15 employees of old Chrysler working on this 
bankruptcy, and there is a pool in this budget of up to $20 
million for bonuses. I can't imagine what kind of kick in the 
gut that would be if we were to learn in the next 2 weeks, that 
some of the old Chrysler folks, which are getting paid their 
salaries, which they should, you guys are doing hard work; but 
if there is $20 million in bonuses for as few as 3 to 5 people 
that are associated with old Chrysler, I think that would be a 
huge--I mean, I think the pitch forks would come out and I 
think there would be a real problem. And I know I asked you 
about this yesterday. Have you learned anything more about 
that, and can you shed any light on that?
    Mr. Press. No, Senator, I did make an inquiry.
    We were not able to find testimony. I can only speculate 
and I think that would be inappropriate at this time. I will do 
my best to see if we find out concretely what that information 
is relating to.
    Senator McCaskill. Well, I misspoke yesterday. It wasn't in 
testimony, but it is in the preliminary DIP budget, debtor in 
possession budget, that has been circulated and that has been 
talked about, and I believe your CFO has referred to it in 
various meetings, so I think we need to get to the bottom of 
that, and sooner rather than later. I know everything is on a 
fast track here, but that needs to be also.
    Let me also bring up briefly something that is not directly 
related to the dealers, but rather for you, Mr. Henderson, 
going forward, I understand that you guys are going to do a 363 
bankruptcy, similar to Chrysler?
    Mr. Henderson. Yes, ma'am.
    Senator McCaskill. In almost an unprecedented fashion, 
there has been a decision made in the Chrysler bankruptcy, that 
if somebody buys a Chrysler car 6 weeks ago, and there is a 
defect in that car, there will be liability in the new company 
for the recall costs, for the warranty costs. They will be 
required to fix the car. But because of that defect, a child 
loses their life because of an accident, or if a man loses his 
legs because of an accident, there is absolutely no where for 
that person to turn. Now that to me, seems like a very weird 
result. And it is very unusual in bankruptcy to have absolutely 
no requirement of insurance for any kind of defects that may be 
there, especially if the product is going to be carried 
forward.
    I need to know on the record, Mr. Henderson, if you all are 
going to seek that same kind of immunity for existing claims 
and potential claims for any cars that have been sold prior to 
the closing of your bankruptcy?
    Mr. Henderson. That would be our expectation, yes.
    Senator McCaskill. Well, I am very troubled by that. I 
don't get how we can afford to fix the car, but if someone 
loses their life or limb, there is no liability.
    Mr. Lopez. They will come back on us dealers.
    Senator McCaskill. And that's another entire issue that 
needs to be discussed. So I think that's something we need to 
continue to ask questions about, and I think that it is 
probably something--and by the way, I have understood that 
since this happened, we have had several companies go back and 
make filings for 363's now, thinking that they can come in and 
absolve themselves of any liability that might have for 
defects, and I think that's very troubling going forward. And I 
know I am out of time, Mr. Chairman. Thank you.
    The Chairman. Senator McCaskill, if I could just follow up. 
In the sentence where you said, ``That would be our 
intention.'' That doesn't get you very far in West Virginia. I 
mean, it's either yes or no?
    Mr. Henderson. Yes.
    The Chairman. That helps. Senator Thune.
    Senator Thune. Thank you, Mr. Chairman. Thank you all very 
much for being here today. And to Mr. Press and Mr. Henderson, 
it has got to be uncomfortable for you to have to come here. 
It's uncomfortable, honestly, to have you here because it means 
that we're doing something outside the realm of what we know 
about. I don't think anybody here has any particular, with some 
exceptions, any particular expertise in the car business. I 
certainly don't profess to, but you find yourself now with a 
Board of Directors, essentially, of 535 members, and you have 
to be subjected to all these questions, which I am certain you 
feel are micro-managing your business. But we are now partners, 
and as partners, these are the types of questions that you get 
to answer.
    And I appreciate Mr. Press, you sharing with me a little 
bit about what your intentions are with respect to my State of 
South Dakota. You had indicated that there are 7 dealerships 
that will be closed in South Dakota. And I might add, too, just 
for point of reference, in a small state, like mine, and in a 
lot of small communities, the car dealership really is the 
center of gravity for the entire community. You not only go 
there to buy cars but, in my hometown, it's where people go in 
the morning to have coffee, to talk about the game last night. 
It really is so important in terms of just not the economic 
vitality of these small communities, but also, in a lot of 
respects the cultural center of our communities.
    But you had mentioned that there were 7 dealerships that 
you thought you would close in South Dakota, but that you 
intended to re-establish these so-called Genesis Chrysler 
dealerships in 5 of the 7 South Dakota communities or towns. My 
question is, if there are five dealers that are being closed--
will the five dealers that are being closed in some of these 
communities have an opportunity to obtain those dealerships? 
This question sort of gets to the point that Mr. Lopez made 
about if you are going to create or establish a dealership in 
his community, he would like to have the opportunity to get 
that dealership. And I am not sure his question got answered.
    Mr. Press. Yes, they will have the opportunity.
    Senator Thune. What's the rationale for completely closing 
dealerships now, if you plan to have a larger presence in the 
same area in the near term?
    Mr. Press. What that does is it provides the opportunity to 
put it in an optimal location, that may serve multiple 
communities, much more efficiently. The dealer will become much 
more profitable, and they will have all three brands under one 
roof, which allows--if you have a fixed cost for one brand, and 
you bring in the revenue of Jeep and Dodge into a Chrysler 
dealership, you have a much more profitable, much stronger 
dealership going forward.
    Senator Thune. Do you also want to end relationships with 
some of the 789 dealers that are on your list to close?
    Mr. Press. Some of the criteria does include a very 
substandard performer that is costing us quite a bit of volume 
and revenue by under performing the market. In some cases, that 
exists, and those dealers are being replaced.
    Senator Thune. But you also just said that they would have 
a chance, if you open a dealership in their community?
    Mr. Press. Yes, sir. The dealers will have a chance--we 
will give the dealers an opportunity, and in particular for 
those that have single line stores that go into a tri-branded 
store, obviously those would as well.
    Senator Thune. Right now we have the Auto Task Force, we've 
got, of course, U.S. Treasury Secretary Tim Geithner, the White 
House, a lot of folks involved in the decisionmaking process. I 
guess I am curious in knowing what role, if any, did any of 
those entities--and by that, I mean the Treasury Department, 
Secretary Geithner, the White House, the Auto Task Force have 
in the decisions leading up to the announcement of GM and 
Chrysler dealership changes? Because on March 30, the White 
House issued a briefing on the restructuring plans. And I know 
specifically for GM it said, ``The company is currently 
burdened with under performing brands, name plates, and the 
excess of dealers. The restructuring plan does not act 
aggressively enough to curb these problems.''
    Was the Administration applying pressure to do something 
with the dealerships, either of your companies?
    Mr. Henderson. Senator, I think I responded to Senator 
Johanns earlier, certainly in the March 30 report, amongst 
other things, not solely in this area, the conclusion was we 
had not acted aggressively enough, or fast enough. The actual 
decisions leading up to what has been launched recently, 
though, they have not been involved in. They just made the 
comment. It was their observation that we were not aggressive 
enough in this area and they felt that we needed to do more. 
And we have.
    Senator Thune. Can either of you affirm that you don't plan 
to use the bankruptcy as a means to void dealership contracts 
above and beyond? The GM plan was announced well before you 
entered into bankruptcy. Can you reaffirm that this is not just 
simply a way to void dealership contracts?
    Mr. Press. First, I would like to respond to your question 
on the Treasury.
    Senator Thune. Oh, I am sorry. Go ahead and respond to 
that. That would be great.
    Mr. Press. The Treasury was not involved in any way of the 
selection or the development or the guidance on the number of 
dealers that we should be addressing. They were made aware of, 
on a courtesy basis only, the process, so they would be aware 
of it for answering questions.
    Second, this is not a way for us--this is not a--bankruptcy 
is not a way that we are using to void contracts. In our case, 
it's a little bit--it's different from General Motors. We 
actually--the old company still exists and is no longer 
functioning. We are building a new company, and in that new 
company, a selection of the dealer body for that new company is 
being made. Those are the dealers that are going forward.
    Senator Thune. I don't know how much time I have left, Mr. 
Chairman--to direct one question to----
    The Chairman.--Actually, none.
    Senator Thune. None? OK. All right. Then I would yield 
back.
    The Chairman. But I don't want you to feel bad.
    Senator Thune. Don't worry. I don't feel bad, and in spite 
of your answer, I welcome you back, Mr. Chairman.
    The Chairman. Thank you. I have a question I want to ask. 
Others may, there are just a few of us here. There is a meeting 
that we've got to go to, but I just got to ask this. Mr. Press, 
unless the Automotive News is some--you know, agent of the KGB 
or something, they did report that in January of this year, in 
a conference call with your dealers, you said, ``You have two 
choices.'' And that's been pointed out. ``You can either help 
us or burn us all down. Why? How? Get 78,000--buy 78,000 
cars.'' Chrysler. Buy 78,000 in 1 month to help the company. 
But many of them felt coerced to buy cars that they didn't need 
to because they knew Chrysler was considering cutting 
additional dealers. In other words, there is a whole question 
of was there any ethical consideration on your part? You knew 
exactly what you were doing. Yes, January is different than 
June 12, but now it's all very clear to Mr. Whatley exactly 
what you were planning back then. And it strikes me that you 
have not been forthcoming. You know, Mr. Lopez can't possibly 
absorb that. So now you are forcing the terminated dealerships 
to sell those vehicles in 26 days, which is 6 more days.
    Now you say you have made a lot of progress in reassigning 
those vehicles. You have said that quite proudly. My question 
to you is will you commit here today to buy back any cars that 
are left after June 9?
    Mr. Press. I must address the Automotive News comment at 
some point. Is this the time? May I have approval to do that?
    The Chairman. Go ahead. The floor is yours.
    Mr. Press. OK. Thank you, sir. I appreciate that. Because I 
want to be responsive to your question, but I think it's 
important.
    The Automotive News is not a KGB agent. They are the 
newspaper for the industry. And they reported correctly the 
comments that were made, but not in context. Our company had 
just come through the December period of time with no 
production and no revenue. We had less than $2 billion of cash 
in the bank. February 17th was the viability plan submission to 
the U.S. Treasury to get a bridge loan to continue to operate 
and negotiate our alliance.
    In the month of February, we needed 78,000 units of 
production to at least keep the company operating to the point 
that we could get the extension of a loan from the U.S. 
Treasury. And the fact of the matter is, I love the dealers. I 
love this company. And because of that, I made it clear to them 
that if we don't buy the cars now, we will lose everything in 
February. If we buy the cars now, and we gave them substantial 
incentives to buy the cars and retail them, not to hold them, 
in a manner that we could generate cash, and my comment was 
that if 70 percent of the dealers had already taken the 
challenge--it's like a fire, a bucket brigade--70 percent of 
the buckets have water in them, 30 percent don't. Don't burn us 
down. Let's all get in this and let's not get bankrupt. Let's 
not have to do this to the dealers. And that was our desire. 
And that was the comment that I made. And I still wish that we 
hadn't gone through this process, and I wish we could employ 
all the dealers and add more.
    The Chairman. I have great trouble believing that you 
actually believe that with those 78,000 additional purchase 
requirements that that was somehow going to make a new world 
for Chrysler. I just don't believe that.
    Mr. Press. It did work. We did not go broke and liquidate 
in the month of February.
    The Chairman. Quite as quickly.
    Mr. Press. No, we did not. We did not liquidate. And I 
think it's important to know. The reason we are here, Senator, 
is a meteor hit the industry and it's a third less than it was. 
Nobody can cope with that unless they are able to continue to 
get cash. And that's why we needed the February 17 deadline. We 
got that. We were able to save the company. We've got 
bankruptcy, DIP financing, and soon we will have a new alliance 
with a new company, and we will save the company. And if we 
hadn't done that in February, none of us would be here at 
Chrysler.
    The Chairman. But the car dealers will be--and I am 
thinking of Mr. Lopez right here--Spencer, West Virginia, 3,800 
people are going to be left with the inventory and the parts 
and they are not going to have any help whatsoever from you.
    Mr. Press. We will. We have taken the challenge and we will 
redistribute the inventory of cars and parts. And we will 
continue to work with them after June 9, and yes, Senator, we 
are committed to take virtually every car we can, and 
redistribute it. The 97 percent that we have already gotten 
commitments for is a pretty good signal that we are serious 
about delivering on that. Yes, sir.
    The Chairman. And continue to work with them means what to 
you, Mr. Lopez?
    Mr. Lopez. I just don't know. Right now, what I want to 
respond to was if their whole intention is to put Chrysler, 
Dodge and Jeep under one roof, and I am that. And I am a 
profitable store. They have asked me to make some changes for 
our software. I have. If I have to make some changes for my 
building, I will be glad to do that. I am looking--and it's not 
personal. It's not just for me or my income. We are a 
profitable store. But our community, just like you said, and 
that's--and I want to thank you. I appreciate everything that 
you do for us, Senator. You look out for us and that's why we 
are here today. And if I seem intense, it's because my 
livelihood and my community cares about what happens to Spencer 
Auto Group. And I thank you.
    The Chairman. I thank you. Senator Hutchison.
    Senator Hutchison. Thank you, Mr. Chairman. I just want to 
come back, because I hear you saying 90 percent, 97 percent are 
going to be transferred, and you have that out. You have the 
information out and yet, I've heard from these two, from Mr. 
Whatley and Mr. Lopez, but also from other dealers, that they 
have not heard this. They don't have a comfort level that they 
are going to be taken out. So many of these dealers, I am told, 
are selling at fire sale prices to the surviving dealers and 
that's not right.
    And when we left here 10 days ago, I thought that was going 
to be avoided because of your commitment to work with the 
dealers. So there really is a disconnect that I want to connect 
right now. Why don't they and others know that they don't have 
to sell at fire sale prices: not parts, not specialized 
equipment, not inventory?
    Mr. Press. I know only of Mr. Lopez's situation. I don't 
know about Mr. Whatley, but we have had communications with the 
dealers and offered them the opportunity to enlist our 
assistance in the redistribution process. The majority of the 
dealers signed an agreement, allowing us to do that. A small 
number of dealers have not. They are preserving their effort 
through a legal effort to stop this process. We went ahead and 
got commitments for that inventory anyway. And as soon as they 
sign the agreement, they will be notified of how the status of 
their inventory is, and if you would like, I would more than 
happy today to discuss that directly with Mr. Lopez, because I 
think it's important that this transparency be known.
    Senator Hutchison. Well, you said earlier that you appealed 
to the dealers and because Mr. Whatley took everything you 
asked him to take, every time you asked, you're not--you didn't 
go into bankruptcy earlier this year, you are now, but here is 
Mr. Whatley. I hear what you are saying and I hear what they 
are saying, and it's not the same thing. So we want----
    Mr. Whatley.--I just don't understand the 97 percent. I 
don't doubt Mr. Press at all. I think they may have identified 
97 percent of the vehicles, but I have talked to--I talk to 10 
to 15 dealers a day, from East Texas to West Texas, and no one 
has heard a thing from the business center. No one has seen a 
report. No one has been inquired about their inventory. No one 
has even asked what inventory they have. I just don't know 
where this 97 percent is coming from.
    Senator Hutchison. Mr. Press, can you today tell every 
Chrysler dealer that got, the 789, that they do not have to 
sell at fire sale prices, that they will have a communication 
from you, that you will arrange--that you have arranged for 97 
percent, or whatever the percentage is, for the transfer, so 
they know? Can they count on that right now?
    Mr. Press. Absolutely yes, and as soon as the dealers who 
haven't signed a release allowing us to take that 
responsibility, we will provide that to them directly as well.
    Mr. Whatley. But see, everything about this is a request to 
other dealers to buy. There is no actual firm--they are 
requesting other dealers to buy the inventory, and they are 
going to try and assist in the sale, but there is no actual 
plan. The dealers, every dealer's biggest fear is that on June 
9, we lose all options on these cars. We can no longer sell 
them. No can no longer dealer trade them. They have no 
incentives, no rebates, no warranties. They are just planter 
boxes on June 9th. Our biggest fear is that on June 9, Chrysler 
will attempt to relocate these cars, and we get a call on about 
June 12, June 13, saying, ``Fellas, we did our darnedest and we 
just couldn't get 'er done. Good luck.''
    What are we supposed to do at that point?
    Mr. Lopez. Or they sell them for $12,000 and they are 
$25,000 cars. And we have to pay off our floor plan.
    Mr. Whatley. Yes, because on the report it also says that 
dealers will pay for any loss or deficiency on the final sale 
of the vehicle. I am scared that that means that we are just 
going to end up going to the auction, and whatever they bring, 
you pay us the difference and there you go.
    Mr. Lopez. We have to pay the difference.
    Mr. Press. I am sorry, gentlemen.
    Senator Hutchison. Mr. Press, Mr. Press?
    Mr. Press. We have published to those dealers who have 
signed the release exactly how much money they will be paid. 
They are paid everything that they have in the car, except for 
a charge for inspection and transportation, and in fact, we do 
not plan to have the dealers left with the cars. We must take 
them so we can control all of the residual values and put them 
back into our system. And as I said, right now, our inventory 
is the lowest it has ever been since we kept track. Since we 
are not building cars, there is a substantial demand for these 
vehicles, and I think the disconnect may be only talking to 
those dealers trying to preserve a legal case who have not 
signed the release, that would be the same information. But the 
bulk of these dealers who have signed the release, they would 
have good information, and I would love to keep communicating 
with these gentleman.
    Mr. Whatley. Senator Hutchison, I did sign the release, and 
I was informed by the business center, mine was the very first 
one in, so they have had it plenty long enough to get me a 
report.
    Senator Hutchison. Can I just count, Mr. Press, on your 
word today that you have made in this public forum, to every 
dealer who has signed the agreement, that they don't have to 
sell at fire sale prices, and they don't have to have the fear 
that has just been stated by both of these dealers?
    Mr. Press. Absolutely, yes.
    Senator Hutchison. Thank you.
    Mr. Lopez. Thank you.
    The Chairman. We have been joined, gloriously and happily 
by Senator Bill Nelson, who has not even had a chance to ask a 
question, much less make an opening statement, which I know he 
is not going to do.

                STATEMENT OF HON. BILL NELSON, 
                   U.S. SENATOR FROM FLORIDA

    Senator Nelson. Mr. Chairman, I did not make an opening 
statement. I will submit it for the record. But I just have one 
question, and I would like to address to the two CEOs. Between 
the two of your companies, you received $80 billion in bailout, 
and you have now, between the two of your companies, requested 
another $36 billion. That's $116 billion. Now, if you quibble 
with the numbers, whatever it is, it's large. And so, what I 
would like you to address because of the failures of the 
management of your two companies, a lot of people are losing 
their jobs. And I would like for you all to address the 
mechanics that are losing their jobs, the clerical workers, the 
kids that do the detailing of the cars, and the salesmen, and 
please, share with them, where did all that bailout money go?
    Mr. Henderson. In the case of General Motors, the monies 
that have been received so far, Senator, have been used to 
finance the losses that we incurred, this year and late last 
year. And with respect to the monies that will be dispersed to 
us pursuant to the bankruptcy, it would be our expectation to 
use them to both fund losses and restructure the business. 
That's how the monies will be used.
    Mr. Press. I can't confirm the amount. I think our company 
is around $15 billion or so, so I am not sure what the amount 
is. It would sound much bigger. From our standpoint, we are 
spending about $100 million-a-day of DIP financing, through the 
bankruptcy. That's one of the reasons we need to get through 
that. That's taxpayer money. And we utilized the initial funds 
for the fact because of the meteor hitting the industry, and we 
are in a depression, and there is insufficient volume to be 
able to pay the cost to keep the companies afloat, we did find 
and were given approval for an alliance and a new company to be 
formed with Fiat, that will give us a new product line, a new 
company, a new start, and a return on an investment to the 
taxpayers that will be much better than most investments 
they'll have.
    Mr. Henderson. Senator, just to clarify, our number is also 
big, so your second point is absolutely right. I didn't 
understand where the first number came from, but that's beside 
the point. Your point is absolutely right. It's our 
responsibility, as it is in Chrysler's case, to justify not 
only the support we were provided by the U.S. taxpayer, the 
Canadian taxpayer; the taxpayers of Ontario, that will be the 
principal shareholders of the company, as well as the 
beneficiaries of a healthcare trust to get their healthcare 
from the stock, if you will, to justify the confidence, to 
perform, to deliver value for them, and to make the sacrifices 
that are being made today worthwhile, so we only do it once. 
Thank you.
    Senator Nelson. Well, you see, we have to ask ourselves the 
question in trying to protect the interest of the American 
people. We committed an awful lot of taxpayer money to try to 
save all those jobs that are now being cut. And a lot of the 
condition that you find yourself in is because the executives 
were too hard-headed over the course of the last three decades, 
when many of us were begging with you to make higher miles per 
gallon, to do cars that would revolutionize the transportation 
system of personal people, and that would compete with what you 
saw was happening. But you wouldn't do that. And each year we 
tried a simple little thing like raising miles per gallon, a 
combination of the automobile lobby, aided and abetted, I might 
say by the dealers, in combination and cohort with the oil 
industry, beat us back every time. If it had anything to do 
with higher miles per gallon, we got beat.
    As a matter of fact, on most of the innovations, the 
automobile industry of America was the last to bring in 
innovations. And let me give you an example. Back in the early 
1980s, we had forced the automobile industry to start 
experimenting with airbags. And there just happened to be in 
one of those experimental vehicles that the owner did not know, 
because it was put in there for that purpose. A grandmother and 
her granddaughter in a head-on collision on Highway A1A in 
Satellite Beach, Florida, and the grandmother and the 
granddaughter walked away from the wreck. What dramatic 
testimony on behalf of airbags. And yours truly, who was a 
member of the House of Representatives at the time, begged and 
begged to get airbags because there was demonstrable truth that 
it worked.
    But no, it was too costly. The American public didn't want 
it and so forth. It's another indicator of the choices of 
management that have led us to this day, where $116 billion of 
taxpayer money is going in, and people are still losing their 
jobs.
    So, Mr. Chairman, I get a little worked up, but I don't 
like to see our people suffer like they are. I don't like to 
see--it was earlier talked about--Tamiami Chrysler Dodge. Now 
as I understand it, you all are working something out. They are 
Hispanic. You want them to move to another location, but you 
are still going to put them on the list next week.
    I don't like to see Sunshine Dodge going out, with all 
those jobs. This, of course, is personal to us because we live 
in those communities. And here we are, the U.S. Government 
having been seduced and cajoled and fooled, Mr. Chairman, for 
years and years and it has led us to this point.
    The Chairman. Very well said. Senator Klobuchar.
    Senator Klobuchar. Thank you very much. I will be brief 
here. I just wanted to make one point that I have heard from 
some of my colleagues about being uncomfortable because of this 
unique situation. And I just want all of the witnesses to know 
that we have had hearings before that don't involve a company 
that have received government funds. We have had hearings 
about--I was just thinking back. We just had one on the 
newspaper industry and how we could try to figure out if there 
is changes to the laws to help them. We have had hearings on 
the Delta-Northwest merger, hearings on Chevron, hearings on 
pro sports players and their pensions. So I just wanted to say 
to the Chairman that I don't think it's uncomfortable to be 
talking about this. We would rather not, we would rather not be 
here right now, but our job as the Commerce Committee is to 
deal with peoples' jobs and companies and the livelihoods of 
people. So I just wanted to make that point because people have 
kept saying about their level of discomfort. This is what we 
are supposed to be doing.
    And along those lines, my focus here is on, I mentioned 
some our dealers here, Laurel Nelson. I notice that there are a 
lot of women dealers as well. And George McGuire from Shakopee, 
and these people, and I am very focused, as I have noticed that 
Senator Hutchison is on the nuts and bolts or this, or maybe we 
should say the windshield wipers and the tire rims, just trying 
to figure out what we can do here. And so just to summarize 
here, what we have here is some commitment that we will--a 
commitment that from Chrysler, that in fact, it's very clear 
that you are going to redistribute these parts and they are not 
going to have to pay cheaper prices; is that right? And can you 
tell them that they are going to be sold?
    Mr. Press. We will tell them that they will be 
redistributed, both the vehicles, the parts and the special 
tools.
    Senator Klobuchar. But you are not--you can't commit that 
they will be sold, even though they bought, some at your 
urging? Do you remember when there were a number of our dealers 
that were told please buy these to keep Chrysler alive, you 
know, back earlier in the year? So they bought more cars than 
they might have otherwise.
    Mr. Press. We will--redistribution would be selling those 
cars from the dealers that are not going forward to the dealers 
that are going forward. They will be sold to those dealers.
    Senator Klobuchar. And what do you think the chances are 
that they are going to be sold? So redistribute to you means 
100 percent commitment that they will be sold?
    Mr. Press. They will all be redistributed.
    Senator Klobuchar. Sold?
    Mr. Press. They will all be redistributed. They will all be 
sold to other dealers, if that's--I don't want to get caught up 
by terminology.
    Senator Klobuchar. So they will get their money?
    Mr. Press. They will get their money for all of the cars 
that are redistributed.
    Senator Klobuchar. Then--I am just going to get what I can 
here. Mr. Henderson, also you said that you would commit that 
this appeals process would happen, and that you have already 
said that a few of the decisions have been reversed. I don't 
think that anyone is Pollyannish about this. They don't think 
every decision will be, but you--that GM will be looking at 
these decisions, and in good faith?
    Mr. Henderson. Senator, you have our commitment in that 
regard.
    Senator Klobuchar. All right. And then your situation is 
that if these people sign the agreements that they then--the 
cars, you are going to buy back these cars and parts?
    Mr. Henderson. In the case they sign the wind-down 
agreements, we have every confidence that they will sell down 
the cars and parts in a 16-month period.
    Senator Klobuchar. And then, we don't want to get here, but 
if they are closed down, they will--and you do reopen, you 
won't commit to them, but they will be in the running to be a 
new dealer; is that what you are saying, both of you? I am just 
trying to figure out--Senator Hutchison's Waco example, where 
you are shutting down all three dealerships--my guess is they 
are going to have a dealership in Waco?
    Mr. Lopez. Excuse me, Senator. He just guaranteed that to 
us, Senator Rockefeller, 10 minutes ago.
    Senator Klobuchar. OK. Very good. Well, thank you, Mr. 
Lopez. I am just summarizing everything, because it's always 
good to get it once, twice, or three times; don't you think, 
like all those signatures you guys require when we buy cars? 
OK.
    So that the plan here would be that they would be able to 
be a dealer, and we feel we have some profitable dealers in 
Minnesota that would be very interested in doing that. So 
that's--any other commitments that we can get here, for helping 
these guys?
    Mr. Henderson. Everything we will do, as I said, is in our 
continuation agreement. We will be meeting with the NADA this 
week, Friday actually, to address their concerns about our 
continuation agreement for those dealers who will be going 
forward with us. Thank you.
    Senator Klobuchar. OK. Very good. And one last question, 
just for you Mr. Press. I know it is getting late. Did Fiat 
require you guys to reduce the number of dealers?
    Mr. Press. Fiat did not require a number. The agreement 
does have a new dealer organization, a viable dealer 
organization going forward is one of the requirements, and we 
are producing that. They did not require a reduction.
    Senator Klobuchar. OK. Thank you and thank you for your 
time.
    The Chairman. Thank you, Senator. And our final question 
will be from Senator Johanns.
    Senator Johanns. Mr. Chairman, thank you. How many, Mr. 
Press, how many minority dealers are going to be put out of 
business by your action here?
    Mr. Press. The minority dealer reduction is exactly the 
same of the total dealer body reduction. Actually, the share of 
dealers that are minority dealers increases a small amount.
    Senator Johanns. I am not interested in share. Raw numbers, 
tell me how many are going to be out of business.
    Mr. Press. Thirty-eight.
    Senator Johanns. Thirty-eight? Mr. Henderson, how many 
minority dealerships will be out of business because of your 
action?
    Mr. Henderson. Of our 230 minority dealers who are in the 
brands that will go forward with us, 44 will be affected by 
this action, or 19 percent, which is less than the average, 
sir.
    Senator Johanns. OK. You talk about the Auto Task Force 
putting pressure on you to close more dealerships. The report 
on March 30 criticized you for not being aggressive enough. Did 
you have a plan or a notion prior to March 30 as to how many 
dealership General Motors would close?
    Mr. Henderson. Two things changed, sir. One is we actually 
accelerated our brand rationalization. So, for example, we have 
dropped the Pontiac brand, which brought forward a series of 
actions that we otherwise would have taken later, number 1.
    And number 2, our plan called for us arriving at about the 
same level of dealers at the end of our business plan period, 
which was 2014, and the view was that was too long, that we 
needed to actually move faster on this, which we did. And so we 
will arrive at roughly the level that was in our original plan 
by the end of 2010, not 2014.
    Senator Johanns. OK. So you have aggressively accelerated 
it as a result, partially, at least, to the criticism you 
received from the Task Force?
    Mr. Henderson. We knew what the right business decision 
was. The question is what time? So, yes, we took the action 
because we thought it was the right thing to do, but in fact, 
we needed to and did take into account the findings of the Task 
Force.
    Senator Johanns. So as a result, how many dealerships that 
might have been given three, four more years were now 
accelerated?
    Mr. Henderson. Some part of them, again, as I said, 
Senator, were driven by our brand decisions. So those were 
company decisions that had nothing to do with the Task Force. 
And with respect to the acceleration, it would be hard for me 
to actually put the number on it, but I would think you would 
say probably 500 to 1,000.
    Senator Johanns. Five hundred to 1,000?
    Mr. Henderson. Yes.
    Senator Johanns. And I am assuming you know, today, 
although I would prefer not to say this, today I represent 1.7 
million people in Nebraska who own your company, 60 percent at 
least, when it is all said and done. I don't think that most of 
them want to own your company. But having said that, I am 
assuming that when the government now speaks, you are going to 
pay attention. After all, we are the owners.
    Mr. Henderson. In our case, sir, with 60 percent held by 
the taxpayer, we absolutely need to respect that, yes.
    Senator Johanns. OK. Now let me ask you another question, 
if I could. State franchise laws, I am a former Governor, we 
worked with these dealers. You know, they worship with us, they 
buy groceries with us. They are a part of our community. And I 
will tell you personally, I buy vehicles based upon the trust 
they create, not on the fanciness of their dealership, to be 
very blunt about it. I think most people feel that way. So when 
you look at going forward, how are you going to factor in small 
communities, where maybe they are not selling a lot of cars, 
but they are contributing to the community. They do support the 
softball program, or are they just out of luck now?
    Mr. Henderson. Senator, as I said, in the case of General 
Motors, of about the 3,600 dealers, in the mid point of the 
range, about 1,500 of them that will be in the small towns in 
the U.S. and we will have, by far, the largest footprint still, 
even with the reductions.
    Senator Johanns. Those jobs are nearly impossible to 
replace. Having been a Governor and a mayor, I can tell you 
that.
    Let me wrap up with this, and I will ask you both this 
question. I have heard what you have kind of represented and 
promised, but I have to tell you, just to be honest with the 
dealers in the room, I think you are going to walk out of this 
hearing today, and 95 percent of what was decided before 
hearing started isn't going to change. They are still going to 
lose their dealership. We may work with them. You may work with 
them. Not me, you may work with them a little bit more, but in 
the end, they are going out of business, aren't they? Mr. 
Press? And don't give me a long answer. The gavel is going to 
come down. Just give me a yes or no.
    Mr. Press. Yes.
    Senator Johanns. Mr. Henderson?
    Mr. Henderson. Yes, sir.
    Senator Johanns. Thanks.
    The Chairman. Those were thoughtful and helpful questions. 
In closing, I should point out that Senators Lincoln, Senator 
Nelson of Nebraska, and Senator Kohl of Wisconsin had asked for 
the Committee to pursue a line of questioning surrounding the 
closing of the dealerships, presumably in their states. Without 
objection to these statements, questions on their part would be 
a matter of the record.
    Also, without objection, all full statements of Committee 
members will be included in the hearing record. And at the 
advice of my distinguished Ranking Member, if members have 
questions, further questions, they would like to be able to get 
them to you and have them--and this may be hard, but it can be 
done--have them answered by Friday.
    Are you willing to do that?
    Mr. Henderson. Yes, sir.
    Mr. Press. Yes.
    The Chairman. Good. Finally, I want to thank everybody for 
being here. It's a long hearing, a lot of emotion, a lot of 
things weren't said that people wanted to say. It was a tough 
hearing, but it was sort of at the very fulcrum of where we are 
going in America, or where we are not. Who is going to make it 
and who is not. How are our systems working? How are we paying 
attention? And I consider it a very valuable hearing. I 
considered the audience a very courteous audience, and the 
panel, all of them, helpful and straightforward with us. Having 
said that, this hearing is adjourned.
    [Whereupon, at 5:52 p.m., the hearing was adjourned.]
                            A P P E N D I X

               Prepared Statement of Hon. John F. Kerry, 
                    U.S. Senator from Massachusetts
    For many months now, we have followed the very public struggles of 
the Big Three Auto Manufacturers. Perhaps no other industry has felt 
the pain of this economic recession as acutely as the U.S. auto market. 
Last month, that pain found its way into just about every community in 
America as Chrysler announced the termination of its relationship with 
nearly 800 dealerships.
    In my home state, we are seeing the effects of 12 of those 
terminations. As a result, hundreds of jobs will be lost and millions 
in income and state tax revenue will vanish. Dealerships that have 
stood for decades in towns across Massachusetts and across the country 
will be forced to shut their doors and workers' families are wondering 
what happens next. And just this week, we learned that 1,100 General 
Motors dealerships will meet the same fate at the end of 2010.
    For the dealerships that received notices in the mail and for the 
millions of employees that have built careers and lives around them, 
there can be little consolation. As part of the massive restructuring 
that is required to sustain a viable and competitive U.S. automobile 
industry, short-term pain at every level of the supply chain is 
unavoidable.
    But during this process, we need to take every step to make sure 
that the pain is minimized, and that the dealerships and their 
employees do not bear undue hardship as a result of the rules of the 
bankruptcy process. Ranking Member Hutchison introduced an amendment 
that I cosponsored during the debate on the Supplemental Appropriations 
bill to block Federal aid payments unless the termination date for 
Chrysler dealerships was extended. I also wrote to Secretary Geithner 
expressing my concerns and asking for his help to prioritize and 
preserve as many jobs as possible and to limit the impact on workers 
and their families.
    I hope that we hear a commitment from both manufacturers today that 
steps will be taken to ease this transition, and I will continue to 
work with my colleagues to examine every possible approach for 
mitigating the pain at the end of the supply chain.
                                 ______
                                 
                                               Chrysler LLC
                                    Auburn Hills, MI, June 12, 2009
Hon. John D. Rockefeller IV,
U.S. Senate,
Washington, DC.

Hon. Kay Bailey Hutchison,
U.S. Senate,
Washington, DC.

Dear Chairman Rockefeller and Ranking Member Hutchison:

    Thank you for the opportunity to respond to the concerns raised in 
your June 9 letter. As I highlighted last week at the Senate Commerce 
Committee hearing, it is critically important that the new Chrysler 
Group have a viable, realigned dealer network on day one. Despite a 
painful restructuring, Chrysler Group LLC will retain 86 percent of 
Chrysler dealers by volume and 75 percent by location. I can empathize 
with the dealers who were not brought forward into the new company, and 
can understand their disappointment. This has been the most difficult 
business action I have personally ever had to take.
    The concerns you have raised are addressed in order below:
Vehicle Inventory, Parts and Special Tools
    Regarding the concerns you have outlined relative to inventories, 
parts and special tools, Chrysler has made a commitment to its 
discontinued dealers that 100 percent of the inventory on their lots 
will be purchased at cost minus a $350 inspection, cleaning and 
transport fee. Through a letter dated June 5, 2009 Chrysler informed 
all discontinued dealers that we will guarantee the re-distribution of 
100 percent of eligible vehicle inventory. We have successfully found 
buyers for 100 percent of the outstanding vehicle inventory, and 
dealers requesting our assistance have received commitments for 80 
percent of their parts inventory. We will continue to work with the 
discontinued dealers to redistribute their parts inventory for the next 
90 days. After that time we will commit to repurchase remaining 
qualified parts inventory from those dealers at the average transaction 
price for all parts already redistributed. We will also continue to 
work to redistribute all remaining special tools.
Dealer Terminations and Market Re-entry
    While some profitable dealers were not retained by Chrysler, it is 
important to note that profitability alone is not an adequate measure 
and is one of several elements that determine a dealer's viability and 
value to Chrysler. The factors we considered in making these decisions 
included:

   Total sales potential for each individual market

   Each dealer's record of meeting minimum sales responsibility

   A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

   Facility that meets corporate standards

   Location in regard to optimum retail growth area

   Exclusive representation within larger markets (Dualed with 
        competitive franchise)

   Opportunity to complete consolidation of the three brands 
        (Project Genesis)

    Dealers may be profitable while not meeting their Chrysler new 
vehicle ``minimum sales responsibility'' level. For example, a dealer 
may focus on maintaining a low cost structure through a lack of 
modernization, a heavy emphasis on used vehicles, lack of investment in 
training and capacity. Therefore, a dealer could be profitable while 
not meeting their new vehicle sales and customer satisfaction 
obligations.
    Also, we understand and value the loyalty and experience 
represented in many of the discontinued dealers. As we consider market 
re-entry or expansion in the future, Chrysler Group LLC will commit to 
provide non-retained dealers with an opportunity for first 
consideration of new dealerships that the company may contemplate.
Providing Transparency in the Decision-making Process
    To achieve the necessary realignment, we used a thoughtful, 
rigorous and objective process designed to have the least negative 
impact while still creating a new dealer footprint scaled to be viable 
and profitable for the long-term. Factors in the decision-making are 
outlined in the second question above.
    Upon request, we will share with any dealer the rationale and 
specific data used in making the decision on the dealer separation.
Consumer Protection
    Bankruptcy is a very difficult process requiring hard choices and 
painful decisions. The bankruptcy process has impacted all existing 
stakeholders. With a failed enterprise, there are many who suffer 
significant losses. Traditionally in a bankruptcy, liabilities such as 
product liability claims are not carried forward into the new 
enterprise. The judge found this decision to be within the debtor's 
sound business judgment, and it is a customary bankruptcy outcome. Any 
product-related claims arising from vehicles sold by the New Chrysler 
will be addressed by the new company. This is consistent with the goal 
of a Chapter 11 bankruptcy, which is to create a framework enabling a 
vibrant, sustainable new company to emerge.
Consumer Access to Service in Rural Areas
    There will be over 2,300 remaining Chrysler, Jeep and Dodge 
dealerships conveniently located with the parts and trained technicians 
to service consumers' vehicles. Based on registration data, our 
customers reside an average of 6.28 miles from the nearest Chrysler, 
Jeep or Dodge dealer now; this distance will increase to 6.80 miles 
after the consolidation. With regard to rural dealers, the distance 
increases from 9.72 to 10.70 miles. Even with the consolidation, our 
dealers on average are more conveniently located to customers than 
Toyota or Honda dealers are to their customers.
    Additionally, we will consider companion facilities to address 
potential sales and service issues in areas of concern. Chrysler will 
send a letter to all customers notifying them of the four nearest 
dealers who can provide service. It is not in Chrysler's interest to 
abandon existing customers to the detriment of future parts and new 
vehicle sales.

                                         Customer Convenience Comparison
                      Average distance in miles a customer must drive to reach a dealership
----------------------------------------------------------------------------------------------------------------
                                              Old        New
                                           Chrysler   Chrysler   Change    Toyota     Honda     Chevy     Ford
----------------------------------------------------------------------------------------------------------------
Metro                                          4.45      4.82      0.37      5.01      5.11      4.10      4.23
Secondary                                      6.08      6.44      0.36      7.38      7.58      5.69      5.76
Rural                                          9.72    10.70       0.98    19.27     24.27       8.04      8.69
----------------------------------------------------------------------------------------------------------------
Total                                          6.28      6.80      0.52      9.11    10.31       5.58      5.81
----------------------------------------------------------------------------------------------------------------

Placement Assistance for Chrysler Technicians
    Chrysler is sensitive to the job loss associated with the non-
retained dealers. In an effort to assist employees, a job posting 
website is currently being developed in partnership with 
Careerbuilder.com. This website will list jobs that are available at 
Chrysler dealerships nationwide to the extent such information is 
provided to us. Additionally, there will be a resource section to 
provide ``how to'' tips on items like resume building and job interview 
techniques.
    Again, I appreciate your concerns and want to assure you that we 
are doing everything we can to support the dealers that are not going 
forward and to ensure that the new company going forward is successful.
            Sincerely,
                                            James E. Press,
                                       Vice Chairman and President.
    cc:

Senator Daniel K. Inouye
Senator Olympia J. Snowe
Senator John F. Kerry
Senator John Thune
Senator Byron L. Dorgan
Senator Roger F. Wicker
Senator Bill Nelson
Senator Sam Brownback
Senator Maria Cantwell
Senator Mike Johanns
Senator Mark L. Pryor
Senator Frank R. Lautenberg
Senator Amy Klobuchar
Senator Claire McCaskill
Senator Mark R. Warner
Senator Mark Begich
Senator Barbara Boxer
Senator Tom Udall
      
                                 ______
                                 
Response to Written Questions Submitted by Hon. John D. Rockefeller IV 
                             to James Press
    Question 1. In your testimony, you stated that Chrysler will 
terminate multiple franchises in several specific areas, then open a 
new, large dealership under different ownership that covers that same 
area. How many current Chrysler, Dodge and Jeep franchises are 
scheduled to be closed down and then replaced by a new dealership after 
Chrysler leaves bankruptcy? Please list the name and address for each 
of these dealerships.
    Answer. There were 152 dealerships rejected that will ultimately 
result in 119 Chrysler Jeep and Dodge dealerships. (The list of dealers 
is in Appendix A.)

    Question 2. Several West Virginia dealers have asked why terminated 
Chrysler dealerships cannot continue to serve as Chrysler service-only 
centers that do not sell new cars? Is Chrysler open to having former 
Chrysler dealerships service cars in rural areas where the next 
Chrysler dealer is hours away?
    Answer. Chrysler and its dealers agree in the Sales and Service 
Agreement that only authorized Chrysler dealers are permitted to 
perform warranty work. Permitting warranty service by non-franchised 
dealers would adversely impact the financial performance of remaining 
dealers. Further principal reasons for this requirement are to provide 
for proper performance of safety and emissions recalls, and for 
customer satisfaction. Consequently many state franchise laws prohibit 
service operations without a new vehicle franchise.

    Question 3. Can terminated Chrysler dealers continue to purchase 
used Chrysler cars through Chrysler's ``closed sales''?
    Answer. Not retained dealers will still be able take advantage of 
the many open auctions but they will not have access to closed 
auctions. Providing such access would adversely impact the ability of 
the remaining dealers to maintain buy and sell this product.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Daniel K. Inouye to 
                              James Press
    Question 1. I thank the leaders of Chrysler and General Motors, and 
auto dealership owners from West Virginia and Texas for coming to 
Congress today to testify about the termination of auto dealerships 
across America and its impact on many U.S. workers. As a result of 
these terminations, American consumers face a number of disadvantages, 
namely less competition among dealerships, less access to original 
manufacturer parts, longer distances to service centers that can 
perform original warranty service, and longer distances to service 
centers for specialist repairs.
    In my home state of Hawaii, the matter is not as simple as the 
inconvenience of driving to another town or another city for auto parts 
and services. Island Dodge, a Chrysler dealership on Maui, received 
notice of termination from the manufacturer, and was given 17 business 
days to close, and that action has grave effect on both Island Dodge 
and its employees, as well as Maui Chrysler car owners. Car owners 
calling the customer service line have been instructed to contact 
service centers on the island of Oahu, and the cost of shipping alone 
from Maui to Oahu is more than $300. I would like to find out on behalf 
of these car owners how Chrysler plans to provide warranty work on 
vehicles located on Maui when the only authorized Chrysler dealership 
on that island is being closed.
    Answer. Discussions are underway with a local service provider in 
this market. Customers will be able to have all service needs 
addressed, including warranty. A communication plan is in effect to 
advise owners of this service facility.

    Question 2. I am also told that Chrysler will not purchase the 
expensive inventories of parts and special tools that can only be used 
on Chrysler, Dodge and Jeep products. I wish to inquire what plans 
Chrysler has to help dealerships wind up business, and whether Chrysler 
will, in earnest, assist companies like Island Dodge to transfer parts 
and tools inventories to dealerships that are not losing their 
franchise, and to do everything that Chrysler can to prevent isolated 
franchises like Island Dodge on Maui from being left with owning 
Chrysler parts and tools.
    Answer. Yes--Chrysler will assist Island Dodge with the re-
distribution of vehicle inventory, parts and special tools (they have 
signed the Inventory Assistance Acknowledgement Form.)
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Kerry to 
                              James Press
    Question 1. Please explain in detail the specific criteria and 
information you are using to decide on what dealerships and plants to 
close.
    Answer. With respect to Dealerships:
    The decisions made to either continue or discontinue dealer 
contracts were based on a consistent process that looked at all market 
types, Metro, Secondary, and Rural. This analysis reviewed many factors 
that are unique for each market and dealer.
    These factors included:

        Total sales potential for each individual market

        Each dealer's record of meeting minimum sales responsibility

        A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

        Facility that meets corporate standards

        Location in regard to optimum retail growth area

        Exclusive representation within larger markets (Dualed with 
        competitive franchise)

        Opportunity to complete consolidation of 3 brands (Project 
        Genesis)

    Plant closure decisions are largely based on industry volumes and 
forecasted demand. As Jim Press mentioned, we are going to be a much 
smaller company by volume when the new company emerges from bankruptcy. 
This significant reduction in volume translates to plant actions.

    Question 2. What assistance (financial and support services) does 
Chrysler plan to provide to the thousands of displaced workers and 
their families?
    Answer. As we have stated previously we anticipate that most not 
retained dealerships will remain open because of dualed franchises and 
used vehicle sales. We are establishing a website to help place 
dealership employees who lose their positions--helping them to 
transition to dealers who will be continuing with us. Due to our 
current financial situation, we cannot provide any financial support to 
the displaced workers and families. In normal circumstances, we could 
not compensate displaced employees of independently owned businesses 
and we do not have the funding to make an exception.

    Question 3. I understand that your dealer franchise agreements 
require Chrysler, as the manufacturer, to repurchase a dealer's new car 
inventory and parts inventory at the dealer's cost in the event of a 
termination or surrender of the dealer's franchise. Is that correct?
    Answer. Yes--Under normal business operation, Chrysler would 
repurchase the eligible vehicles, parts and tools of a terminating 
dealer. (Not all vehicles or parts are eligible for repurchase--many 
states have different statues that determine this.)

    Question 4. In the bankruptcy, will Chrysler honor this obligation?
    Answer. Through a letter dated June 5, 2009, Chrysler informed all 
not retained dealers that we will now guarantee the re-distribution of 
100 percent of eligible vehicle inventory for dealers who have signed 
the ``Inventory Assistance Acknowledgement Form''. Additionally we will 
facilitate the re-distribution of parts and special tools.

    Question 5. If not, how can a terminated dealer be expected to 
dispose of the inventory in a short timeframe?
    Answer. Chrysler has and will continue to assist not retained 
dealers, upon receipt of the signed ``Inventory Assistance 
Acknowledgement Form'' with the re-distribution of vehicle inventory, 
parts and special tools.

    Question 6. Is it realistic to expect customers to buy new cars 
from a dealer that has been terminated or designated for termination?
    Answer. Actual customer behavior indicates that the answer to this 
question is yes. Historically the not retained dealers have accounted 
for 14 percent of sales (and 25 percent of dealer count). In the month 
of May the not retained dealers accounted for 20 percent of retail 
sales. So far in June they account for 26 percent of sales.

    Question 7. Is it fair to put that burden on the dealers that have 
been terminated?
    Answer. There's no question that Chapter 11 has been a painful 
process. While a number of elected officials, commentators, and other 
observers of the industry have advocated bankruptcy for the company, it 
was not Chrysler's first choice. However, at this point, we are 
committed to do our best to create a new company that will succeed in 
the long term. We recognize that you and your constituents have a stake 
in our success, and that's why we are committed to take the tough but 
necessary actions to build a new Chrysler that is fully able to compete 
and win. To do that we must provide the American public fuel-efficient 
vehicles with strong consumer appeal and a strong, high-quality and 
viable dealer network: One without the other will fail.
    Many of our stakeholders have made unprecedented sacrifices. In 
that perspective, the sacrifices of the dealer network are comparable 
considering that 27,000 Chrysler jobs were eliminated, the UAW accepted 
wage and benefit cuts that place them on a par with workers at 
transplant operations; many suppliers have experienced pricing 
reductions in addition to significant job losses resulting from reduced 
volumes, and many are retirees losing a significant portion of their 
pensions. Given the auto industry depression, Chrysler had no choice 
but to seek Chapter 11 protection. Facing that reality, we used a 
thoughtful, fair process, and we are doing everything possible to 
soften the impact to everyone affected.

    Question 8. Would allowing the Dealers scheduled for termination or 
non-renewal to continue on as Certified Used Vehicle Dealers, without 
the ability to sell new vehicles, change your cost savings estimates?
    Answer. All major auto manufacturers have some form of Certified 
Used Vehicle program. Generally these vehicles are obtained through 
auctions open to franchised dealers only. Permitting non-franchise 
dealers to participate in these auctions and certified programs would 
be a financial detriment to retained dealers.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Byron Dorgan to 
                              James Press
    Question 1. I have heard from many of the dealers in my state that 
cutting dealerships will not save your company money. They point out 
that they are your customers, not cost centers. Can you outline the 
specific costs associated with maintaining a dealer network?
    Answer. Examples of Lost Revenue and Cost Associated with 
Discontinued Dealers:

  Product engineering and development          $1.4B over 4 years
 for ``sister products'' Lost sales due to dealer                 $1.5B revenue annually
 underperformance: (789 dealers underperformed
 by 55,000 units in 2008) Administrative cost to maintain the               $33M annually
 789 discontinued dealers: Marketing and advertising                        $150M annually

    Question 2. Our dealers point out that your companies don't spend 
money on ad buys in North Dakota communities. Most of the advertising 
comes from national ad buys. They also tell me that they pay for the 
training, materials, signs, etc. And it's my understanding that your 
reps don't call on our rural dealers very often. So I assume that your 
cost of maintaining a rural dealership is less than a large dealer in 
an urban area. Can you tell me what it costs you to have a franchise in 
a rural community?
    Answer. On average it costs the Corporation $41,700 annually to 
support a dealer in our network. (See Appendix B)

    Question 3. I assume most car dealers are smart small business men 
and women. If their operation is not profitable, why would they 
continue to be in business?
    Answer. The decisions made to either continue or discontinue dealer 
contracts were based on a consistent process that looked at all market 
types, Metro, Secondary, and Rural. This analysis reviewed many factors 
that are unique for each market and dealer.
    These factors included:

   Total sales potential for each individual market

   Each dealer's record of meeting minimum sales responsibility

   A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

   Facility that meets corporate standards

   Location in regard to optimum retail growth area

   Exclusive representation within larger markets

    Question 4. You noted that most of the dealers you are closing will 
continue to operate as used car businesses. But our dealers say that 
without the new car business, it will be hard to survive. Their used 
car business depends on trade-ins and their reputation. Can you comment 
on that?
    Answer. There are thousands of solely used car dealers in the U.S 
with good reputations. As we have publicly stated, the vast majority of 
the not retained dealers have established successful used car 
businesses. 83 percent of the not retained dealers sell more used 
vehicles than new and 24 percent selling 2 used for every new.

    Question 5. Why wouldn't you allow the dealers that you are closing 
to continue to perform service work under warranty?
    Answer. Chrysler and its dealers agree in the Sales and Service 
Agreement that only authorized Chrysler dealers are permitted to 
perform warranty work. Permitting warranty service by non-franchised 
dealers would adversely impact the financial performance of remaining 
dealers. Further principal reasons for this requirement are to provide 
for proper performance of safety and emissions recalls, and for 
customer satisfaction. Consequently many state franchise laws prohibit 
service operations without a new vehicle franchise.

    Question 6. On May 14, what was the average day of supply on the 
ground at the dealers you decided to close? Was the level of existing 
inventory considered when you set the 26 day timeframe?
    Answer. End of April:
        Assumed Dealers: 143 Days supply (289k units in stock)
        Not Retained Dealers: 154 Days supply (44k units in stock)

    End of May:

        Assumed Dealers: 102 Days supply (234k units in stock)
        Not Retained Dealers: 45 Days supply (26k units in stock)

    End of June Projection:

        Assumed Dealers: 91 Days supply (201k units in stock)
        Not Retained Dealers: 0 Days supply (0k units in stock)--due to 
        redistribution assistance
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                              James Press
    Question 1. In my state of Florida, the unemployment rate is at 10 
percent. I am hearing from terminated dealers daily and just read in 
the paper that GM plans to close its distribution center in 
Jacksonville and lay off one-hundred ten employees. I'm very concerned 
about the impact of these dealer and distribution center closings not 
only on the jobs at the dealerships and distribution center but on the 
surrounding industries that do business with Chrysler and GM in the 
region.
    What programs/relocation assistance etc., have you identified as 
sources of possible mitigation of job loss be it temporary or long time 
that would provide relief for these workers impacted by the closing of 
the distribution or dealership?
    Answer. As we have stated previously we anticipate that most not 
retained dealerships will remain open because of dualed franchises and 
used vehicle sales. We are establishing a website to help place 
dealership employees who lose their positions--helping them to 
transition to dealers who will be continuing with us. Due to our 
current financial situation, we cannot provide any financial support to 
the displaced workers and families. In normal circumstances, we could 
not compensate displaced employees of independently owned businesses 
and we do not have the funding to make an exception.

    Question 2. How will the extensive dealership closings impact the 
ability of consumers to obtain non-warranty related repair and 
maintenance for their vehicles? Will you ensure that appropriate 
information is available to independent service providers so that 
consumers will have options?
    Answer. There will be over 2,300 remaining Chrysler, Jeep and Dodge 
dealerships conveniently located with the parts and trained technicians 
to service consumers vehicles. Upon approval of rejection Chrysler will 
send a letter to all customers noticing them of the 4 nearest dealers 
who can provide service.

    Question 3. What were the threshold requirements used to determine 
who received a termination letter? What formulas were employed to make 
that determination? What demographic considerations went into making 
that decision?
    Answer. With respect to Dealerships:

        The decisions made to either continue or discontinue dealer 
        contracts were based on a consistent process that looked at all 
        market types, Metro, Secondary, and Rural. This analysis 
        reviewed many factors that are unique for each market and 
        dealer.

    These factors included:

        Total sales potential for each individual market

        Each dealer's record of meeting minimum sales responsibility

        A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

        Facility that meets corporate standards

        Location in regard to optimum retail growth area

        Exclusive representation within larger markets (Dualed with 
        competitive franchise)

        Opportunity to complete consolidation of 3 brands (Project 
        Genesis)

    Question 4. Did you violate the spirit of its agreements with the 
dealers by requesting that they take in additional inventory and 
facility improvements when they knew that there was a high likelihood 
that they would go into bankruptcy?
    Answer. Chrysler in good faith worked with all of our dealers to 
continue to purchase vehicles to increase sales and hopefully avoid 
bankruptcy. As an independent business it is the dealer's choice to 
purchase production.

    Question 5. The Stimulus Package was designed to get people back to 
work and put capital in the hands of workers so that it would revive 
our ailing economy. Don't the plans by Chrysler do just the opposite of 
what the Stimulus Package was designed to do by putting people with 
good paying jobs out of work?
    Answer. The alternative of liquidation would have a much more 
severe negative impact on our economy.

    Question 6. Would you provide a list of all the dealerships that 
you provided closure notices to?
    Answer. The list has been submitted to Majority and Minority 
Committee staff.

    Question 7. What is being done for franchise owners many of which 
are family businesses now obligated to repay debt incurred because of 
the decisions by Chrysler?
    Answer. Chrysler has and will continue to assist not retained 
dealers, upon receipt of the signed ``Inventory Assistance 
Acknowledgement Form'' with the re-distribution of vehicle inventory, 
parts and special tools.
    Throughout the past weeks, we have been working on achieving 
commitments to redistribute vehicle inventory to dealers who will be 
assigned to the potential new company going forward.
    We began with 42,000 units in stock to be redistributed. 16,000 of 
these vehicles have been sold out of stock to customers, leaving 26,000 
to be redistributed. I am very pleased to announce that as of today, 
Friday, June 5, we have only 400 vehicles to be reassigned to dealers 
between now and Tuesday evening. We are now close enough to guarantee 
that we will redistribute 100 percent of the affected inventory.
    As of June 5, nearly 75 percent of the active parts inventory have 
a potential buyer identified, have already been sold, or the dealer has 
elected to keep the inventory. For those dealers requesting assistance, 
we will continue to identify potential buyers and will provide a 
complete parts inventory listing to them for review. Also, we will 
transfer the Automatic Replenishment Order guarantee for qualified 
parts to the purchasing dealers.
    An e-mail went out Tuesday, June 2, to dealer principals and 
service/parts managers announcing the Essential Tool Redistribution 
website--http://www.millerspecialtools.spx.com. This site provides 
dealers the opportunity to post essential tools available to other 
dealers for purchase. Dealers who post tools on the website will be 
contacted by a Chrysler Essential Tool representative to inquire about 
any additional assistance they may need. As of this morning, dealers 
have already begun to post tools for sale on the website.
    A ``Redistribution Process'' feature was made available on 
DealerConnect to receive feedback and questions regarding the 
redistribution process (vehicle, parts, special tools), and we will 
respond back to you within 24 to 48 hours of receipt of your question. 
Also, dealer-specific issues are being sent to your local business 
center for direct follow-up.

    Question 8. It is my understanding that, under the proposed 
Chrysler bankruptcy plan families driving any Chrysler now on the road 
(about 10 million vehicles), whose occupants are severely injured or 
killed in a crash will have limited avenues of recourse against the 
company.
    I know that warranty claims and lemon law claims for old vehicles 
will be honored by the new companies, in the hopes of preserving brand 
loyalty among Chrysler customers.
    Why did Chrysler decide to honor warranty and lemon law claims, but 
not current and future product safety liability? Is that fair?
    Many state laws specify that the dealers (including those forced to 
close) will stand in your shoes and be responsible for product safety 
issues associated with Chrysler products. Why should they and not you 
be responsible?
    Answer. Bankruptcy is a very difficult process requiring hard 
choices and painful decisions. Its purpose is to leave behind certain 
liabilities and obligations so that a vibrant, sustainable new company 
can emerge. The bankruptcy process has impacted virtually everyone, 
including injured persons who have claims against the company. But 
those claims, like other claims, will be addressed in the bankruptcy 
court under the guidance of Judge Arthur Gonzalez. Product-related 
claims arising from vehicles sold by the new company will be addressed 
by the new company. And the handling of claims against dealerships will 
depend upon the underlying facts and basis for each individual claim.

    Question 9. Thousands of Chrysler workers are living out their 
retirement years in Florida, including more than 10,000 nonunion 
retirees and their spouses, 4,000 retired autoworkers who live at least 
part time in Southwest Florida and an estimated 3,000 retired 
autoworkers living in the Tampa Bay Area.
    In the event Chrysler cannot continue to maintain their pension 
plans, the Pension Benefit Guaranty Corporation could be responsible 
for paying the benefits of about 600,000 people who receive pension 
payments from Chrysler.
    To the extent these additional claims substantially increase PBGC's 
accumulated deficit and decrease its long-run liquidity, there could be 
pressure for the Federal Government to provide PBGC financial 
assistance to avoid reductions in guaranteed payments to retirees or 
unsustainable increases in the premium burden on sponsors of ongoing 
plans.
    Because of the potential role of the Federal Government in backing 
these pension plans and because this is an important to so many 
Floridians, I would like to know what steps are being taken to continue 
support for these pension plans? In the event the pension obligations 
cannot be fulfilled, what steps are being taken to ensure that 
beneficiary payments are not disrupted? Are you confident in the 
ability of PBGC to meet these pension obligations?
    Answer. Vince Snowbarger, Acting Director of the PBGC, issued the 
following statement:

        Chrysler's entry into Chapter 11 bankruptcy protection today 
        does not change the status of its defined benefit pension 
        plans. The plans remain ongoing under the sponsorship of 
        Chrysler, and are insured by the Pension Benefit Guaranty 
        Corporation. As the bankruptcy process unfolds, the PBGC will 
        work with Chrysler, its unions, and all other stakeholders to 
        ensure continuation of the pension plans.

    In addition, the PBGC recently reached an agreement with Daimler 
regarding Chrysler's pension plans. Regarding that settlement, the PBGC 
announced:
    The Pension Benefit Guaranty Corporation (PBGC) today announced a 
term sheet agreement with Daimler AG on additional protections for the 
pension plans of Daimler's former Chrysler North America division.
    Under the agreement, also signed by Chrysler and its controlling 
owner, Cerberus, Daimler will contribute $200 million dollars into the 
pension plans immediately upon final execution of the agreement. 
Daimler also will pay $200 million into the plans in 2010 and again in 
2011.
    In addition, if the Chrysler pensions terminate before August 2012 
and are trusteed by the PBGC, Daimler will pay $200 million to the PBGC 
insurance program. The agreement replaces the $1 billion termination 
guarantee negotiated by the PBGC at the time of Daimler's sale of 
Chrysler in 2007.
    Finally, the agreement closes out Daimler's 19.9 percent share of 
Chrysler, and waives repayment of Daimler's outstanding loans to 
Chrysler.
    Chrysler continues to sponsor and administer the various pension 
plans. Benefit payments from qualified pension plans have continued 
without interruption through this process. The contributions from 
Daimler will improve the funded status of the pension plans and the 
viability plan submitted to Chrysler and the courts included 
contributions over the repayment period as required by law.
    Regarding the PBGC's ability to meet its obligations, we defer to 
the PBGC.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                              James Press
    Question 1. How will closing 789 dealerships directly benefit 
consumers?
    Answer. A key factor in the health of a dealer network is sales per 
dealership (throughput). Given current and forecasted industry sales 
the sales per dealership will be too low to ensure the long-term health 
of our dealers. Dealers that are profitable and financially successful 
are better able to invest in their facilities and business operations 
and therefore better able to compete with dealers of other 
distributors. The strengthening of competition will be to the 
consumer's benefit.

    Question 2. If it was not for the protection of the bankruptcy 
court, could Chrysler have terminated its franchise agreements with 
those 15 dealers in Washington State under Washington State law? If so, 
what would have that entailed? After DaimlerChrysler discontinued its 
Plymouth brand and terminated its dealer agreements a several years 
ago, what compensation options, if any, did the company offer its 
terminated dealers?
    Answer. Under normal business circumstances, Chrysler would be able 
to terminate a franchised dealer agreement in Washington State based on 
finding that there was ``good cause'' for termination and that it had 
acted in ``good faith'' regarding the termination, cancellation or 
nonrenewal of the franchisee's dealer agreement.
    In such event, Chrysler would be required to repurchase the 
following: (1) unused, undamaged, and unsold new vehicles in the 
dealer's inventory acquired from Chrysler or another Chrysler dealer 
within the previous 12 months; (2) all unused, undamaged, and unsold 
supplies, parts, and accessories in original packaging, if the supply, 
part, or accessory was acquired from Chrysler or from another Chrysler 
dealer ceasing operations as a part of the dealer's initial inventory 
as long as the supplies, parts, and accessories appear in Chrysler's 
current parts catalog, list, or current offering; (3) all unused, 
undamaged, and unsold dealer inventory, whether vehicles, parts, or 
accessories, the purchase of which was required by Chrysler; (4) the 
fair market value of each undamaged sign owned by the dealer that bears 
a common name, trade name, or trademark of Chrysler, if its acquisition 
was recommended or required by Chrysler and it is in good and usable 
condition, less reasonable wear and tear, and has not been depreciated 
by the dealer more than 50 percent of the value of the sign; (5) the 
fair market value of all equipment, furnishings, and special tools 
owned or leased by the dealer that were acquired from Chrysler, or 
sources approved by Chrysler, and that were recommended or required by 
Chrysler and are in good and usable condition, less reasonable wear and 
tear; and (6) the cost of transporting, handling, packing, and loading 
of the vehicles, supplies, parts, accessories, signs, special tools, 
equipment, and furnishings.
    The discontinuation of the Plymouth brand occurred in 2001 under 
normal business circumstances. At that time, the compensation options 
that Chrysler offered the Plymouth dealers included the repurchase of: 
(1) of all new, unused, and undamaged Plymouth vehicles; (2) all new 
and undamaged Plymouth-unique parts and accessories; (3) all Plymouth 
product and facilities signage; and (4) all Plymouth-related special 
tools.

    Question 3. After Chrysler exits bankruptcy, will the renegotiated 
``Dealers Sales and Service Agreement'' between the company and the 
dealers of ``New Chrysler'' going forward be subject to state franchise 
laws or are the terms and conditions in these agreements structured in 
a way so that state franchise laws will be essentially moot?
    Answer. The franchise agreements that will be in place with the 
dealers of ``New Chrysler'' will be subject to State franchise laws.

    Question 4. When did Project Genesis begin? Since the inception of 
Project Genesis, has Chrysler sent out any letters to dealers approving 
new single point dealerships? During Project Alpha, did Chrysler or its 
predecessor companies indicate to its dealer network of the long-term 
strategy to consolidate all three of its brands under one roof at the 
best locations? Did Chrysler or its predecessor companies send out 
letters approving new single point dealers during Project Alpha?
    Answer. Project Genesis began in January of 2008.
    Yes since the inception of Project Alpha in 2001 and with Project 
Genesis in 2008, Chrysler did communicate on a consistent basis the 
strategy to combine all three brands under one roof in the optimal 
location.
    Yes--Under project Alpha, in some cases Chrysler would approve a 
single point dealership as an interim step to consolidating all 3 
brands under one roof.

    Question 5. Project Genesis calls for surviving dealers to sell 
Chrysler, Dodge, and Jeep brands under the same roof. After Chrysler 
exits bankruptcy, by your own estimate, Project Genesis will still not 
be complete. It will stand at 84 percent. How does Chrysler intend to 
complete Project Genesis?
    Answer. Chrysler will continue to facilitate network deals between 
willing sellers and buyers to complete project Genesis.

    Question 6. Ideally, how many months supply of new vehicles does 
Chrysler believe its dealers should have on its lot? On average, how 
many months supply of new vehicles do your dealers currently have on 
their lots today? Assuming all vehicles of the terminated dealers are 
redistributed to the remaining dealers, on average, what would this 
increase represent in monthly supply?
    The ideal level of stock is 90 days of total supply (Depending on 
sales rate)
    End of May:

        Assumed Dealers: 102 Days supply (234k units in stock)
        Not Retained Dealers: 45 Days supply (26k units in stock)

    End of June Projection:

        Assumed Dealers: 91 Days supply (201k units in stock)
        Not Retained Dealers: 0 Days supply (0k units in stock)--due to 
        redistribution assistance

    Question 7. My understanding is that some of the vehicles on the 
lots of the terminated (as well as remaining) dealers have sat unsold 
for an extended period of time where banks are requiring the dealer to 
make monthly payments on the floor plan financing, because they realize 
the vehicle in unlikely to be sold? Do you expect that some vehicles at 
the terminated dealers will be able to be distributed because the 
remaining dealers have concluded that the vehicles are unlikely to be 
sold at retail? If so, would Chrysler considering auctioning off these 
vehicles?
    Answer. Through a letter dated June 5, 2009, Chrysler informed all 
not retained dealers that we will now guarantee the re-distribution of 
100 percent of eligible vehicle inventory for dealers who have signed 
the ``Inventory Assistance Acknowledgement Form''.

    Question 8. Can you describe what is a dealer's Minimum Sales 
Responsibility is and the basis Chrysler uses for calculating the 
metric? Can a dealership be profitable while still being below its 
Minimum Sales Responsibility?
    Answer. In the Sales and Service Agreement a dealer contractually 
agrees to achieve his Retail Minimum Sales Responsibility (MSR). 
Basically MSR is the number of new retail vehicles a dealer must sell 
to equal their state market share in their defined sales locality. MSR 
is calculated the same for every dealer. Dealerships can still be 
profitable below MSR by leveraging used vehicle sales and retail 
customer service.

    Question 9. How is Chrysler facilitating the redistribution of 
(Automatic Replacement Order and obsolete) parts, signs, and special 
tooling at the terminated dealers? What, if any, financial and legal 
liability does Chrysler have associated with these activities?
    Answer. The remaining dealers that purchase Automatic Replenishment 
Order (ARO) Inventory have been offered the transfer of the parts 
protection. In addition, for those dealers that have requested 
assistance (signed the acknowledgement form), a complete listing of 
their inventory is being provided to any dealership interested in 
purchasing this inventory, including the obsolete parts.
    Question 10. How do you rebuild the trust with your remaining 
dealer network?
    Answer. We will build trust by offering a long term, viable dealer 
business opportunity through our new company in partnership with Fiat.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                              James Press
    Question 1. Chrysler has notified 789 dealerships, including 8 in 
Arkansas, representing at least 150 jobs, that they need to close by 
June 9.
    Please describe the specific metrics of how you determined which 
dealerships should shut down?
    Answer. With respect to Dealerships:
    The decisions made to either continue or discontinue dealer 
contracts were based on a consistent process that looked at all market 
types, Metro, Secondary, and Rural. This analysis reviewed many factors 
that are unique for each market and dealer.
    These factors included:

        Total sales potential for each individual market

        Each dealer's record of meeting minimum sales responsibility

        A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

        Facility that meets corporate standards

        Location in regard to optimum retail growth area

        Exclusive representation within larger markets (Dualed with 
        competitive franchise)

        Opportunity to complete consolidation of 3 brands (Project 
        Genesis)

    Question 2. Would you describe the specific cost savings that come 
with these closures?
    Answer. Examples of Lost Revenue and Cost Associated with 
Discontinued Dealers:
  Product engineering and development          $1.4B over 4 years
 for ``sister products'' Lost sales due to dealer                 $1.5B revenue annually
 underperformance: Administrative cost to maintain the               $33M annually
 789 discontinued dealers: Marketing and advertising                        $150M annually

    Question 3. What are your buyback plans for closed dealerships 
(inventory, parts, tools, signs, etc.)?
    Answer. Through a letter dated June 5, 2009, Chrysler informed all 
not retained dealers that we will now guarantee the re-distribution of 
100 percent of eligible vehicle inventory for dealers who have signed 
the ``Inventory Assistance Acknowledgement Form''. Additionally we will 
continue to support the re-distribution of parts and special tools to 
the remaining dealers.

    Question 4. It is my understanding that some of the Chrysler 
dealers targeted for closure are dealers who, at Chrysler's request and 
their own expense, made expensive modernizations to their facilities. 
In addition, most of these dealers purchased vehicles that they did not 
need at Chrysler's request when they were told that it was the only way 
to keep the company out of bankruptcy--a request that you were vital in 
delivering, according to press reports. What are Chrysler's plans to 
reimburse dealers for their inventory and facilities?
    Answer. Through a letter dated June 5, 2009, Chrysler informed all 
not retained dealers that we will now guarantee the re-distribution of 
100 percent of eligible vehicle inventory for dealers who have signed 
the ``Inventory Assistance Acknowledgement Form''. Additionally we will 
continue to support the re-distribution of parts and special tools to 
the remaining dealers. We will not assist with any reimbursement for a 
dealer's facility.

    Question 5. To date, GM has received $20 billion with a plan to 
provide an additional multi-billion dollar sum to get through 
bankruptcy. In return, the Federal Government will hold a 60 percent 
share in GM.
    Chrysler received a $4 billion loan from the Federal Government in 
2008, $3 billion in debtor-in-possession financing to continue 
operations during bankruptcy, and an agreement to receive an additional 
$4.5 billion to restart operations after bankruptcy. Can you please 
tell me how or when your companies will repay the government?
    Answer. Chrysler intends to repay its loans according to the 
maturity schedule outlined in the First Lien Credit Agreement. The 
final payment is expected in 2017.

    Question 6. In your discussions with the Auto Task Force, have your 
companies or the Auto Task Force considered or developed any plans to 
deal with the impact of dealership and plant closures on home 
foreclosures, increased unemployment assistance, job training, lost 
local tax revenues, etc.?
    Answer. Our goal is to emerge from bankruptcy with a new vibrant 
and sustainable company that will continue to employ workers and 
support numerous stakeholders. The alternative of liquidation would 
have a significantly more deleterious effect on the items listed above. 
We would refer you to the Auto Task Force regarding whether they have 
developed any such plans.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                              James Press
    Question 1. Please provide me with a complete accounting of the 
wages/salary, benefits and any bonuses of each individual employee to 
be retained by Old Chrysler for their assistance with the liquidation 
of the company.
    Answer. The specific people and their compensation levels have not 
yet been agreed to nor proposed at this time.

    Question 2. As you know, I am hearing from thousands of Missourians 
who are concerned that Chrysler is continuing to operate their Mexican 
plants at the same time that you are closing U.S. plants, and Federal 
taxpayers are funding your operations. Do you plan to invest or 
increase production in any of your Mexican plants? If so, please 
identify which plants they are and what the increased production/
investment will be.
    Answer. In September 2009, Ram Box (vehicle with integrated storage 
system) production will begin at Warren Truck Assembly Plant in Warren, 
Michigan. Ram Box required an investment of $32 million to facilitize 
the plant. Warren will then be fully utilized. Small remaining standard 
cab production currently at St. Louis North will be handled at Saltillo 
Truck Plant for no incremental investment.
    Chrysler maintains an engine plant in Saltillo which is currently 
fully facilitized and ready to produce the Phoenix engine. The plant is 
currently idled and is not expected to commence production before the 
second half of 2010 at the earliest. This plant would not require any 
additional investment to begin production.

    Question 3. Regarding the Saltillo plant in Mexico that makes the 
same Dodge Ram that is made in the Fenton plant: I assume the move to 
keep Mexico operating and to shutter the Fenton plant was because the 
production in Mexico is cheaper than in MO, is that the case? If so, is 
the consumer seeing the benefit of this cost reduction? Has the price 
of the truck been reduced? If costs were not the reason, what are the 
justifications for the closure of the Fenton plant?
    Answer. The Saltillo plant does not make the same product that is 
made at the St. Louis North plant. In fact, the Saltillo plant is the 
only plant that makes the Dodge Ram heavy duty truck. The decision to 
idle the St. Louis North Assembly Plant was based on market demand and 
capacity.
    Chrysler has three truck assembly plants, Warren Truck Assembly 
Plant in Warren, Michigan, St. Louis North Assembly Plant in Fenton, 
Missouri and Saltillo Truck in Mexico. Warren Truck is a high volume 
plant. St. Louis North is running on one shift and does not have the 
capacity level of Warren Truck. Saltillo Truck Plant is a low volume 
facility.
    In late 2007 and 2008, deterioration in industry volume resulted in 
decreased demand for Dodge Ram pick up trucks. Between January 2007 and 
December 2008, sales volumes of the Ram dropped over 30 percent. With 
this decrease, the market does not support the operation of two truck 
assembly plants making the same product, therefore a decision was made 
to close St. Louis North.

    Question 4. When Chrysler invested in the St. Louis South plant, 
they received a 70 percent tax abatement from the City of Fenton on the 
property they installed in the plant. This saved Chrysler approximately 
$46 million. Does the City of Fenton get an indemnity if this equipment 
is sold or moved from the plant for the abated taxes? If so, how will 
repayment be impacted by the bankruptcy?
    Answer. The agreements between Chrysler LLC and the City of Fenton 
do not require a repayment of past tax benefits if the equipment is 
sold or moved. To the extent the agreements with the City of Fenton are 
assumed by Chrysler Group LLC, the obligations under the agreements 
should be satisfied as part of the cure payments.

    Question 5. It is my understanding that some of that equipment, the 
right-hand drive equipment specifically has moved to the plant in 
Windsor, Canada. Has indemnity been provided to the city for this move?
    Answer. The agreements between Chrysler LLC and the City of Fenton 
do not require a repayment of past tax benefits if the equipment is 
sold or moved. To the extent the agreements with the City of Fenton are 
assumed by Chrysler Group LLC, the obligations under the agreements 
should be satisfied as part of the cure payments.

    Question 6. Thirty-two Chrysler dealerships are slated for closure 
in California. What criteria did Chrysler use to determine which 
dealerships will be closed? What steps will Chrysler take to ensure the 
closure of these dealerships does not impact the ability of car owners 
to obtain service?
    Answer. Criteria:

        The decisions made to either continue or discontinue dealer 
        contracts were based on a robust process that looked at all 
        market types, Metro, Secondary, and Rural. This analysis 
        reviewed many factors that are unique for each market and 
        dealer.

    These factors included:

   Total sales potential for each individual market

   Each dealer's record of meeting minimum sales responsibility

   A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

   Facility that meets corporate standards

   Location in regard to optimum retail growth area

   Exclusive representation within larger markets

    Impact on the ability of customers to obtain service:

        Customer convenience was taken into consideration in 
        establishing our new network footprint:

        For the State of California the average distance in miles a 
        customer must drive to reach a dealership is competitive when 
        compared to other OEM's.

                                                             Customer Convenience Comparison
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Current                   Post-Rejection                   Change
            State             ---------------------------------------------------------------------------------------  Honda    Toyota    Chevy    Ford
                                Chrysler    Dodge    Jeep    Chrysler    Dodge    Jeep    Chrysler    Dodge    Jeep
--------------------------------------------------------------------------------------------------------------------------------------------------------
California                          5.88     6.06    5.79        6.18     6.24     6.1        -0.3     -0.2    -0.3     5.34      5.08     4.71    4.63
--------------------------------------------------------------------------------------------------------------------------------------------------------

                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                              James Press
    Question 1. Mr. Press, like many of my colleagues I am concerned 
about how Chrysler chose which dealerships to close and the way those 
dealerships have been asked to wind down. You have testified that the 
Chrysler dealership network is not profitable and therefore not 
viable--and we can understand. The people of New Mexico want you to do 
everything in your power to payback the taxpayers, but they also want 
to know that the dealership in their community was closed for a good 
reason.
    When I go back to New Mexico and my constituents ask why you closed 
the dealership they work for, have bought cars and trucks from, or go 
to have their car serviced, how can I answer claims that only 1 of the 
6 selection criteria directly refers to sales?
    Answer. The decisions made to either continue or discontinue dealer 
contracts were based on a consistent process that looked at all market 
types, Metro, Secondary, and Rural. This analysis reviewed many factors 
that are unique for each market and dealer.
    These factors included:

        Total sales potential for each individual market

        Each dealer's record of meeting minimum sales responsibility

        A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

        Facility that meets corporate standards

        Location in regard to optimum retail growth area

        Exclusive representation within larger markets (Dualed with 
        competitive franchise)

        Opportunity to complete consolidation of 3 brands (Project 
        Genesis)

    Question 2. Mr. Press, I know this may seem like a simple question, 
but it is one that I have not yet received a direct and simple answer 
to--Does a dealership cost Chrysler anything to operate? Your written 
testimony cites only $33 million in administrative costs to maintain 
the discontinued dealerships. That doesn't seem like a whole lot of 
cost savings for a company that is nearly $173 billion in debt. You 
have also mentioned you spend approximately $1,000 per car in 
dealership network related costs. I know that there are general costs 
of operating the dealership network--communicating with dealers and 
marketing, but those seem like necessary costs to any distribution 
network.
    Answer. The old Chrysler had slightly over $20 billion in debt. The 
$1,000 per car in dealership network related costs is a GM figure.
    Examples of Lost Revenue and Cost Associated with Discontinued 
Dealers:

 Product engineering and development for               $1.4B over 4 years
 ``sister products''Lost sales due to dealer underperformance:        $1.5B revenue annuallyAdministrative cost to maintain the 789                    $33M annually
 discontinued dealers:Marketing and advertising                                 $150M annually

    Question 3. If the dealership pays for the car, parts, employee 
salaries and rent, what does having a dealership cost Chrysler and will 
closing dealerships save Chrysler significant money?
    Answer. Examples of Lost Revenue and Cost Associated with 
Discontinued Dealers:

 Product engineering and development for               $1.4B over 4 years
 ``sister products''Lost sales due to dealer underperformance:        $1.5B revenue annuallyAdministrative cost to maintain the 789                    $33M annually
 discontinued dealers:Marketing and advertising                                 $150M annually

    Question 4. Mr. Press, you have stated that taking Chrysler into 
bankruptcy is the ``most difficult business action you have personally 
ever had to take.'' That is understandable. What I cannot truly 
understand is how, despite the pending deal with Fiat, you could not 
give dealerships more time to close their doors.
    Was there no way to work out even a couple of extra weeks for 
dealerships to put their house in order? As we heard today, some 
dealers have been around for 90 years. Certainly, as your business 
partners the dealers deserve the time to responsibly wind their 
businesses. What efforts did you make to give dealerships sufficient 
time wind down their business?
    Answer. The time-frame for discontinuing dealers was driven by the 
Chapter 11 process and the need for speed in order to preserve maximum 
value for Chrysler. Prior to May 1, Chrysler had planned to avoid 
bankruptcy. Only after filing did we begin the necessary process of 
actually identifying which dealers could go forward with the new 
company. Timing was mandated by the Chapter 11 proceeding, including 
the requirement to complete our strategic alliance with Fiat by June 
15. It was important to Chrysler and Fiat that a new and stronger 
dealer network would be in place by the closing date. On May 14, we 
notified the dealers of our decisions, and later filed the list of 
discontinued dealers with the court.
    In his approval of the sale motion, Judge Gonzalez confirmed, 
``while in Chapter 11, Chrysler is a wasting asset,''--meaning that 
while we're not building cars, our assets are deteriorating and 
customers are losing confidence.
    It is in the best interest of Chrysler and discontinued dealers t o 
move quickly through this process. The number of days' notice provided 
to discontinued dealers was similar to the 30 days provided under the 
Chrysler voluntary termination process, and it provided for a quick 
process in everyone's best interest. Financial commitments from both 
the U.S. and Canadian governments require our alliance with Fiat be 
completed by June 15. This deadline determined a number of other 
deadlines, including the June 9 termination date for not retained 
dealers. That termination date is needed to ensure that our new 
dealership structure will be firmly in place at or about the time the 
new company is formed with Fiat--something understandably important to 
Fiat. The success of our new enterprise depends in large part on this 
new dealer body, and we must focus our limited resources on this. 
Similarly, we do not want customers to have any confusion about who is 
and who is not a dealer for the new company. The termination date for 
discontinued dealers was chosen, therefore, to meet the demands of our 
creditors and partners, to bring our new dealer net work online as 
quickly as possible, and to strongly signal customers that the new 
dealer body will meet their needs.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Begich to 
                              James Press
    Question 1. Describe for the Committee what steps Chrysler is 
taking to ensure the long-term growth of the reformed company?
    Answer. The new company will be a vibrant and competitive auto 
company. It will begin operations with significant strategic 
advantages, including a wage and benefit structure for active and 
retired employees that is competitive with those of transplant 
manufacturers; reduced debt and interest expenses; high-performing 
assets; a more efficient dealer network poised for profitability and 
sound agreements with our suppliers.
    Chrysler can look forward to quickly developing a strong and 
synergistic partnership with Fiat, whose product portfolio, technology 
and global distribution network will complement Chrysler's own 
strengths. Work with Fiat is underway to develop the next generation of 
environmentally friendly, fuel-efficient, high-quality vehicles.
    This has been an extremely challenging chapter in the company's 
history for all involved, requiring hard choices and painful sacrifices 
by all stakeholders. Now Chrysler has a tremendous opportunity to start 
anew and build something special in a global alliance with Fiat.

    Question 2. As the new Chrysler reorganizes and grows, it will 
likely need dealership growth to expand as well. Once the 
reorganization is complete, how does Chrysler plan to expand their 
dealership network?
    Answer. Chrysler's efforts to consolidate our dealer network date 
back to 1992 and have continued since. In 2005, the consolidation 
effort was continued under a program known as Project Genesis. Chrysler 
has consistently communicated to our dealer network the need for a 
consolidation of dealers. We plan on continuing Project Genesis going 
forward.

    Question 3. What happens to terminated dealerships that still 
possess Chrysler name-plated inventory after June 9, 2009?
    Answer. Through a letter dated June 5, 2009, Chrysler informed all 
not retained dealers that we will now guarantee the re-distribution of 
100 percent of eligible vehicle inventory for dealers who have signed 
the ``Inventory Assistance Acknowledgement Form''.

    Question 4. Are their situations where you will extend the June 9, 
2009 deadline to allow dealers to sell off their remaining inventory 
and recoup their investment?
    Answer. If a not retained dealer allows us to re-distribute their 
inventory, we will continue to sell those units to remaining dealers 
throughout the month of June. Terminated dealers will be unable to sell 
any remaining inventory as a new vehicle beyond their termination date.

    Question 5. What mitigation practices are in place for terminated 
Chrysler employees?
    Answer. As we have stated previously we anticipate that most not 
retained dealerships will remain open because of dualed franchises and 
used vehicle sales. We are establishing a website to help place 
dealership employees who lose their positions--helping them to 
transition to dealers who will be continuing with us. Due to our 
current financial situation, we cannot provide any financial support to 
the displaced workers and families. In normal circumstances, we could 
not compensate displaced employees of independently owned businesses 
and we do not have the funding to make an exception.

    Question 6. What mitigation practices are in place for terminated 
dealerships and their employees to ensure dealerships have the ability 
to deal with the transitions they will have to make as a result of 
termination?
    Answer. As we have stated previously we anticipate that most not 
retained dealerships will remain open because of dualed franchises and 
used vehicle sales. We are establishing a website to help place 
dealership employees who lose their positions- helping them to 
transition to dealers who will be continuing with us. Due to our 
current financial situation, we cannot provide any financial support to 
the displaced workers and families. In normal circumstances, we could 
not compensate displaced employees of independently owned businesses 
and we do not have the funding to make an exception.

    Question 7. How will you ensure vehicle owners in small towns with 
terminated Chrysler dealerships will have a place to have warranty-
service performed on their vehicles?
    Answer. There will be over 2,300 remaining Chrysler, Jeep and Dodge 
dealerships conveniently located with the parts and trained technicians 
to service consumers vehicles. Upon approval of rejection Chrysler will 
send a letter to all customers noticing them of the 4 nearest dealers 
who can provide service. Further note that Customer Convenience 
(average distance from our customers have to travel to Chrysler, Jeep 
or Dodge) prior to rejection is 6.67 miles and will be 7.09 miles post 
rejection. These distances still compare favorably to Toyota at 9.11 
miles and Honda at 10.31 miles.

    Question 8. Please provide documentation on the actual savings 
Chrysler will achieve by closing dealerships, detailing what specific 
items Chrysler has calculated into the cost factor.
    Answer. Examples of Lost Revenue and Cost Associated with 
Discontinued Dealers:

 Product engineering and development for               $1.4B over 4 years
 ``sister products''Lost sales due to dealer underperformance:        $1.5B revenue annuallyAdministrative cost to maintain the 789                    $33M annually
 discontinued dealers:Marketing and advertising                                 $150M annually

    Question 9. Please confirm for the Committee that notwithstanding 
the terms of the ``agreements'' you have imposed on the terminated 
dealerships that the new Chrysler Corporation will not use funds made 
available to it by the U.S. Treasury to contest the ability of these 
dealerships to challenge the terminations in court.
    Answer. Chrysler LLC cannot make representations on behalf of the 
new Chrysler Group LLC which we hope will take selected ``Old 
Chrysler'' assets into the new company. As we are sure you are aware, 
Chrysler LLC has opposed dealers contesting the rejection of their 
dealership agreements in the bankruptcy court. That matter is currently 
pending before the court.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                              James Press
    Question 1. According to your testimony, nationwide you have sold 
or assigned for redistribution 89 percent of the 42,000 vehicles in 
discontinued dealerships' inventory. What about the progress in moving 
other excess inventory--parts and special tools?
    Answer. For parts, nearly 75 percent of the original inventory has 
been either been sold, committed to by remaining dealers or kept by not 
retained dealers. For special tools, we have launched a web-site to 
facilitate the sale of not retained dealers' inventory.

    Question 2. Can you clarify the difference between ``sold'' and 
``redistributed?'' When you say a car has been redistributed does that 
mean a new dealer has been found to accept the automobile and has the 
financing to do so? Or does it simply mean you have identified a dealer 
that might need that car but has not agreed to accept it yet? Please 
clarify in detail the definitions of this terminology.
    Answer. In terms of moving inventory from a not retained dealer to 
a retained dealer they mean the same thing. When we state a vehicle has 
been re-distributed, it means that we have a commitment from a retained 
dealer to accept the vehicle and pay for it. The financing is a matter 
between the retained dealer and their finance source.
    Question 3. As of June 3, how many vehicles are still being 
financed by OldCo dealer floorplans?
    Answer. As of June 3, there are 25,000 units remaining in OldCo 
Dealer inventory.

    Question 4. Of the vehicles that have been redistributed, how many 
have been accepted by the new dealers?
    Answer. As of June 3, we have secured over 22,000 commitments from 
remaining dealers.

    Question 5. As of June 3, what is the total value of the parts 
inventory of the 789 OldCo dealers? This does not include those 
vehicles sold to customers by non-retained dealers.
    Answer. Our best estimate of total inventory is $98M as of June 3.

    Question 6. Of the parts inventory that has been redistributed, how 
much has been accepted by the new dealers?
    Answer. Nearly 75 percent of the not retained dealer inventory has 
verbal commitments from accepted dealers to purchase. The transfer will 
not occur until the not retained dealers' financial obligations are 
cleared with their lenders. This includes the removal of any liens, 
including those on parts inventory.

    Question 7. There is some confusion regarding when vehicles can 
physically be transferred from a discontinued dealer to a continuing 
dealer. Is the transfer dependent on the finalized ``new co'' deal, 
around June 10, or is the transfer dependent on a continuing dealer's 
floorplan approval with GMAC? If the former, what is your estimated 
timeline for completion of transfers after June 10th, and what steps 
are you taking with Chrysler Financial to ensure discontinued dealers' 
floorplan financing is not disturbed as a result of their franchise 
termination? If the latter, where does the GMAC approval process stand 
and what are you doing to facilitate those approvals and transfers 
prior to June 9?
    Answer. The transfer of inventory is dependent upon the NewCo deal 
being finalized as well as the continuing dealers floorplan finance 
source approval. We are working with Chrysler Financial to ensure a 
smooth transition and re-distribution of inventory to the remaining 
dealer, however floorplan is between the dealer and their finance 
source.
    GMAC is adding dealers daily and has completed 77 percent of Old Co 
Chrysler Financial dealers to GMAC floorplan. All transfers of 
inventory in the redistribution process will occur shortly after June 
9. Any transfer of inventory prior to June 9, is between the respective 
dealers and their finance sources.

    Question 8. My dealers inform me that your assistance to 
redistribute their inventory comes with a few rather stringent 
requirements. For example, I am told that if a vehicle is missing a key 
fob or a floor mat, then the car is not allowed for redistribution. So 
instead of charging the dealer $100 for the key fob or floor mat as 
they would have expected, he would lose close to $15,000 per vehicle 
because of a missing key fob or floor mat. Also items like a door ding 
or tinted windows will disallow the redistribution of a vehicle. Is 
this true? Is this a practice that is considered to be standard in the 
normal course of dealer transfers? Will you commit to revisit this 
matter with the dealers?
    Answer. Through a letter dated June 5, 2009 Chrysler informed all 
not retained dealers that we will now guarantee the re-distribution of 
100 percent of eligible vehicle inventory for dealers who have signed 
the ``Inventory Assistance Acknowledgement Form''. Additionally we will 
facilitate the re-distribution of parts and special tools.
    If there are any missing items, a dealer can purchase these to ease 
the transition. Dings or damage that can be repaired will also be 
transferred provided the vehicle can be still be sold as a new vehicle 
after the repairs are completed. If a vehicle has been modified, we 
will attempt to facilitate the transfer provided the vehicle can still 
be sold as a new vehicle.

    Question 9. In your testimony, you note that Chrysler started this 
process with 3,181 dealers, and you are winding down to 2,392 dealers. 
There are concerns that some of the terminated franchises will be 
offered to new dealers in the near future. Will you be adding back 
franchises? If so, will the closed dealers have a right of first 
refusal or opportunity to compete for that franchise?
    Answer. As we have shown in our plan we will continue to 
consolidate our network beyond 2,392 as we move from 85 percent CJD to 
100 percent CJD over the next several years. Consequently the dealer 
count will decline. We have stated that we will accept applications 
from any qualified candidate for consideration as a Chrysler dealer.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                              James Press
    Question 1. Chrysler and GM dealer closings will create many 
burdens for local communities and car owners. For car owners, 
especially in rural areas, the distance and associated travel costs to 
surviving dealerships to maintain and repair their cars will increase, 
in some cases dramatically. How will the dealership closings impact the 
ability of consumers to obtain non-warranty related repair and 
maintenance for their vehicles?
    Answer. The remaining dealerships will continue to provide both 
warranty and retail customer service. There will be over 2,300 
remaining Chrysler, Jeep and Dodge dealerships conveniently located 
with the parts and trained technicians to service consumers vehicles. 
Upon approval of rejection Chrysler will send a letter to all customers 
noticing them of the 4 nearest dealers who can provide service. Further 
note that Customer Convenience (average distance from our customers 
have to travel to Chrysler, Jeep or Dodge) prior to rejection is 6.67 
miles and will 7.09 miles post rejection. These distances still compare 
favorably to Toyota at 9.11 miles and Honda at 10.31 miles.

                                                        Customer Convenience Comparison by State
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                         Current                     Post-Tiger                     Change
            State             ---------------------------------------------------------------------------------------  Honda    Toyota    Chevy    Ford
                                Chrysler    Dodge    Jeep    Chrysler    Dodge    Jeep    Chrysler    Dodge    Jeep
--------------------------------------------------------------------------------------------------------------------------------------------------------
South Carolina                      8.28     8.28    8.31         8.7     8.93     8.7        -0.4     -0.7    -0.4    11.09     10.52     6.41    7.65
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Question 2. You have shared with the Committee some vague 
estimation of savings you, as manufacturers, expect to achieve from 
these dealership closings. Dealers dispute that they are a net cost to 
your company at all. Would you quantify for the Committee what the 
economic impact will be for communities affected by these closings, 
including: jobs; personal income; sales, property, and income tax 
revenue; local spending on community relations activities; local 
advertising, etc.?
    Answer. As you highlighted in a December 10, 2008 press conference, 
the bankruptcy process provides the ability to restructure to save the 
maximum number of jobs. Our goal is to emerge bankruptcy with a new 
vibrant and sustainable company that will continue to employ workers 
and support numerous stakeholders. The alternative of liquidation would 
have a significantly more deleterious effect on the items listed above.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                              James Press
    Question 1. In response to my question regarding whether or not 
dealers who are being closed would have the opportunity to obtain new 
dealerships if and when they are established in the same town, both of 
you responded, ``yes.'' Please elaborate on what, specifically, that 
means. Will they be given the right of first refusal, or were you 
suggesting merely that they would have the opportunity to apply, like 
anyone else might be able to do?
    Answer. We will accept applications from any qualified candidate 
for consideration as a Chrysler dealership. Qualifications will include 
available capital, historical performance, management talent pool, 
facility and other elements.

    Question 2. What level of influence does the U.S. Treasury, 
Secretary Geithner, the White House, or the President's Auto Task Force 
have on your company's business decision-making process?
    Answer. Treasury is our lender of last resort. The Administration 
has left the business decisions up to company management.

    Question 3. How do you plan to communicate with customers of 
dealerships that are scheduled to be closed? Will they have the 
information they need with regards to warranties and access to parts 
and service?
    Answer. There will be over 2,300 remaining Chrysler, Jeep and Dodge 
dealerships conveniently located with the parts and trained technicians 
to service consumers vehicles. Upon approval of rejection Chrysler will 
send a letter to all customers noticing them of the 4 nearest dealers 
who can provide service and parts. Additionally there is a plan in 
place for individual dealers to communicate with the customers on an 
ongoing basis
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Roger Wicker to 
                              James Press
    Question 1. Mississippi has some parts that are quite rural, what 
assurances can you give to rural Mississippians that they will continue 
to have access to dealerships in their surrounding communities for 
future purchases and servicing of previously purchased vehicles?
    Answer. There will be over 2,300 remaining Chrysler, Jeep and Dodge 
dealerships conveniently located with the parts and trained technicians 
to service consumers vehicles. Upon approval of rejection Chrysler will 
send a letter to all customers noticing them of the 4 nearest dealers 
who can provide service and parts. Specifically in Mississippi the 
effect for all markets will be:

                                                        Customer Convenience Comparison by State
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                      Current                     Post-Tiger                      Change
           State           -----------------------------------------------------------------------------------------  Honda    Toyota    Chevy     Ford
                             Chrysler    Dodge    Jeep    Chrysler    Dodge     Jeep    Chrysler    Dodge     Jeep
--------------------------------------------------------------------------------------------------------------------------------------------------------
Mississippi                     11.99       12      12       12.55    12.55    12.55        -0.6     -0.6     -0.6    20.18      15.1     8.36     9.54
--------------------------------------------------------------------------------------------------------------------------------------------------------


    Question 2. Mississippi and many other states have franchise laws 
on the books that protect dealerships and consumers by ensuring a 
rational framework is in place for franchise termination. Some are 
suggesting Chrysler and GM are using their bankruptcy proceedings to 
get around these state laws. Would you care to respond to that claim?
    Answer. The time-frame for discontinuing dealers was driven by the 
Chapter 11 process and the need for speed in order to preserve maximum 
value for Chrysler. Prior to May 1, Chrysler had planned to avoid 
bankruptcy. Only after filing did we begin the necessary process of 
actually identifying which dealers could go forward with the new 
company. Timing was mandated by the Chapter 11 proceeding, including 
the requirement to complete our strategi c alliance with Fiat by June 
15. It was important to Chrysler and Fiat that a new and stronger 
dealer network would be in place by the closing date. On May 14, we 
notified the dealers of our decisions, and later filed the list of 
discontinued dealers with the court.

    Question 3. In your testimony you mention that 44 percent of the 
dealerships set to close earned a profit last year. Why is Chrysler 
closing dealerships that turned a profit last year? What other factors 
were taken into consideration?
    Answer. The decisions made to either continue or discontinue dealer 
contracts were based on a consistent process that looked at all market 
types, Metro, Secondary, and Rural. This analysis reviewed many factors 
that are unique for each market and dealer.
    These factors included:

        Total sales potential for each individual market

        Each dealer's record of meeting minimum sales responsibility

        A scorecard that each dealer receives monthly, and includes 
        metrics for sales, market share, new vehicle shipments, sales 
        satisfaction index, service satisfaction index, warranty repair 
        expense, and other comparative measures

        Facility that meets corporate standards

        Location in regard to optimum retail growth area

        Exclusive representation within larger markets (Dualed with 
        competitive franchise)

        Opportunity to complete consolidation of 3 brands (Project 
        Genesis)

                                                   Appendix A
----------------------------------------------------------------------------------------------------------------
    Business      Dealer     Dealership DBA
     Center        Code           Name        Dealer Principal   Street Address       City       ST    Zip Code
----------------------------------------------------------------------------------------------------------------
DENVER             43188   MEDVED CHRYSLER    JOHN F MEDVED     1100 SOUTH        CASTLE ROCK      CO 80104
                            JEEP DODGE INC                       WILCOX STREET
DENVER             24238   PHIL LONG DENVER   ROBERT T LILEY    7800 WEST         DENVER           CO 80123
                            JEE-CHRY                             STANFORD AVENUE
DENVER             44148   GO DODGE           HENRY S PHILLIPS  7980 W TUFTS AVE  LITTLETON        CO 80123-2400
                            SOUTHWEST
DENVER             60182   LITHIA CHRYSLER    SIDNEY B DEBOER   5402 L STREET     OMAHA          NE   68117-1378
                            JEEP DODGE OF
DENVER             66735   STEVEN CHRYSLER    MICHAEL E STEVEN  11028 W KELLOGG   WICHITA        KS   67209-1227
                            JEEP DODGE,INC                       ST
DENVER             67360   PAINTER CHRY-      PATRICK L         1100 N MAIN ST    NEPHI          UT   84648
                            DODGE-JEEP         PAINTER
DENVER             67558   KOTBY MOTORS       MOHAMED G KOTBY   969 N 3RD ST      LARAMIE        WY   82072-2509
DENVER             67535   BARBER BROS MOTOR  FRED R BARBER     1339 NORTH MAIN   SPANISH        UT   84660-2411
                            CO INC                               STREET            FORK
DENVER             67407   PAINTERS SUN CTRY  JAMES L PAINTER   1600 SOUTH        ST GEORGE      UT   84770-6763
                            CHR INC                              HILTON DR
DENVER             58812   JIM CLARK MOTORS   LORIS G BRUBECK   2121 W 29TH       LAWRENCE       KS   66047-3163
                            INC                                  TERRACE
DENVER             54433   ROBERT H HINCKLEY  DEALER PRINCIPAL  2810 WASHINGTON   OGDEN          UT   84401-4299
                            INC                                  BLVD
DENVER             66598   ROCKY MOUNTAIN     HOMER K CUTRUBUS  770 WEST          OGDEN          UT   84405-3716
                            CHRYSLER JEEP                        RIVERDALE ROAD
GREAT LAKES        64950   SPITZER AUTOWORLD  ALAN SPITZER      1535 V ODOM BLVD  AKRON          OH   44320-4027
                            AKRON LLC
GREAT LAKES        44717   KERRY CHRYSLER     PATRICK DECASTRO  701 CHAMBER       MILFORD        OH   45150
                            JEEP DODGE, INC.                     DRIVE
GREAT LAKES        66559   ZIMMER CHRYSLER-   THOMAS W ZIMMER   1086 BURLINGTON   FLORENCE       KY   41042-1236
                            JEEP                                 PIKE
GREAT LAKES        55816   SPITZER MOTOR      ALAN SPITZER      13001 BROOKPARK   CLEVELAND      OH   44142-1883
                            CITY INC                             RD
GREAT LAKES        63747   BIRMINGHAM CHRY    RICHARD MEALEY    2100 W MAPLE RD   TROY           MI   48084-7128
                            PLYM JEEP EAGLE
GREAT LAKES        43947   NEIL HUFFMAN       DOW A HUFFMAN     4136 SHELBYVILLE  LOUISVILLE     KY   40207-3223
                            DODGE                                ROAD
GREAT LAKES        68107   NEIL HUFFMAN       DOW HUFFMAN       4126 SHELBYVILLE  LOUISVILLE     KY   40207-3218
                            CHRYSLER-JEEP                        ROAD
GREAT LAKES        52422   KEMPTHORN DODGE-   RICHARD J         1449 CLEVELAND    CANTON         OH   44703-3181
                            DGE TRUCK          KEMPTHORN         AVE N W
GREAT LAKES        67568   KEMPTHORN MOTORS   RICHARD J         1449 CLEVELAND    CANTON         OH   44703-3181
                            INC                KEMPTHORN         AVE N W
GREAT LAKES        23405   ELHART JEEP INC    WAYNE J ELHART    822 CHICAGO DR    HOLLAND        MI   49423-3006
GREAT LAKES        43251   ELHART DODGE INC   JEFFREY L ELHART  870 CHICAGO       HOLLAND        MI   49423-3006
                                                                 DRIVE
GREAT LAKES        62356   VER HAGE OF        LLOYD A VERHAGE   343 EAST 8TH      HOLLAND        MI   49423-3787
                            HOLLAND INC                          STREET
GREAT LAKES        26160   ORRIN B HAYES      ROBERT O HAYES    543 WEST          KALAMAZOO      MI   49007-3796
                            JEEP-EAGLE         II                MICHIGAN
GREAT LAKES        42267   M & M DODGE        RAND L KOETJE     3829 LAKE ST      KALAMAZOO      MI   49048-3313
GREAT LAKES        68591   MAPLE HILL         JAMES K           5622 W MAIN ST    KALAMAZOO      MI   49009-1014
                            CHRYSLER           VANDENBERG
GREAT LAKES        23428   MARTIN CHRY-JEEP   WILLIAM M MARTIN  8800 GRATIOT RD   SAGINAW        MI   48609-4809
GREAT LAKES        44571   DRAPER DODGE       ROBERT T DRAPER   4200 BAY ROAD     SAGINAW        MI   48603
GREAT LAKES        44188   GURLEY-LEEP DODGE  MICHAEL R LEEP    215 WEST DOUGLAS  MISHAWAKA      IN   46545
                            INC
MID ATLANTIC       44755   BERGEY'S DODGE     KEVIN R BERGEY    1201 N BROAD ST   LANSDALE       PA   19446
MID ATLANTIC       62431   KREBS CHRYSLER     JAMES J KREBS     1015 WILLIAM      GLENSHAW       PA   15116
                            JEEP INC                             FLYNN HWY
                                                                RTE 8
MID ATLANTIC       26616   KREBS DODGE        CHRISTOPHER C     100 KREBS DRIVE   GIBSONIA       PA   15044
                                               KREBS
MID ATLANTIC       39517   AIRPORT CHRYSLER   WALTER L          5400 S LABURNUM   RICHMOND       VA   23231-4416
                            JEEP               LAWRENCE II       AVE
MID ATLANTIC       54193   REED BROTHERS      RICHARD L         15955 FREDERICK   ROCKVILLE      MD   20855-2290
                            DODGE INC          GARTNER           ROAD
MID ATLANTIC       66264   LAKEFOREST         JOHN J            903 N FREDERICK   GAITHERSBUR    MD   20879-3307
                            CHRYSLER JEEP,     FITZGERALD JR     AVENUE            G
                            INC
MID ATLANTIC       63813   EAREHART CHRYSLER  GUS J FARRIS      250 AUTO PLAZA    BECKLEY        WV   25801
                            INC                                  DRIVE
MID ATLANTIC       68012   SCHAEFER &         LOUIS M SCHAEFER  3132 AIREYS ROAD  CAMBRIDGE      MD   21613
                            STROHMINGER                          SPUR
                            DELMARVA
MID ATLANTIC       68651   NELSON DODGE       BARRY L NELSON    303 W CHURCH ST   MARTINSVILL    VA   24112-2613
                                                                                   E
MID ATLANTIC       26786   SCOTT NEWCOMB      S. SCOTT NEWCOMB  7461 VIRGINIA     BASSETT        VA   24055-6300
                            CHRYSLER JEEP                        AVE
MID ATLANTIC       43024   BILL SPURLOCK      WILLIAM S         351 FOURTH        HUNTINGTON     WV   25701-1223
                            DODGE INC          SPURLOCK          AVENUE
MID ATLANTIC       26413   DULLES JEEP        HAMID SAGHAFI     107 CATOCTIN      LEESBURG       VA   20175-3712
                                                                 CIRCLE
                                                                SOUTHEAST
MID ATLANTIC       60220   POHANKA CHRYSLER   SCOTT A CRABTREE  219 CATOCTIN CIR  LEESBURG       VA   20175-3707
                            DODGE OF                             SE
                            LEESBURG
MID ATLANTIC       23318   KERN MOTOR         RICHARD D KERN    2110 VALLEY AVE   WINCHESTER     VA   22601-2754
                            COMPANY INC        JR
MID ATLANTIC       63143   PARSONS & PARSONS  FREDERICK K       2525 VALLEY       WINCHESTER     VA   22601-2761
                            LC                 PARSONS           AVENUE
MIDWEST            60230   ARLINGTON          ROBERT V ROHRMAN  925 W DUNDEE RD   BUFFALO        IL   60089-4101
                            CHRYSLER JEEP                                          GROVE
                            DODGE
MIDWEST            68218   RICHARD CHRYSLER   ROCCO MASSARELLI  1845 E MAIN ST    ST CHARLES     IL   60174-2307
                            JEEP DODGE
MIDWEST            41098   DON MILLER DODGE   DAVID J MILLER    754 E WASHINGTON  MADISON        WI   53703-2934
                            INC                                  AVE
MIDWEST            68165   DON MILLER         DAVID J MILLER    5339 WAYNE        MADISON        WI   53718-6384
                            CHRYSLER-JEEP                        TERRACE
                            INC
MIDWEST            42085   DODGE CITY OF      ROBERT            4640 SOUTH 27TH   MILWAUKEE      WI   53221-2199
                            MILWAUKEE INC      SCHLOSSMANN       STREET
MIDWEST            68383   BRAEGER CHRYSLER   TODD M REARDON    6133S. 27TH ST    MILWAUKEE      WI   53221-4836
                            JEEP               JT
MIDWEST            66185   HENDRICKSON        DAVID L           3144 W HIGHWAY    BOONVILLE      IN   47601-9592
                            ENTERPRISE IN      HENDRICKSON       62
MIDWEST            44301   ERNIE VON          ERNST V           700 EAST AVENUE   LOMIRA         WI   53048
                            SCHLEDORN          SCHLEDORN
                            LOMIRA, INC.
MIDWEST            43613   PLACH AUTOMOTIVE   CHARLES E PLACH   INTERSECTION HWY  NEW LONDON     WI   54961
                                                                 45 & 54
MIDWEST            26040   UFTRING JEEP       GARY L UFTRING    500 FAIRLANE DR   EAST PEORIA    IL   61611
NORTHEAST          44906   WALSH DODGE INC    PETER WALSH       271 CULVER AVE    JERSEY CITY    NJ   07305-1121
NORTHEAST          60273   HUDSON CHRYSLER    KEVIN SREENAN     599 ROUTE 440     JERSEY CITY    NJ   07305-4878
                            JEEP
NORTHEAST          68549   LOMAN CHRYSLER     DAVID LOMAN       3469 ROUTE 46     PARSIPPANY     NJ   7054
                            JEEP
NORTHEAST          67225   A B C MOTORS INC   AARON BEECHER     395 WEST MERRICK  VALLEY         NY   11580-5243
                                                                 RD                STREAM
NORTHEAST          42375   MOTOR MART DODGE   DONALD A CERRONE  800 WASHINGTON    SOUTH          MA   02703-7598
                                                                 STREET           ATTLEBORO
NORTHEAST          60316   TARBOX CHRYSLER    JAMES TARBOX      676 PLEASANT ST   ATTLEBORO      MA   02703-2529
                            JEEP, LLC.
NORTHEAST          42792   AMENIA MOTORS      THOMAS J          ROUTE 22          AMENIA         NY   12501
                                               BEVILACQUE
NORTHEAST          57104   WILLIAM T          WILLIAM T         304 S CAYUGA ST   ITHACA         NY   14850-5512
                            PRITCHARD INC      PRITCHARD         # 6
NORTHEAST          58166   BALLENGER          STEVEN H MCCANN   12 ROBERTS        SANFORD        ME   04073-3998
                            AUTOMOBILE CO                        STREET
NORTHEAST          25064   MILLER MOTOR CAR   WENDELL H MILLER  4455 VESTAL       VESTAL         NY   13851
                           CORPORATION                           PARKWAY
NORTHEAST          62248   MATTHEWS CHRYSLER  JAMES F MATTHEWS  2100 VESTAL       VESTAL         NY   13850-1999
                            INC                                  PARKWAY EAST
NORTHEAST          43593   HOLLEY CHRYSLER    ROBERT G HOLLEY   1000R NEWFIELD    MIDDLETOWN       CT 06457-1818
                            DODGE JEEP                           ST
NORTHEAST          23017   SEACOAST MOTORS    NICHOLAS G        2 MERRILL ST      SALISBURY      MA   01952-2308
                            OF SALISBURY INC   DIMOPOULOS
SOUTHEAST          45387   JOHN CULLEN        BARRY J CULLEN    40 WALT SANDERS   NEWNAN         GA   30265-2169
                            DODGE, LLC                           MEMORIAL DR
SOUTHEAST          68992   SOUTHTOWNE MOTORS  STEPHEN N MADER   800 BULLSBORO DR  NEWNAN         GA   30265-1034
                            OF NEWNAN II INC
SOUTHEAST          60332   MARK DODGE         MARK E BONIOL     11300 HIGHWAY 92  WOODSTOCK      GA   30188-4331
                            CHRYSLER JEEP,
                            LLC
SOUTHEAST          23808   DON DRENNEN        DONALD W DRENNEN  1626 MONTGOMERY   HOOVER         AL   35216-4918
                            CHRYSLER JEEP      III               HWY
                            INC
SOUTHEAST          67045   SUSAN SCHEIN       SUSAN S SCHEIN    3311 HWY 31       PELHAM         AL   35124
                            CHRYSLER DODGE,                      SOUTH
                            INC.
SOUTHEAST          45190   GREATER            EDWIN H MILLER,   9820 PARKWAY E    BIRMINGHAM     AL   35215-7302
                            BIRMINGHAM DODGE   JR.
                            CHRYSLER
SOUTHEAST          45314   METROLINA          REGINALD T        7601 SOUTH BLVD   CHARLOTTE       NC  28273-6917
                            CHRYSLER JEEP      HUBBARD
                            DODGE
SOUTHEAST          23815   PREBUL CHRY-JEEP-  JOSEPH PREBUL     2120 CHAPMAN      CHATTANOOGA    TN   37421
                            DODGE                                ROAD
SOUTHEAST          59580   CARUSO CHRYSLER    JOHN E CARUSO     10979 ATLANTIC    JACKSONVILL    FL   32225
                            JEEP DODGE                           BLVD              E
SOUTHEAST          41299   SPITZER DODGE INC  MARK P ARNOLD     30101 S FEDERAL   HOMESTEAD      FL   33033-3205
                                                                 HWY
SOUTHEAST          23926   SOUTHEAST          WILLIAM J PRATT   2800 NOLENSVILLE  NASHVILLE      TN   37211-2240
                            CHRYSLER JEEP      JR                ROAD
                            DODGE
SOUTHEAST          23984   COURTESY CHRY-     TODD F TYREE      485 HIGHWAY 436   CASSELBERRY    FL   32707-4912
                            JEEP OF
                            CASSELBERRY
SOUTHEAST          45157   WINTER PARK        DOUGLAS D         1050 NORTH        WINTER PARK    FL   32789
                            DODGE, INC.        PLATTNER          ORLANDO AVE.
SOUTHEAST          41291   BOB DANCE DODGE    TEMPORARY DEALER  3775 NORTH        SANFORD        FL   32773
                            INC                                  HIGHWAY 17-92
SOUTHEAST          68166   COURTESY CHRYSLER  THOMAS C          1100 RINEHART     SANFORD        FL   32771
                            JEEP OF SANFORD    HARDEMAN          ROAD
SOUTHEAST          60319   JOHNSON CHRYSLER   CARL D JOHNSON,   925 JACKIE        DURHAM          NC  27701-3653
                            DODGE JEEP OF      JR.               ROBINSON DR
SOUTHEAST          60045   JUSTIN DODGE       TODD D HACIAS     647 HIGHWAY 53    CALHOUN        GA   30701
                            CHRYSLER JEEP                        EAST
                            LLC
SOUTHEAST          44437   FAMILY DODGE-CHRY- WILLIAM H ECHOLS  2840 HWY 129      CLEVELAND      GA   30528
                            JEEP                                 SOUTH
SOUTHEAST          68685   VICTORY MOTOR      FATE L WAGNER     625 EAST MAIN     PRATTVILLE     AL   36067
                            COMPANY
SOUTHEAST          23820   CLOVERLEAF         TONY W MOORE      725 BELTLINE RD   DECATUR        AL   35601-6335
                            CHRYSLER DODGE                       SW
                            JEEP
SOUTHEAST          26763   WALLACE CHRYSLER   DAVID L SMITH     5555 S U.S.       FORT PIERCE    FL   34982-7371
                            JEEP LLC                             HIGHWAY 1
SOUTHEAST          68900   GOLDSBORO CHRY-    HAL M HOWARD      604 HIGHWAY 70    GOLDSBORO       NC  27530
                            DODGE-JEEP INC                       EAST BY-PASS
SOUTHEAST          23828   DON HILL JEEP      J D HILL          2523 E STONE DR   KINGSPORT      TN   37660-5858
                            EAGLE
SOUTHEAST          42002   ALLEY'S CHRYSLER   WALLACE D ALLEY   2761 E STONE DR   KINGSPORT      TN   37660-5860
                            DODGE WORLD        JR
SOUTHEAST          66867   MASSEY-YARDLEY     HERBERT G         8401 SE FEDERAL   HOBE SOUND     FL   33455
                            CHRYSLER DODGE     YARDLEY           HIGHWAY
SOUTHWEST          45068   ALLEN SAMUELS      ROBERT E          7309 N IH 35      AUSTIN         TX   78752
                            DODGE              MULLINGS
SOUTHWEST          26591   HUFFINES CHRYSLER  FRANK J KEARNS    5150 S I-35 E #   DENTON         TX   76210-2341
                            JEEP                                 SOUTH
SOUTHWEST          44524   JIM MCNATT DODGE   JAMES L MCNATT    4100 I-35 SOUTH   DENTON         TX   76210
SOUTHWEST          63181   PRESTON CHRYSLER   GARY LAU          13439 PRESTON     DALLAS         TX   75240-5277
                            JEEP                                 ROAD
SOUTHWEST          41933   MANUEL DODGE       TOMMY J MANUEL    1295 N CENTRAL    RICHARDSON     TX   75080-4606
                                                                 EXPY
SOUTHWEST          41548   BANKSTON DODGE OF  DANIEL G AGNEW    2615 INTERSTATE   GRAND          TX   75052
                            GRAND PRAIRIE                        20                PRAIRIE
SOUTHWEST          68987   TOMMY MANUEL CHRY- TOMMY MANUEL      1501 EAST I-20    ARLINGTON      TX   76014
                            JEEP
SOUTHWEST          43928   MEDVED CHRYSLER    ROBERT P ARCHER   1100 SOUTH        CASTLE ROCK      CO 80104
                            JEEP DODGE INC     SR                WILCOX STREET
SOUTHWEST          66098   PHIL LONG DENVER   ROBERT P ARCHER   7800 WEST         DENVER           CO 80123
                            JEE-CHRY                             STANFORD AVENUE
SOUTHWEST          60020   GO DODGE           GARY L CURRY      7980 W TUFTS AVE  LITTLETON        CO 80123-2400
                            SOUTHWEST
SOUTHWEST          45351   LITHIA CHRYSLER    LARRY P CRAIN     5402 L STREET     OMAHA          NE   68117-1378
                            JEEP DODGE OF
SOUTHWEST          45231   STEVEN CHRYSLER    STEVEN G BONNER   11028 W KELLOGG   WICHITA        KS   67209-1227
                            JEEP DODGE,INC                       ST
SOUTHWEST          64255   PAINTER CHRY-      FRENZEL J PERE    1100 N MAIN ST    NEPHI          UT   84648
                            DODGE-JEEP
SOUTHWEST          67936   KOTBY MOTORS       DON R HENDERSON   969 N 3RD ST      LARAMIE        WY   82072-2509
SOUTHWEST          67252   BARBER BROS MOTOR  DONALD R BARRIER  1339 NORTH MAIN   SPANISH        UT   84660-2411
                            CO INC                               STREET            FORK
SOUTHWEST          44181   PAINTERS SUN CTRY  DONNA S CORLEY    1600 SOUTH        ST GEORGE      UT   84770-6763
                            CHR INC                              HILTON DR
SOUTHWEST          68323   JIM CLARK MOTORS   TERRY W REYNOLDS  2121 W 29TH       LAWRENCE       KS   66047-3163
                            INC                                  TERRACE
SOUTHWEST          45416   ROBERT H HINCKLEY  GAINES STANLEY    2810 WASHINGTON   OGDEN          UT   84401-4299
                            INC                                  BLVD
SOUTHWEST          60095   ROCKY MOUNTAIN     JAMES M MELTON    770 WEST          OGDEN          UT   84405-3716
                            CHRYSLER JEEP                        RIVERDALE ROAD
SOUTHWEST          60309   SPITZER AUTOWORLD  GAINES B STANLEY  1535 V ODOM BLVD  AKRON          OH   44320-4027
                            AKRON LLC
SOUTHWEST          45367   KERRY CHRYSLER     GAINES B STANLEY  701 CHAMBER       MILFORD        OH   45150
                            JEEP DODGE, INC.                     DRIVE
SOUTHWEST          59524   ZIMMER CHRYSLER-   JAMES K JACKSON   1086 BURLINGTON   FLORENCE       KY   41042-1236
                            JEEP                                 PIKE
SOUTHWEST          58875   SPITZER MOTOR      R A WHATLEY JR    13001 BROOKPARK   CLEVELAND      OH   44142-1883
                            CITY INC                             RD
SOUTHWEST          66851   BIRMINGHAM CHRY    JAMES M           2100 W MAPLE RD   TROY           MI   48084-7128
                            PLYM JEEP EAGLE    BOUANCHAUD
SOUTHWEST          44620   CHAMPION CHRYSLER  THOMAS J BRUNER   2321 STATE        PALESTINE      TX   75803-8601
                            DODGE JEEP                           HIGHWAY 155
SOUTHWEST          56259   E H GREEN MOTORS   E H GREEN III     700 VOSS AVE      ODEM           TX   78370
                            INC
SOUTHWEST          26507   WILSON JEEP EAGLE  DATHAN V WILSON   4850 WEST 6TH     STILLWATER     OK   74074
                                                                 ST.
SOUTHWEST          45088   FENTON MOTORS OF   TRAVIS L FENTON   4300 WEST SIXTH   STILLWATER     OK   74074
                            STILLWATER INC                       STREET
SOUTHWEST          23904   CARLISLE JEEP      F BLANKENBECKLER  IH 35E AND U.S.   WAXAHACHIE     TX   75165
                                               III               287 BYPASS
SOUTHWEST          60254   BOSSIER DODGE      SCOTT BOSSIER     2405 N.           WAXAHACHIE     TX   75165
                                                                 INTERSTATE 35E
SOUTHWEST          26548   LEGLUE AUTOMOTIVE  JAMES A LEGLUE    4601 COLISEUM     ALEXANDRIA     LA   71303-3518
                            INC                                  BLVD
SOUTHWEST          59731   M & M DODGE INC    OLIVER L          3220 S MACARTHUR  ALEXANDRIA     LA   71301-2931
                                               MCMICKENS         DR
SOUTHWEST          26447   ED PAYNE JEEP-     JAMES A PAYNE     1101 SOUTH        HARLINGEN      TX   78550
                            EAGLE                                COMMERCE
SOUTHWEST          68521   BERT OGDEN         DELBERT R CRUM    602 W JACKSON     HARLINGEN      TX   78550-6467
                            HARLINGEN
                           MOTORS INC
SOUTHWEST          23893   EDDIE CORDES JEEP- EDDIE CORDES      4800 CACHE ROAD   LAWTON         OK   73505-3411
                            EAGLE-DODGE
SOUTHWEST          64033   MILO GORDON        MICHAEL T WYATT   5002 CACHE ROAD   LAWTON         OK   73505
                            CHRYSLER, INC
SOUTHWEST          23903   MARSTALLER MOTORS  RON D MARSTALLER  3000 SPEIGHT      WACO           TX   76711-1599
                            INC
SOUTHWEST          41132   WACO DODGE SALES   SAMUEL H NAY III  1220 N VLY MILL   WACO           TX   76710
                            INC
SOUTHWEST          68190   JEFF HUNTER        JEFFREY M HUNTER  1440 W LOOP 340   WACO           TX   76712-6836
                            CHRYSLER
WEST               45350   URBAN CHRYSLER     JOHN O DJANAZIAN  81 AUTO CENTER    FOOTHILL         CA 92610-2816
                            JEEP DODGE                           DR                RANCH
WEST               43535   VALLEY DODGE INC   HOWARD S SELLZ    6110 VAN NUYS     VAN NUYS         CA 91401-3305
                                                                 BOULEVARD
WEST               60335   BIG VALLEY         HOWARD S SELLZ    6110 VAN NUYS     VAN NUYS         CA 91401-3305
                            CHRYSLER JEEP                        BLVD
WEST               44385   SERRAMONTE         B S SMITH         1500 COLLINS      COLMA            CA 94014-3228
                            CHRYSLER JEEP                        AVENUE
                            DODGE
WEST               45438   BURLINGAME         ANTONIO MA        1025 ROLLINS RD   BURLINGAME       CA 94010-2501
                            CHRYSLER JEEP
                            DODGE
WEST               24202   BOARDWALK          JAMIE G KOPF      1 BAIR ISLAND     REDWOOD          CA 94063-2764
                            CHRYSLER                             ROAD              CITY
                           PLYMOUTH JEEP
WEST               45150   PENINSULA DODGE    DENNIS E HECKER   640 VETERANS      REDWOOD          CA 94063
                                                                 BOULEVARD         CITY
WEST               43687   DIRECT AUTO PLAZA  DAVID C MERRILL   2351 SOUTH 4TH    EL CENTRO        CA 92243
                                                                 ST
WEST               68333   LIBERTY MOTORS     GARY K            600 FREEMAN LANE  GRASS            CA 95949
                            DODGE CHRYSLER     ALCOMBRACK                          VALLEY
WEST               68266   LIBERTY CHRYSLER   DWIGHT G NELSON   369 N 11TH AVE    HANFORD          CA 93230
                            DODGE JEEP
WEST               24140   CAMPBELL MOTORS    LARRY R CAMPBELL  1550 NORTH FIRST  HERMISTON      OR   97838
                            INC                                  STREET
WEST               57812   ISLAND DODGE       ROY M KITAGAWA    110 SOUTH HANA    KAHULUI        HI   96732-2399
                                                                 HIGHWAY
WEST               42443   RICHARDSON DODGE   LAWRENCE          1376 EAST F ST.   OAKDALE          CA 95361
                            CHRYSLER JEEP      RICHARDSON
WEST               44092   OROVILLE MOTORS    SHIRLEY J         2700 LINCOLN      OROVILLE         CA 95966
                           INCORPORATED        CARPENTER         BOULEVARD
WEST               67959   TAYLOR-PARKER      GREG TAYLOR       300 CEDAR STREET  SANDPOINT      ID   83864-1413
                            MOTOR CO
WEST               65269   MOTHER LODE        STANLEY M FLAKE   13411 MONO WAY    SONORA           CA 95370-5398
                            MOTORS
WEST               42779   JONES DODGE        THOMAS G JONES    781 W WICKENBURG  WICKENBURG     AZ   85390
                            CHRYSLER JEEP                        WAY
WEST               43120   DODGE CITY CHRY-   KENT B SOWELL     79-025 HIGHWAY    LA QUINTA        CA 92253
                            JEEP                                 11
WEST               24190   BUTTS JEEP-EAGLE   DONALD C BUTTS    4 HEITZINGER      SEASIDE          CA 93955-3613
                                                                 PLAZA
WEST               66860   LARRY MENKE INC    DOUGLAS A GRAHAM  6 HEITZINGER      SEASIDE          CA 93955-3613
                                                                 PLAZA
----------------------------------------------------------------------------------------------------------------


                               Appendix B Estimated Annual Cost to Serve a Dealer
----------------------------------------------------------------------------------------------------------------
          Cost Categories                                    Cost Items                           Estimated Cost
----------------------------------------------------------------------------------------------------------------
Dealer Systems                       DealerCONNECT (dealer-recovered)                             $1,100
                                     Five Star Dealer Web Sites (dealer-recovered)
----------------------------------------------------------------------------------------------------------------
Transportation                       Vehicles (partially dealer-recovered)                       $21,200
                                     Parts
----------------------------------------------------------------------------------------------------------------
Training                             Training personnel/travel costs (dealer-recovered)               $0
                                     Training materials (CD-ROMS, manuals, etc.)
                                     (dealer-recovered)
----------------------------------------------------------------------------------------------------------------
Marketing                            Brochures, displays, etc. (dealer-recovered)                     $0
----------------------------------------------------------------------------------------------------------------
Field/BCs                            BC personnel/travel costs                                    $6,700
----------------------------------------------------------------------------------------------------------------
Audits                               Sales audit personnel/travel costs                             $400
----------------------------------------------------------------------------------------------------------------
Dealer I.D.                          Signage/fascia costs (partially dealer recovered)              $300
----------------------------------------------------------------------------------------------------------------
Dealer Placement                     Ongoing franchise activity                                   $1,000
----------------------------------------------------------------------------------------------------------------
Compact Mail                         Ongoing compact mail costs                                   $1,000
----------------------------------------------------------------------------------------------------------------
BC/Corp. Administration              Other G & A costs associated with dealer                    $10,000
                                     administration
ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½ï¿½
                                                                                                  Total: $41,700
----------------------------------------------------------------------------------------------------------------

                                 ______
                                 
 Response to Written Question Submitted by Hon. John D. Rockefeller IV 
                           to Fritz Henderson
    Question. How many franchises do you intend to terminate (or not 
renew in October 2010) in areas in which GM later plans to establish a 
wholly new dealership?
    Answer. This is not in our plan, however, we do expect there to be 
a handful of such circumstances.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Kerry to 
                            Fritz Henderson
    Question 1. Please explain in detail the specific criteria and 
information you are using to decide on what dealerships and plants to 
close.
    Answer. The following criteria were used:

        Minimum Sales Threshold

        Sales Effectiveness Index

        Customer Satisfaction Index

        Working Capital

        Profitability

        Dualing Patterns . . . including non-GM brands

        Dealership Location

        Facility (modern or outdated)

        Overall number of dealers in the market

        Other market factors

    The overwhelming majority of the dealers receiving wind-down 
agreements had new vehicle retail sales below 50 a year or were dealers 
with a performance rating (their Dealer Performance Score (DPS) which 
is made up of sales performance, Customer Satisfaction Index (CSI), 
profitability and capitalization) under 70 on a scale where 100 is 
average. Dealers with scores lower than 70 are considered to be poor 
performing dealers.

    Question 2. What assistance (financial and support services) does 
GM plan to provide to the thousands of displaced workers and their 
families?
    Answer. Our plan, subject to bankruptcy approval, has significant 
transition assistance payments available to dealers who sign wind-down 
agreements. The assistance will allow dealers to plan an orderly 
transition, including with their employees.

    Question 3. I understand that your dealer franchise agreements 
require GM, as the manufacturer, to repurchase a dealer's new car 
inventory and parts inventory at the dealer's cost in the event of a 
termination or surrender of the dealer's franchise. Is that correct?
    Answer. The dealer agreement provides for new vehicle and parts 
inventory repurchase in certain circumstances. If a dealer chooses not 
to execute a wind-down agreement or otherwise terminates the dealer 
agreement and has a floor plan financing agreement with GMAC, GM will 
ultimately rebill the new vehicle inventory to other dealers at no cost 
to the dealer, pursuant to the GMAC guarantee.

    Question 4. In the bankruptcy, will GM honor this obligation?
    Answer. GM plans to honor the GMAC obligation and will rebill new 
vehicle inventory financed through GMAC at no cost to the dealer. In 
addition, we have a wind-down program in place for dealers which will 
allow them to sell the new vehicle and parts inventory over a 16 month 
period if they choose.

    Question 5. If not, how can a terminated dealer be expected to 
dispose of the inventory in a short timeframe?
    Answer. GM plans to honor the GMAC obligation and we will rebill 
new vehicle inventory financed through GMAC at no cost to the dealer. 
Under the wind-down agreement, the dealer has up to 16 months to sell 
their inventory of vehicles and parts.

    Question 6. Is it realistic to expect customers to buy new cars 
from a dealer that has been terminated or designated for termination?
    Answer. Yes. We have not disclosed the names of these dealers 
publicly.

    Question 7. Is it fair to put that burden on the dealers that have 
been terminated?
    Answer. We believe our approach provides significant wind-down 
assistance to the dealers.

    Question 8. Would allowing the Dealers scheduled for termination or 
non-renewal to continue on as Certified Used Vehicle Dealers, without 
the ability to sell new vehicles, change your cost savings estimates?
    Answer. The wind-down dealers will not be able to continue as GM 
Certified Used Car Dealers. However, we are going to allow these 
dealers access to the GM auction so they can purchase late model off-
lease and rental vehicles.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Byron Dorgan to 
                            Fritz Henderson
    Question 1. I have heard from many of the dealers in my state that 
cutting dealerships will not save your company money. They point out 
that they are your customers, not cost centers. Can you outline the 
specific costs associated with maintaining a dealer network?
    Answer. GM spends $3.9 Billion per year supporting its dealer 
network. An approximate breakdown of costs on a per vehicle basis 
follows:
     Additional Dealer Margins                                                                               $300
    Incentives Paid Directly to Dealer and Wholesale                                     approximately $250-$330
     Inventory Floorplan Support
    Greater Standards for Excellence Payments                                                               $150
    Greater New Vehicle Inspection Payments                                                                 $150
    Greater Fuel Fill Payments                                                                               $50
    Increased Sales and Service Field Support                                                                $20
      Total                                                                approximately $900-$1,000 per vehicle

    Question 2. Our dealers point out that your companies don't spend 
money on ad buys in North Dakota communities. Most of the advertising 
comes from national ad buys. They also tell me that they pay for the 
training, materials, signs, etc. And it's my understanding that your 
reps don't call on our rural dealers very often. So I assume that your 
cost of maintaining a rural dealership is less than a large dealer in 
an urban area. Can you tell me what it costs you to have a franchise in 
a rural community?
    Answer. We don't agree with the assumption laid out in this 
question. However, it is important to note that there are significant 
costs associated with maintaining rural dealerships. All dealers, 
including rural dealers, have the opportunity to participate in the GM 
funded programs set forth above including GM co-op advertising 
programs. The costs for these dealers is as set forth above. It is 
important to note that GM has and will continue to have the largest 
rural dealer network even after the restructuring of the dealer 
network.

    Question 3. I assume most car dealers are smart small business men 
and women. If their operation is not profitable, why would they 
continue to be in business? You noted that most of the dealers you are 
closing will continue to operate as used car businesses. But our 
dealers say that without the new car business, it will be hard to 
survive. Their used car business depends on trade-ins and their 
reputation. Can you comment on that?
    Answer. First, 67 percent of GM that received the wind-down 
agreements were unprofitable (an annual average loss of over $110,000 
per dealer per year based on 2008 data). GM plans to allow dealers that 
accept the wind-down agreement to have continued access to GM auctions. 
This will allow the dealers to purchase late model GM vehicles coming 
in from lease and rental service and then resell them to their 
customers.

    Question 4. Why wouldn't you allow the dealers that you are closing 
to continue to perform service work under warranty?
    Answer. Dealers that sign the wind-down agreement will be allowed 
to perform warranty work through October 2010. After October 2010, all 
warranty service will be performed at continuing GM dealers.
                                 ______
                                 
    Response to Written Question Submitted by Hon. Barbara Boxer to 
                            Fritz Henderson
    Question. The NUMMI plant in California employs 5,440 in the Bay 
Area and has a significant impact on the California economy. On June 1, 
2009, Automobile Magazine reported the following,

    ``Toyota President Katsuaki Watanabe told reporters that he hopes 
to continue operations at the NUMMI plant with GM, and even said his 
company would consider aiding GM in its restructuring plans if 
approached. But GM CEO Fritz Henderson has said there would be no need 
for NUMMI after Pontiac disappears. Currently, the NUMMI plant produces 
the Pontiac Vibe crossover, along with the Toyota Corolla sedan and 
Tacoma pickup. Henderson added that nothing had been decided regarding 
NUMMI at this point.'' Does GM consider a strong NUMMI facility 
critical to the long term success of GM? What is GM's intent for the 
future of the NUMMI plant and its workers?
    Answer. GM has valued relationship with Toyota at our joint 
venture, NUMMI, in Freemont, California. Discussions between GM and 
Toyota are underway to explore all options and alternatives to maintain 
an ongoing relationship.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Bill Nelson to 
                            Fritz Henderson
    Question 1. In my state of Florida, the unemployment rate is at 10 
percent. I am hearing from terminated dealers daily and just read in 
the paper that GM plans to close its distribution center in 
Jacksonville and lay off one-hundred ten employees. I'm very concerned 
about the impact of these dealer and distribution center closings not 
only on the jobs at the dealerships and distribution center but on the 
surrounding industries that do business with Chrysler and GM in the 
region. What programs/relocation assistance etc., have you identified 
as sources of possible mitigation of job loss be it temporary or long 
time that would provide relief for these workers impacted by the 
closing of the distribution or dealership?
    Answer. Subject to bankruptcy court approval, there is a transition 
assistance program to assist the dealers in an orderly wind-down (made 
up of $1,000 per vehicle inventory plus 8 months ``rental 
assistance''). Dealers who sign a wind-down agreement will get their 
share of this assistance which will allow them plan an orderly 
transition.

    Question 2. One of the concerns that I have been hearing about is 
that terminated dealers are not receiving compensation for their 
investment in the GM Franchise. I am told that the wind-down agreements 
that GM is offering to the terminated dealers include a compensation 
amount for the dealers. How did you arrive at that amount?
    Answer. In the wind-down agreement there is $1,000 for each vehicle 
in dealer inventory at the end of May 2009. Also, the wind-down 
agreement includes 8 months of ``rental assistance''.

    Question 3. How long is the appeals process taking? If those 
dealers decide to appeal their termination through GM's appeal process 
will they lose their opportunity to sign the wind-down agreement if the 
appeal is not finalized before the June 12 deadline to sign the 
agreement?
    Answer. Dealers have until June 8, 2009 to submit any data for 
review and we will complete that review by June 12, 2009. As a result, 
all dealers will have the opportunity to execute the documents by the 
deadline.

    Question 4. How will the extensive dealership closings impact the 
ability of consumers to obtain non-warranty related repair and 
maintenance for their vehicles? Will you ensure that appropriate 
information is available to independent service providers so that 
consumers will have options? For GM--What criteria did General Motors 
use in determining which dealerships to close?
    Answer. We will personally notify customers of any changes that 
affect them, and regardless of the brand vehicle they own today, we 
will honor all warranties and direct customers to new dealership 
locations after their current dealership closes.
    If a GM customer's local dealer goes out of business, the customer 
can call the GM Customer Assistance Center (CAC) or go to any GM Brand 
website to locate the nearest dealer. Any GM dealer can service any GM 
vehicle in the case of an emergency. When a customer calls a GM dealer 
they must indicate the need for ``emergency service''.
    The following criteria were used:

        Minimum Sales Threshold

        Sales Effectiveness Index

        Customer Satisfaction Index

        Working Capital

        Profitability

        Dualing Patterns . . . including non-GM brands

        Dealership Location

        Facility (modern or outdated)

        Overall number of dealers in the market

        Other market factors

    Question 5. What where the threshold requirements used to determine 
who received a termination letter? What formulas were employed to make 
that determination? What demographic considerations went into making 
that decision?
    Answer. The overwhelming majority of the dealers receiving wind-
down agreements had new vehicle retail sales below 50 a year or were 
dealers with a performance rating (their Dealer Performance Score (DPS) 
which is made up of sales, Customer Satisfaction Index (CSI), 
profitability and capitalization) under 70 on a scale where 100 is 
average. Dealers with scores lower than 70 are considered to be poor 
performing dealers.

    Question 6. Did you violate the spirit of its agreements with the 
dealers by requesting that they take in additional inventory and 
facility improvements when they knew that there was a high likelihood 
that they would go into bankruptcy?
    Answer. Absolutely not. GM did not make any such requests to 
dealers that were outside normal day to day business activities.

    Question 7. The Stimulus Package was designed to get people back to 
work and put capital in the hands of workers so that it would revive 
our ailing economy. Don't the plans by GM do just the opposite of what 
the Stimulus Package was designed to do by putting people with good 
paying jobs out of work?
    Answer. The plan to establish an effective distribution network is 
integral to the viability plan for General Motors. The GM viability 
plan, which included addressing the legacy dealership network, was 
developed and submitted to the Auto Task Force. A viable GM plan was 
required to secure continued financial support which preserved over 
200,000 jobs at GM's remaining dealers along with hundreds of thousands 
of jobs within GM's direct manufacturing and supplier network.

    Question 8. Would you provide a list of all the dealerships that 
you provided closure notices to?
    Answer. Dealers have asked us to keep the dealer names confidential 
so they can communicate with their employees and customers directly in 
a way that facilitates the wind-down of their operation. We are working 
with the committee staff of the Senate Commerce Committee to provide 
this list in a manner that protects dealer confidentiality.

    Question 9. One local dealership in Miami Shores, FL, Tropical 
Chevrolet, employs over 80 employees. The local government depends on 
its tax revenue in order to support essential services. Other local 
businesses depend upon it for revenue that they receive from making 
sales to it. It is the largest tax payer in Miami Shores. What data can 
you produce that shows the economic impact on communities like Miami 
Shores when GM makes this type of closure decision?
    Answer. We do not have any such data but one of the reasons we are 
providing transitional assistance as outlined below is to allow an 
orderly wind-down of the business.

    Question 10. What is being done for franchise owners many of which 
are family businesses now obligated to repay debt incurred because of 
the decisions by GM?
    Answer. Subject to bankruptcy court approval, there is a transition 
assistance program to assist the dealers in an orderly wind-down (made 
up of $1,000 per vehicle inventory plus 8 months ``rental 
assistance''). Dealers who sign a wind-down agreement will get their 
share of this assistance which could be used to address such issues.

    Question 11. It is my understanding that, under the proposed 
General Motors bankruptcy plan, families driving any General Motors 
vehicle now on the road (about 30 million vehicles), whose occupants 
are severely injured or killed in a crash will have limited avenues of 
recourse against the company. I know that warranty claims and lemon law 
claims for old vehicles will be honored by the new companies, in the 
hopes of preserving brand loyalty among GM customers. Why did GM decide 
to honor warranty and lemon law claims, but not current and future 
product safety liability? Is that fair?
    Answer. Product defect claims are typically subject to court 
proceedings and litigation and it is standard practice for a company 
that has been forced to file for bankruptcy protection to seek current 
and future protection from such claims. With respect to customer 
warranties, GM plans to meet all obligations to repair its customers' 
vehicles under applicable warranties.

    Question 12. Many state laws specify that the dealers (including 
those forced to close) will stand in your shoes and be responsible for 
product safety issues associated with GM products. Why should they and 
not you be responsible?
    Answer. If a dealer signs either the wind-down or participation 
agreement GM will continue with its indemnification obligations to the 
dealers so dealers will not be in this position. This issue is 
specifically addressed in the agreements.

    Question 13. Thousands of GM workers are living out their 
retirement years in Florida, including more than 10,000 nonunion 
retirees and their spouses, 4,000 retired autoworkers who live at least 
part time in Southwest Florida and an estimated 3,000 retired 
autoworkers living in the Tampa Bay Area.
    In the event GM cannot continue to maintain their pension plans, 
the Pension Benefit Guaranty Corporation could be responsible for 
paying the benefits of about 600,000 people who receive pension 
payments from GM.
    To the extent these additional claims substantially increase PBGC's 
accumulated deficit and decrease its long-run liquidity, there could be 
pressure for the Federal Government to provide PBGC financial 
assistance to avoid reductions in guaranteed payments to retirees or 
unsustainable increases in the premium burden on sponsors of ongoing 
plans.
    Because of the potential role of the Federal Government in backing 
these pension plans and because this is an important to so many 
Floridians, I would like to know what steps are being taken to continue 
support for these pension plans? In the event the pension obligations 
cannot be fulfilled, what steps are being taken to ensure that 
beneficiary payments are not disrupted? Are you confident in the 
ability of PBGC to meet these pension obligations?
    Answer. We believe that the General Motors Salaried Retirement 
Program and Hourly Pension Plan are generally strongly funded. Although 
they are currently less than 100 percent funded, we believe that 
shortfall reflects the present weakness of the financial markets and is 
likely to be corrected when market conditions improve.
    As of December 31, 2008, our hourly pension plan was approximately 
84 percent funded and our salaried retirement program was approximately 
95 percent funded. Together, the plans had $84.5 billion in assets as 
of the end of last year. If the December 31, 2008 funded status is 
adjusted to eliminate the pension pass-through benefit, which was 
recently agreed upon with the UAW, the hourly pension plan would have 
been approximately 88 percent funded as of the end of last year.
    We have stated that we intend to continue to provide pay and 
benefits for our employees and retirees during this Chapter 11 process. 
Additionally, we have stated that it is our plan to bring the salaried 
retirement program and the hourly pension plans into the new company 
and that we do not expect any interruption in pension benefit payments 
at this time.
    GM, of course, cannot comment regarding the PBGC's ability to make 
benefit payments. Such a response would have to come from the PBGC.
    This said, it is important to restate that the GM pension and 
retirement plans are close to fully funded, and it is GM's intention, 
at this time, to continue to sponsor the plans and make the benefit 
payments as required under the plan provisions.
                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                            Fritz Henderson
    Question 1. How will closing 1,100 GM dealerships directly benefit 
consumers?
    Answer. It will allow GM and the remaining 3,600-3,800 GM dealers 
to be viable long-term which benefits consumers and the country. 
Stronger dealers offer customers improved vehicle selection and ongoing 
service.

    Question 2. How many dealerships did GM send termination notices to 
in Washington State?
    Answer. 18 dealers received the GM wind-down agreement.

    Question 3. In each of the past 5 years, how many dealership 
agreements have been terminated?
    Answer. GM has terminated very few dealerships. However, many 
dealers have voluntarily elected to terminate. Over the past 5 years, 
1,124 dealerships have voluntarily terminated.

    Question 4. After GM exits bankruptcy, will the renegotiated 
``Dealers Sales and Service Agreement'' between the company and the 
dealers of ``New GM'' going forward be subject to state franchise laws 
or are the terms and conditions in these agreements structured in a way 
so that state franchise laws will be essentially moot?
    Answer. Yes, State franchise laws will apply to the participation 
agreement.

    Question 5. How do you rebuild the trust with your remaining dealer 
network?
    Answer. Frankly, many of our dealers are telling us our plan is 
exactly the right thing to do--that GM has had too many dealers for a 
viable long-term dealer network.
                                 ______
                                 
  Response to Written Questions Submitted by Hon. Claire McCaskill to 
                            Fritz Henderson
    Question 1. How many General Motors dealerships in Missouri have 
received notification that General Motors will be terminating their 
contract? How many of those dealerships are in rural cities in 
Missouri? By rural I am referring to locations in cities of 20,000 or 
less.
    Answer. 38 Dealers in the state of Missouri have received GM wind-
down agreements and of those, 25 are located in rural cities.

    Question 2. I am aware of many General Motors dealerships that have 
been notified of a pending termination. Several of them have contacted 
me regarding their appeals. Please have your staff contact Nichole 
Distefano, Legislative Counsel, when decisions are made regarding the 
appeals of Missouri dealerships.
    Answer. We will work with Ms. Distefano regarding appeals from 
dealers that have contacted you.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Mark Pryor to 
                            Fritz Henderson
    Question 1. Our state auto dealer association has indicated that 
your bankruptcy plans could lead to the end of franchise contracts for 
25-30 GM dealerships in Arkansas representing approximately 2,000 jobs. 
Can you tell me how many dealerships in Arkansas you expect to drop in 
the bankruptcy process?
    Answer. 17 dealers received the GM wind-down agreement.

    Question 2. Would you describe the specific cost savings that come 
with these closures in Arkansas?
    Answer. GM spends $3.9 Billion per year supporting its dealer 
network. An approximate breakdown of costs on a per vehicle basis 
follows:
     Additional Dealer Margins                                                                               $300
    Incentives Paid Directly to Dealer and Wholesale                                     approximately $250-$330
     Inventory Floorplan Support
    Greater Standards for Excellence Payments                                                               $150
    Greater New Vehicle Inspection Payments                                                                 $150
    Greater Fuel Fill Payments                                                                               $50
    Increased Sales and Service Field Support                                                                $20
      Total                                                                approximately $900-$1,000 per vehicle

    We do not have the costs broken down by state.

    Question 3. Do you have an estimate on jobs that are at risk at 
these dealerships?
    Answer. No. Many dealers operate multiple businesses and employees 
at affected dealers may have opportunities to work at other business 
operations of the dealer.

    Question 4. I've been contacted by a handful of Arkansas 
dealerships that have received letters from GM that told them that they 
were to be shut down by Sept 2010. They don't believe that the 
information supplied in the letters is entirely accurate. One specific 
example comes from a dealer in Arkansas, who has been selling GM 
product for over 60 years. They are viable and profitable company in 
excellent credit standing. Last year they sold over 300 units. They 
employ 30 people and have donated tens of thousands for charity in 
their community of 6,500. They are also in a competitive market with 
Chrysler and Ford dealerships in the same town. They have informed me 
that the data used in determining their status under bankruptcy was 
incorrect and that if correct data were used they would have passed all 
the determining tests. What are you doing to provide a venue for 
dealerships to dispute or appeal the letters that you have sent?
    Answer. Dealers' wishing to submit facts or request review of their 
specific situation must submit the request in writing to: 
[email protected] (from the Dealer Operator named in 
Paragraph 3 of the Dealer Sales and Service Agreement). The submission 
must include BAC, Dealer Company Name, address, City and State and must 
be received on or before June 8, 5:00PM ET so GM has time to review it 
prior to June 12, 2009. GM is working around the clock to thoroughly 
review and reply to dealer submissions.

    Question 5. To date, GM has received $20 billion with a plan to 
provide an additional multi-billion dollar sum to get through 
bankruptcy. In return, the Federal Government will hold a 60 percent 
share in GM. Can you please tell me how or when your companies will 
repay the government?
    Answer. We take our responsibility to the American taxpayer very 
seriously. A New GM will contribute to America's economic strength and 
competitiveness. With a viable GM the government will be able to sell 
its shares over time to repay the taxpayers.

    Question 6. In your discussions with the Auto Task Force, have your 
companies or the Auto Task Force considered or developed any plans to 
deal with the impact of dealership and plant closures on home 
foreclosures, increased unemployment assistance, job training, lost 
local tax revenues, etc.?
    Answer. Subject to bankruptcy court approval, there is a transition 
assistance program to assist the dealers in an orderly wind-down (made 
up of $1,000 per vehicle inventory plus 8 months ``rental 
assistance''). Dealers who sign a wind-down agreement will get their 
share of this assistance which will allow them to plan an orderly 
transition.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Tom Udall to 
                            Fritz Henderson
    Question 1. Mr. Henderson, I was listening to NPR recently and 
heard you say that GM would now focus on being the best, not just the 
biggest, auto manufacturer. When I heard that my first thought was--
what does best mean? You may know that I support increasing fuel-
efficiency in all vehicles because it's the right thing to do for our 
environment, our future, and I believe, our wallets. So when you said 
GM would strive to be the best automaker, does best mean making more 
fuel-efficient cars? What role do you see fuel-efficiency and 
environmental responsibility playing in the future of GM?
    Answer. General Motors is among the industry leaders in fuel 
efficiency and is committed to a wide variety of technologies to reduce 
petroleum consumption. We are also committed to meeting or exceeding 
all Federal fuel economy standards. The company will achieve this 
through a combination of strategies, including: extensive technology 
improvements to conventional powertrains, and increased use of smaller 
displacement engines and 6-speed automatic transmissions; vehicle 
improvements including increased use of lighter, front-wheel drive 
architectures; increased hybrid offerings, and the launch of General 
Motors first extended-range electric vehicle, the Chevrolet Volt in 
late 2010; portfolio changes, including the increasing car/crossover 
mix referred to preciously, and dropping select larger vehicles in 
favor of smaller, more fuel-efficient offerings. At General Motors, we 
believe low gas prices are a thing of the past. As a result our product 
and technology plans assume that customer will make purchasing 
decisions based on high gasoline prices.
    General Motors fully understands and appreciates the challenges to 
energy security and the climate from increased global consumption of 
petroleum. GM believes that as a business necessity it must do 
everything it can to help reduce the Nation's petroleum dependency and 
greenhouse gas emissions, with an emphasis on fuel efficiency, bio-
fuels and vehicle electrification. As a result, we will be investing 
heavily in alternative fuel and advanced propulsion technologies during 
the 2009-2012 timeframe. This investment is substantially to support 
the expansion in hybrid offerings and for the Volt's extended range 
electric vehicle.
    Eventually we intend to remove the vehicles from the environmental 
equation by developing and implementing fuel cell vehicles that run on 
hydrogen power.

    Question 2. Mr. Henderson, My colleagues and I probably all 
remember when the saying--``What's good for GM is good for America''--
was popular. It seems now that some people might not agree. Would you 
still say that what is good for GM is good for America? If so, how will 
closing these dealerships and filing for bankruptcy be good for the 
American people?
    Answer. Over the course of 100 years, GM has been woven throughout 
the economic and social fabric of America. In large part to our 
business, we helped establish America as a manufacturing and industrial 
power. GM helped create the middle class through good paying jobs and 
extended opportunities to those who experienced the sting of 
discrimination in its many insidious forms. We were a part of the 
Arsenal of Democracy in World War II, building the planes and weapons 
that would keep the world free from unspeakable evil. We created upward 
mobility through training, tuition assistance and scholarships. Our 
innovation and creativity resulted in new technologies that made 
driving safer and our air cleaner. Our people and facilities supported 
whole communities and countless worthy causes that united neighbors and 
assisted the less fortunate.
    Our history and the economic contribution cannot be forgotten or 
diminished as we struggle through the recent unprecedented economic 
crisis that has affected all automakers around the globe. We have 
undertaken dramatic--and at times painful--action to reinvent GM in 
order to not only survive, but to thrive. We want to emerge as a New GM 
that will reassert its leadership and once again contribute to 
America's economic, technological and competitive strength.
    The Company believes this Plan puts its business, both in the 
United States and around the world, on sound, sustainable and 
competitive footings. It builds on demonstrated, world class 
capabilities in design, engineering, fuel efficiency, purchasing and 
manufacturing, importantly closing competitive cost gaps and resolving 
long-standing legacy cost issues that have contributed to unsupportable 
debt levels.
    This New GM will be built from the strongest parts of our business, 
including our best brands, and our very finest products. We will have 
far less debt, fully competitive labor costs, and the ability to 
generate sustained and positive bottom line performance. The New GM 
will have a significantly stronger and healthier balance sheet--and a 
dealership network properly sized to match--which will allow us to 
better support our brands and products through investment, increase our 
investment in new technology, and be able to weather difficult times.
    While our preference was to create a New GM through other paths, 
the most important thing to do is to get to our destination, 
restructure General Motors permanently, and get there fast. The actions 
we need to take in order to do this include a number of extraordinarily 
difficult steps. Especially tough and painful are the actions to close 
additional plants, dealerships and further reduce our U.S. hourly and 
salaried employment. Many have sacrificed so much in this regard, who 
have sacrificed in the past and will sacrifice in the future, including 
our dealers, suppliers, retirees, plant communities, as well as those 
who will continue to invest and in fact share the sacrifice in the 
future and in the days ahead.
    This sacrifice is undertaken to ensure a recovery will come--in the 
form of stock and warrants--and reminds us of the importance of 
delivering in the future, so that our country, the taxpayer and all 
stakeholders get a recovery on their investment, and they're able to 
reduce the amount of damage that they've sustained. It's the job of 
management to maximize the return on our stock by producing the 
results, including generating cash as soon as possible to invest in our 
business, to grow, to be product-focused and in fact to reward the 
confidence of the taxpayers of the U.S. and Canada, but of the very 
parties that we're asking to sacrifice so that there can be a New 
General Motors.
    While painful, these initial weeks and months mark the beginning of 
what will be a new company, a New GM, dedicated to building the very 
best cars and trucks, highly fuel efficient, world class quality, green 
technology development, and with truly outstanding design. And above 
all, the New GM will be rededicated in our entirety as a leadership 
team to our customers. A number of our cars and trucks from the Chevy 
Volt, the Buick LaCrosse, the Chevrolet Camaro and Equinox, the GMC 
Terrain and the Cadillac SRX, amongst others, are already world-class 
or in the case of advanced technology, are breaking new ground. We need 
to make sure that all of our products are world-class and that will be 
our focus going forward. We need to make sure every single one of our 
vehicle launches is an outstanding car or truck.
    We are grateful to the Congress, Administration and taxpayer for 
the opportunity that's being provided to us to reinvent General Motors. 
We know we need to prove ourselves and to do it every day and we will. 
And we will do it right and we will do it once. This is not the end of 
General Motors but the start of a new and better chapter, one that 
needed to happen and one that begins now.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Begich to 
                            Fritz Henderson
    Question 1. Describe for the Committee what steps GM is taking to 
ensure the long-term growth of the reformed company?
    Answer. The New GM will be well-positioned to capitalize on the 
award-winning vehicles we have developed and launched during the past 
few years, and on our investments in exciting new technologies like the 
Chevy Volt, so that we can build and return value to our customers and 
to the millions who will have a stake in our success. The New GM will 
play a critical role in the future of the automobile, and assure that 
the U.S. has a strong stake in this rapidly changing global 
manufacturing industry.

    Question 2. As GM reorganizes and grows, it will likely need 
dealership growth to expand as well. Once reorganization is complete, 
how will GM expand their dealership network?
    Answer. There are no current plans to expand the GM dealer network. 
Our current plan is to have 3,600--3,800 viable dealers.

    Question 3. What happens to GM dealers with remaining inventory who 
do not sign ``wind-down'' agreements by June 12, 2009?
    Answer. If the dealer does not sign the GM wind-down agreement, GM 
will have no choice but to terminate the dealer given the bankruptcy 
process.

    Question 4. What mitigation practices are in place for terminated 
GM employees?
    Answer. Employees impacted by GM restructuring efforts receive the 
following: Severance pay, health care and life insurance coverage for 
up to 6 months. Outplacement services are provided for 3 months. Former 
GM employees are also eligible for the GM vehicle purchase discount for 
up to 4 years after the separation date.

    Question 5. What mitigation practices are in place for terminated 
dealerships and their employees to ensure dealerships have the ability 
to deal with the transitions they will have to make as a result of 
``winding down''?
    Answer. Subject to bankruptcy court approval, there is a transition 
assistance program to assist the dealers in an orderly wind-down (made 
up of $1,000 per vehicle inventory plus 8 months ``rental 
assistance''). Dealers who sign a wind-down agreement will get their 
share of this assistance.

    Question 6. What compensation will GM offer to dealers for 
investments they have made in their land and in their buildings?
    Answer. Subject to bankruptcy court approval, the wind-down 
agreement will provide assistance of $1,000 for each vehicle in dealer 
inventory at the end of May 2009. Also, the wind-down agreement 
includes 8 months of ``rental assistance''. The specific amount for a 
dealership is contained in the wind-down agreement.

    Question 7. Are their situations where you will extend the deadline 
that allows dealers to sell off their inventory and recoup their 
investment?
    Answer. The bankruptcy process will not allow for an extension of 
the deadline.

    Question 8. How will you ensure vehicle owners in small towns with 
terminated GM dealerships will have a place to have warranty-service 
performed on their vehicles?
    Answer. We will still have an extensive rural network of 1,505 
dealers nationally. This compares very favorably with all our key 
competitors.

    Question 9. Did GM work with the National Automobile Dealers 
Association on language for the ``wind-down'' agreement? If not, why 
not?
    Answer. We shared the concept with some members of GM's National 
Dealer Council and National Automobile Dealers Association 
representatives. We have been advised by numerous dealers that they are 
very pleased with the way GM is handling the wind-down agreement. As of 
Friday afternoon , June 5, 2009, over 490 dealers have executed and 
returned wind down agreements to GM with several hundred more expected 
to be received shortly.

    Question 10. Please provide documentation on the actual savings GM 
will achieve by closing dealerships, detailing what specific items GM 
has calculated into the cost factor.
    Answer. GM spends $3.9 Billion per year supporting its dealer 
network. An approximate breakdown of costs on a per vehicle basis 
follows:
     Additional Dealer Margins                                                                               $300
    Incentives Paid Directly to Dealer and Wholesale                                     approximately $250-$330
     Inventory Floorplan Support
    Greater Standards for Excellence Payments                                                               $150
    Greater New Vehicle Inspection Payments                                                                 $150
    Greater Fuel Fill Payments                                                                               $50
    Increased Sales and Service Field Support                                                                $20
      Total                                                                approximately $900-$1,000 per vehicle

    Question 11. Please confirm for the Committee that notwithstanding 
the terms of the ``agreements'' you have imposed on the terminated 
dealerships that the new GM will not use funds made available to it by 
the U.S. Treasury to contest the ability of these dealerships to 
challenge the terminations in court.
    Answer. We are not imposing agreements on dealers. If they elect to 
sign a wind-down or participation agreement we expect them to be bound 
by that agreement.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                            Fritz Henderson
    Question 1. In your wind-down agreements offered to discontinued 
dealers, you state that no dealership signing the agreement will 
continue beyond October 2010, and from January 1, 2010 to October 2010, 
GM can terminate the dealership with 30 days notice. Will you terminate 
a dealer that signs this agreement prior to October 2010?
    Answer. We retained this right in the wind-down agreement to 
address the rare case of a breach of the agreement by the dealer.

    Question 2. Is 30 days a sufficient length of time for a GM dealer 
to wind-down operations?
    Answer. Our plan does not contemplate a 30 day wind-down agreement. 
Our plan for dealers who sign wind-down agreements allows a 16-month 
period to wind-down. At the end of the 16-month timeframe, the dealer 
should have very limited inventory.

    Question 3. If a dealer does not sign the wind-down agreement, will 
you seek to terminate that dealer during the bankruptcy proceeding?
    Answer. Given the bankruptcy court process and timing, we will have 
no choice but to move to reject the dealer sales and service agreement.

    Question 4. If a dealer does not sign the wind-down agreement, will 
the dealer have until October 2010 to wind-down his operations?
    Answer. The bankruptcy court process requires us to reject the 
dealer sales and service agreement.

    Question 5. If a dealer signs the wind-down agreement, is he 
precluded from appealing his termination?
    Answer. We will have all requests for reviews submitted by dealers 
concluded before the June 12, 2009 deadline so this should not be an 
issue.

    Question 6. The wind-down agreement appears to require a dealer to 
waive all of his rights under state and Federal law, now and in the 
future, for any and all claims arising from GM conduct. Why do you 
believe it is appropriate and necessary to require such a significant 
waiver of legal rights?
    Answer. If the dealer does not sign the wind down agreement, the 
dealer agreement will be rejected in the bankruptcy court process. 
Given that fact, we believe the execution of a release of claim is 
appropriate for dealers executing a wind-down agreement.

    Question 7. Did anyone in the Federal Government see or approve 
this agreement prior to its release to the dealers?
    Answer. We did provide drafts of the participation agreements to 
the Task Force and counsel for the Treasury Department on an 
informational basis.

    Question 8. For dealers being offered franchise renewal agreements, 
how long does the dealer have to sign the agreement?
    Answer. They are not renewal agreements, but do supplement the 
existing dealer agreement. Dealers have until June 12, 2009 to execute 
the documents.

    Question 8a. We have heard that the conditions in the continuing 
agreements vary significantly from the existing agreements. For 
example, I understand that after December 2009, any GM dealership will 
have to be an exclusive dealership--in other words if it currently is a 
GM and Ford dealership, the GM franchise can only continue if the Ford 
dealership is moved out. That seems to impose an additional financial 
burden on the dealership with very little time to comply. Is this true 
and, if so, why are you requiring this?
    Answer. It is increasingly the standard of the industry to have 
exclusive facilities to sell and service brands. This will ensure that 
the focus of our dealerships is on the GM brands. We of course will 
work with dealers on their timing to accomplish this if there are 
specific issues outside of their control.

    Question 8b. I also understand that the proposed agreements would 
allow GM to place a new dealership at least 6 miles from an existing 
dealership AND that the existing dealership has to waive its existing 
rights to challenge the new placement. Is this true and, if so, why are 
you requiring this?
    Answer. Given GM's legacy network in some markets, dealer 
relocations and additions may be required. In no case does GM plan to 
increase the net number of dealers in a market over what it is today.

    Question 8c. In the context of these renewal agreements, I 
understand the agreement requires a dealer to waive all of his rights 
under state and Federal law, now and in the future, for any and all 
claims arising from GM conduct. Why do you believe it is appropriate 
and necessary to require such a significant waiver of legal rights?
    Answer. To clarify, the agreements are not renewal agreements, but 
do supplement the existing dealer agreement. The participation 
agreement does not require a waiver of future claims. It does, however, 
include the same waiver of all past claims that would apply as if the 
dealer agreement was rejected in bankruptcy in accordance with the 
bankruptcy process.

    Question 8d. Did anyone in the Federal Government see or approve 
these new franchise agreements before their submission to the dealers?
    Answer. There are no new franchise agreements. We did provide 
drafts of the participation agreements on an informational basis.

    Question 9. On May 25, in the publication Automotive News, GM 
executive Jim Bunnell was quoted as saying, ``Certainly we're going to 
comply with all of the state laws.'' Are you going to follow all state 
laws for dealerships you are terminating as well as those that are 
continuing beyond 2010 despite the fact that you are in bankruptcy 
proceedings?
    Answer. We are complying with all applicable laws.

    Question 10. There are concerns that some of the terminated 
franchises will be offered to new dealers in the near future. If so, 
will the closed dealers have a right of first refusal or opportunity to 
compete for that franchise?
    Answer. This is not in our plan, however, we do acknowledge the 
possibility of a handful of such circumstances.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. Jim DeMint to 
                            Fritz Henderson
    Question 1. Chrysler and GM dealer closings will create many 
burdens for local communities and car owners. For car owners, 
especially in rural areas, the distance and associated travel costs to 
surviving dealerships to maintain and repair their cars will increase, 
in some cases dramatically. How will the dealership closings impact the 
ability of consumers to obtain non-warranty related repair and 
maintenance for their vehicles?
    Answer. There should be no significant impact as we believe we 
still have very good market coverage. GM will still have 3,600-3,800 
dealers compared to Toyota's 1,200 dealers. Our current plan is to have 
over 1,500 rural and nearly 1,000 hubtown dealers by 2010. Again, this 
is far more extensive than any of our competitors.

    Question 2. You have shared with the Committee some vague 
estimation of savings you, as manufacturers, expect to achieve from 
these dealership closings. Dealers dispute that they are a net cost to 
your company at all. Would you quantify for the Committee what the 
economic impact will be for communities affected by these closings, 
including: jobs; personal income; sales, property, and income tax 
revenue; local spending on community relations activities; local 
advertising, etc.?
    Answer. GM spends $3.9 Billion per year supporting its dealer 
network. An approximate breakdown of costs on a per vehicle basis 
follows:
     Additional Dealer Margins                                                                               $300
    Incentives Paid Directly to Dealer and Wholesale                                     approximately $250-$330
     Inventory Floorplan Support
    Greater Standards for Excellence Payments                                                               $150
    Greater New Vehicle Inspection Payments                                                                 $150
    Greater Fuel Fill Payments                                                                               $50
    Increased Sales and Service Field Support                                                                $20
      Total                                                                approximately $900-$1,000 per vehicle

    We do not have the data on the other questions but our plan does 
include, subject to bankruptcy court approval, significant transition 
assistance for wind-down agreements. The assistance will assist dealers 
to wind-down their dealership in an orderly fashion, minimizing the 
impact to the extent possible on employees and communities.
                                 ______
                                 
     Response to Written Questions Submitted by Hon. John Thune to 
                            Fritz Henderson
    Question 1. I understand that about 80 percent of GM dealers 
nationwide are financed by GMAC, and GM has a commitment to buy back 
unsold inventory from any GM dealership financed by GMAC. GM has also 
stated that it will allow affected dealers to appeal a closure 
decision. Will all dealers whose contracts are not being renewed that 
have remaining inventory after October 2010 be purchased back?
    Answer. The dealer agreement provides for new vehicle and parts 
inventory repurchase in certain circumstances. If a dealer chooses not 
to execute a wind-down agreement or otherwise terminates the dealer 
agreement and has a floor plan financing agreement with GMAC, GM will 
ultimately rebill the new vehicle inventory to other dealers at no cost 
to the dealer, pursuant to the GMAC guarantee.

    Question 1a. To what extent, if any, do the new ``wind-down'' 
agreements impact whether or not unsold inventory is repurchased?
    Answer. We do not expect dealers who sign the wind-down agreement 
will have any significant remaining inventory by October, 2010. The 
dealer agreement still provides for new vehicle and parts inventory 
repurchase in certain circumstances. In addition, if a dealer has a 
floor plan financing agreement with GMAC, GM will ultimately rebill the 
new vehicle inventory to other dealers at no cost to the dealer, 
pursuant to the GMAC guarantee.

    Question 2. In my meeting with GM representatives, we discussed how 
many of the GM dealerships scheduled to be closed in South Dakota also 
sell used cars. Assuming at least some of these dealerships want to 
remain used car dealers, will they at least have the opportunity to 
retain their GM service license in order to provide service repairs for 
their GM customers?
    Answer. No, we do not believe ``service only'' agreements are 
appropriate.

    Question 3. In response to my question regarding whether or not 
dealers who are being closed would have the opportunity to obtain new 
dealerships if and when they are established in the same town, both of 
you responded, ``Yes.'' Please elaborate on what, specifically, that 
means. Will they be given the right of first refusal, or were you 
suggesting merely that they would have the opportunity to apply, like 
anyone else might be able to do?
    Answer. There are no current plans to expand the GM dealer network. 
If new dealerships are needed in the future, individuals who receive a 
wind-down agreement will have the same ability to apply as anyone else.

    Question 4. What level of influence does the U.S. Treasury, 
Secretary Geithner, the White House, or the President's Auto Task Force 
have on your company's business decision-making process?
    Answer. With respect to the dealer plan of March 31, they stated in 
their formal response to our viability plan of February 17 that they 
felt our dealer network plans to be inadequate and not aggressive 
enough to ensure a viable General Motors.

    Question 5. How do you plan to communicate with customers of 
dealerships that are scheduled to be closed? Will they have the 
information they need with regards to warranties and access to parts 
and service?
    Answer. We will personally notify customers of any changes that 
affect them, and regardless of the brand vehicle they own today, we 
will honor all warranties and direct customers to new dealership 
locations after their current dealership closes.
    If a GM customer's local dealer goes out of business, the customer 
can call the GM Customer Assistance Center (CAC) or go to any GM Brand 
website to locate the nearest dealer. Any GM dealer can service any GM 
vehicle in the case of an emergency. When a customer calls a GM dealer 
they must indicate the need for ``emergency service''.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. David Vitter to 
                            Fritz Henderson
    Question 1. What criteria did General Motors use in determining 
which automobile dealers would be closed? Please provide specific 
background on the ranking or scoring system used by GM to determine 
which dealerships would be not renewed for contracts with GM.
    Answer. The following criteria were used:

        Minimum Sales Threshold

        Sales Effectiveness Index

        Customer Satisfaction Index

        Working Capital

        Profitability

        Dualing Patterns . . . including non-GM brands

        Dealership Location

        Facility (modern or outdated)

        Overall number of dealers in the market

        Other market factors

    The overwhelming majority of the dealers receiving wind-down 
agreements had new vehicle retail sales below 50 a year or were dealers 
with a performance rating (their Dealer Performance Score (DPS) which 
is made up of sales, Customer Satisfaction Index (CSI), profitability 
and capitalization) under 70 on a scale where 100 is average. 
Therefore, therefore such dealers were performing at poor levels.

    Question 2. It is my understanding that certain dealers that were 
closed were profitable. What was the process used by GM to close 
profitable dealers, and what is the reasoning to close profitable 
dealers when the company has filed for bankruptcy?
    Answer. Our process is outlined in our response to question number 
1. However, it should be noted that 67 percent of the wind-down dealers 
are unprofitable and profitability was one of the factors considered.

    Question 3. You indicated in your testimony that GM will be 
offering an appeals process for dealers. However, before the hearing, I 
heard from constituents who were told by GM officials that they would 
not be offered an opportunity to appeal and that they have until June 
12 to decide whether or not to accept the terms offered by GM.
    Answer. Dealers have until June 8, 2009, to submit any data for 
review and we will complete that review by June 12, 2009. As a result, 
all dealers will have the opportunity to submit the documents by the 
deadline.

    Question 3a. Please explain in detail what the appeals process will 
be and how owners can submit their appeal. Also, can that process be 
appropriately completed with next week's deadline looming?
    Answer. Dealers' wishing to submit facts or request review of their 
specific situation must submit the request in writing to:

        [email protected]

        The submission must include BAC, Dealer Company Name, address, 
        City & State and must be received on or before June 8, 5:00PM 
        ET so GM has time to review it prior to June 12, 2009. GM is 
        working around the clock to thoroughly review and reply dealer 
        submissions.

    Question 4. GM sent a letter on June 1 to dealers who would face 
termination or non-renewal of dealer agreements. That letter clearly 
indicated that dealers must sign and execute the enclosed agreement and 
its conditions by June 12, or else GM would apply to the bankruptcy 
court to reject a dealer's dealer agreement. If affected dealers do not 
execute the agreement GM proposed on June 1, and then GM subsequently 
applies to the bankruptcy court to cancel dealer agreements, will those 
dealers be allowed to still order parts, service their customers, and 
continue normal operations short of ordering new vehicles from GM? If 
not, why not? If so, is it true that continuing operations under the 
bankruptcy court would only be allowed as long as it takes for GM to 
``come out'' of bankruptcy?
    Answer. No, the bankruptcy court process requires that the sales 
and service agreements of those dealers not signing the wind-down or 
participation agreement be rejected. Rejected dealers are not permitted 
to perform GM service or order GM parts.

    Question 5. Please explain the form of assistance that GM will 
offer to closed dealers and how the dealers will be able to apply.
    Answer. Subject to bankruptcy court approval, there is a transition 
assistance program to assist the dealers in an orderly wind-down (made 
up of $1,000 per vehicle inventory plus 8 months ``rental 
assistance''). Dealers do not have to apply. The amount for a specific 
dealership is contained in the wind-down agreement.

    Question 6. With respect to the dealers that GM has notified will 
not be offered contract renewal, what is the exact time line these 
dealers can expect for actually closing the doors of their dealerships? 
Can the dealers expect business as usual until then?
    Answer. If the dealer signs the wind-down agreements they can stay 
in business until October 2010 should they wish to do so.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Roger Wicker to 
                            Fritz Henderson
    Question 1. Mississippi has some parts that are quite rural, what 
assurances can you give to rural Mississippians that they will continue 
to have access to dealerships in their surrounding communities for 
future purchases and servicing of previously purchased vehicles?
    Answer. At the conclusion of our dealership restructuring process 
we will still have an extensive rural network of 1,505 nationally, more 
than any other automaker. In Mississippi, we will have in total 45 
dealers in rural and hub towns alone.

    Question 2. Mississippi and many other states have franchise laws 
on the books that protect dealerships and consumers by ensuring a 
rational framework is in place for franchise termination. Some are 
suggesting Chrysler and GM are using their bankruptcy proceedings to 
get around these state laws. Would you care to respond to that claim?
    Answer. We are compliant with all applicable laws. It is critical 
for GM's long-term viability that we establish a stronger, more 
competitive dealer network with higher sales and customer satisfaction 
levels.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Mark Pryor to 
                             John McEleney
    Question. What has been the role of your association in discussing 
bankruptcy plans with the Auto Task Force?
    Answer. When Congress was debating the bridge loan package last 
year, NADA argued that bankruptcy was not the appropriate response to 
the current situation. When the legislation failed to pass the Senate, 
we urged the Bush Administration to provide the bridge loan financing 
to avoid a bankruptcy. We articulated our concerns that in bankruptcy 
there could be a real risk of liquidation, a real risk of depressed 
sales, and the potential for ``fire sale'' prices for the company in 
bankruptcy. After January 20, we made the same arguments to the Obama 
Administration. In our initial meeting with the Auto Task Force in 
March, we emphasized that point, as well as explaining that maintaining 
the dealer network does not impose any significant costs on the 
manufacturers while cutting dealers would result in revenue losses not 
offset by cost savings. Also, NADA closely followed the viability 
submissions of each manufacturer, especially the provisions related to 
the treatment of dealers. In those early submissions, Chrysler 
mentioned nothing other than continuing with their current program to 
address dealer consolidation. GM's submissions reflected the desire to 
eliminate some brands, but additional dealer rationalizations were to 
be accomplished over several years through attrition. Once the 363 
bankruptcy discussions began to take shape within the Task Force, we 
began to hear from GM and Chrysler about a need for ``faster, deeper'' 
dealer cuts. In subsequent meetings with the Task Force, we challenged 
the assertion that accelerated dealers cuts would provide any savings 
and argued that dealer cuts would actually reduce revenue. Typically in 
a bankruptcy, the debtor seeks to reduce costs and increase current 
revenue, but the proposed cuts of the dealer network will have exactly 
the opposite effect. The dealer cuts structured by Chrysler and GM will 
provide not material cost reductions, but will reduce revenue and 
market share at a critical time in the life of each entity. The 
``faster, deeper'' approach will impair, not enhance, the viability of 
GM and Chrysler. A true cost-benefit of this approach has never been 
provided by either company. For example, what is the effect of lost 
market share because of the closure of some many dealerships? The 
company executives have said that it would take 18 to 24 months to 
regain the sales of a closed dealership. Neither company has provided 
reliable analysis of this key question. Neither has the Auto Task 
Force.
                                 ______
                                 
     Response to Written Question Submitted by Hon. Bill Nelson to 
                             John McEleney
    Question. Your members, including those that are not affiliated 
with GM or Chrysler, are dealing with very difficult economic times, as 
are many of our constituents. I would imagine that as a result, dealers 
are going to be making important business decisions to help them remain 
viable. One area where we have already seen drastic cuts is in 
television and radio advertisements, there were double digit declines 
in auto advertising in the last half of 2008 and many analysts have 
predicted that decline to continue and deepen this year. Do you 
anticipate that your members will look to further reduce the amount of 
TV and radio advertising going forward? Have they done so already? How 
do advertising plans figure into the revitalization of the automobile 
business?
    Answer. Since the economic meltdown began in mid-September 2008, 
advertising expense as a percentage of dealership sales decreased each 
month versus the prior year (September-December 2008). For 2008, 
advertising expense declined by 9.4 percent versus 2007. In 2008, total 
dealership ad spending was $6.8 billion, a decrease of 13 percent from 
2007 levels.
    Thus far in 2009, dealership advertising expense has decreased 21 
percent from last year. We expect spending will continue to contract 
through the summer of 2009 before rebounding in the 3rd and 4th quarter 
of this year, coinciding with an anticipated increase in vehicle sales.
    Below is a chart showing advertising expenditures by medium.

                                        Advertising Expenditure by Medium
----------------------------------------------------------------------------------------------------------------
                                                                  Avg. Dealership              Avg. Dealership
                                                         2008    Expenditure Amount   2007    Expenditure Amount
----------------------------------------------------------------------------------------------------------------
Newspaper                                                23.3%             $79,515    26.7%            $100,839
Radio                                                    15.3%             $52,361    16.9%             $64,094
Television                                               18.8%             $64,090    17.4%            $171,742
Direct Mail                                              10.2%             $34,899    10.2%             $38,466
Internet                                                 17.2%             $58,677    16.6%             $62,607
Other                                                    15.1%             $51,643    10.2%              $9,375
----------------------------------------------------------------------------------------------------------------
  Total                                                   100%            $341,285     100%            $378,346
----------------------------------------------------------------------------------------------------------------

                                 ______
                                 
   Response to Written Questions Submitted by Hon. Maria Cantwell to 
                             John McEleney
    Question 1. Will the closing of the GM and Chrysler dealers benefit 
or hurt consumers? Please explain.
    Answer. There will be negative impacts on consumers as a result of 
dealership closings. First, consumers will be forced to drive longer 
distances to have their vehicles serviced. For vehicles still under 
warranty, or if the vehicle is recalled for safety, consumers have 
little choice other than to go to an authorized dealer for such 
repairs. This problem will be especially acute in rural areas. NADA has 
received anecdotal reports from dealers who will be closing that their 
customers will have to drive upwards of 60 miles to the next closest 
dealership for service. This clearly is an inconvenience to consumers 
who purchased a vehicle from their local dealer, believing the dealer 
would be in business to service the vehicle. Second, consumers are 
likely to face higher prices on vehicles, service and parts. With over 
2,000 dealerships closing, this will result in fewer choices for 
consumers. With an expansive dealership network, consumers have the 
ability to shop multiple dealerships for the best price. With the 
decrease in the number of dealerships, consumers will likely pay more 
when they purchase a new vehicle, service their vehicle or purchase 
parts.

    Question 2. Some argue that the way State franchise laws are 
written it is virtually impossible (or highly expensive) for a car 
manufacturer to close underperforming dealerships. How do you respond?
    Answer. For more than 50 years, the number of dealerships has been 
shrinking at a consistent pace, dictated by market conditions. In 1949, 
there were almost 50,000 dealerships and by 1970 that number was 
30,800. During that timeframe, the vast majority of the dealers were 
domestic-only franchisees. In 1987, there were 25,150 new-car 
dealerships; by the end of 2008 there were 19,700. Of the remaining 
dealerships, about 14,200 are domestic only. This steady, market-driven 
rationalization of the dealer population has occurred while state 
franchise laws were in effect and while the U.S. vehicle population 
that these dealers sell and service has increased from 125 million 
vehicles in 1976 to approximately 250 million vehicles today. Rather 
than prevent dealer termination or consolidation, the franchise laws 
have limited the unnecessary proliferation of dealerships sought by the 
manufacturers and have provided a rational framework for consolidation 
and reduction of dealerships.
    Furthermore, under existing state laws the domestic manufacturers 
have instituted ``channeling'' arrangements which involve the 
combination of multiple brands within one dealership. This process, 
often implemented at the expense of the dealers involved, has enabled 
the domestic manufacturers to package several brands under one 
dealership roof.
    Finally, state franchise laws have not prevented the termination of 
brands. Those individuals who used to have an Oldsmobile franchise or a 
Plymouth franchise will attest to that fact. The state franchise laws 
do not give the dealers veto authority over such decisions, or prevent 
the manufacturers from restructuring, but rather subject such decisions 
to administrative or judicial review. From the dealer's viewpoint, the 
manufacturer cannot have unfettered rights because the dealer has 
assumed all of the risks associated with establishing and maintaining 
the manufacturer's retailing network.
                                 ______
                                 
    Response to Written Questions Submitted by Hon. Mark Begich to 
                             John McEleney
    Question 1. Did GM work with the National Automobile Dealers 
Association on language for the ``wind-down'' agreement?
    Answer. No.
    Question 2. Did Chrysler or GM work with NADA to identify the 
criteria or metrics by which decisions about dealership termination 
would be made?
    Answer. No.
                                 ______
                                 
Response to Written Questions Submitted by Hon. Kay Bailey Hutchison to 

                             John McEleney
    Question 1. Mr. McEleney, you are a surviving GM dealer. It sounds 
to me that the surviving dealers--while happy to not have been 
terminated--are concerned about GM's new contract offer. Do you care to 
comment on your and other GM dealers' concerns about the new contracts, 
which have to be signed in a little over a week?
    Answer. The attached document entitled ``GM 06-08-09'' summarizes 
the present situation with GM and franchised dealers as of Tuesday 
morning, June 9.
    While GM representatives met with NADA leadership last week to 
begin to address our concerns, several issues remain unresolved to the 
satisfaction of our dealers.

    Question 2. What will the overall impact of these dealer 
terminations be to the consumer?
    Answer. There will be negative impacts on consumers as a result of 
dealership closings. First, consumers will be forced to drive longer 
distances to have their vehicles serviced. For vehicles still under 
warranty, or if the vehicle is recalled for safety, consumers have 
little choice other than to go to an authorized dealer for such 
repairs. This problem will be especially acute in rural areas. NADA has 
received anecdotal reports from dealers who will be closing that their 
customers will have to drive upwards of 60 miles to the next closest 
dealership for service. This clearly is an inconvenience to consumers 
who purchased a vehicle from their local dealer, believing the dealer 
would be in business to service the vehicle. Second, consumers are 
likely to face higher prices on vehicles, service and parts. With over 
2,000 dealerships closing, this will result in fewer choices for 
consumers. With an expansive dealership network, consumers have the 
ability to shop multiple dealerships for the best price. With the 
decrease in the number of dealerships, consumers will likely pay more 
when they purchase a new vehicle, service their vehicle or purchase 
parts.

    Question 3. If having fewer dealers will result in more profitable 
dealers, how can that not happen without higher prices for consumers?
    Answer. With over 2,000 dealerships closing, this will result in 
fewer choices for consumers. With an expansive dealership network, 
consumers have the ability to shop multiple dealerships for the best 
price. With the decrease in the number of dealerships, consumers will 
likely pay more when they purchase a new GM or Chrysler vehicle, 
service their vehicle or purchase parts.
                               Attachment
National Automobile Dealers Association
Industry Relations
8400 Westpark Drive
McLean, VA 22102

TO: All General Motors Dealers
FROM: NADA Industry Relations
DATE: June 8, 2009
RE: NADA Meets With GM Executives

    As a follow-up to the June 3rd Senate hearing, NADA's leadership, 
led by Chairman John McEleney, Vice Chairman Ed Tonkin, and GM IR 
Franchise Chairman Mike Martin, requested a meeting with GM executives, 
including North American President Troy Clarke and Sales and Marketing 
Vice President Mark LaNeve. The meeting was held at NADA Headquarters 
in McLean on Friday, June 5. Duane Paddock, GM National Dealer Council 
Chairman, also participated. The purpose of the meeting was to relay 
the serious concerns dealers have with both the Wind-Down and 
Participation Agreements, especially the onerous provisions of the 
Participation Agreement, and the negative impact those would have on 
dealers going forward.
    NADA is pleased to advise that GM has determined to make several 
important changes as a result of the meeting. The following summarizes 
the key issues addressed.
Wind-Down Agreement
    In the meeting, NADA representatives first discussed the Wind-Down 
Agreement provisions and asked for several improvements to help the 
dealers who would, under GM's proposal, no longer have a GM franchise 
after October 31, 2010. While NADA reiterated its stance that 
eliminating dealers does not improve GM's viability because dealers are 
not a significant cost to manufacturers, the focus of the discussion 
was on specific items to improve this process.
    GM has determined to clarify several points concerning the wind-
down terms. GM said dealers who were sent a Wind-Down Agreement will 
receive a letter later in the week addressing:

   their right to purchase vehicles at GM's auctions, even 
        beyond the end of the wind-down period;

   their right to buy vehicles from a ``warehouse'' account;

   the ability to obtain new vehicles by dealer trade;

   GM's determination not to enforce Channel Agreements 
        regarding site control; and access to the RIMS parts system, in 
        some cases previously not available.

    In addition, GM will consider revising terms to allow a dealer to 
wind-down his GM franchise prior to December 31, 2009 and other issues.
Participation Agreement
    As with the Wind-Down Agreement, NADA opened discussion of the 
Participation Agreement by emphatically stating its position that the 
current Sales and Service Agreements for the dealers going forward 
should be assumed without any modifications. GM, however, declined to 
do so. As a result, the discussion on the Participation Agreements 
concentrated on removing certain provisions and improving the 
provisions most important to dealers. NADA also asked GM to clarify its 
intent with regard to a number of other provisions.
    GM has advised NADA that it will send a clarification letter to all 
GM dealers who received a Participation Agreement. NADA has reviewed a 
copy of the letter and while NADA does not endorse the GM Participation 
Agreement, as modified, we commend GM for meeting with us and the 
National Dealer Council to improve the document.
    The points listed below summarize the key elements that GM's 
clarification letter will contain. Significantly, the terms of the 
clarification letter, upon execution, will formally be incorporated 
into the Participation Agreement itself.

        1. The clarification letter makes clear that the sales 
        performance requirements of paragraph 2 of the Participation 
        Agreement are designed to take into account the ability of 
        continuing dealers to sell a greater number of cars because of 
        a reduced dealer body. The letter notes that in the first 
        quarter of 2010, GM will hold a Reinvention Business Plan 
        meeting with each continuing dealer where ``appropriate'' sales 
        targets will be agreed upon. Those increased sales expectations 
        will be implemented in the second half of 2010 or in the 2011 
        calendar year, based upon overall market factors.

        2. GM has provided a similar clarification with respect to the 
        increased inventory requirements of paragraph 3 of the 
        Participation Agreement. The clarification letter notes that GM 
        will expect inventories to match the updated sales expectations 
        based upon the plans adopted at the Reinvention Business Plan 
        meeting.

        3. The clarification letter actually amends the exclusivity 
        language of paragraph 4 of the Participation Agreement. The 
        amendment does the following:

   It clarifies that all dealers will be expected to have an 
        exclusive GM showroom by December 31, 2009.

   In some markets, GM will expect totally exclusive GM 
        facilities, while in other markets there may be dual use of 
        facilities other than the showroom allowed.

   GM will meet with dealers to develop a plan as to whether a 
        dealer is to have exclusive facilities or facilities where 
        there may be shared elements.

   The letter expresses the willingness with GM to work with 
        dealers reasonably with respect to exclusivity decisions if a 
        dealer cannot meet the date or dates established for 
        exclusivity.

        4. The clarification letter amends section 5(a) of the 
        Participation Agreement by noting that the dealer's waiver of 
        protest is not designed to allow GM to add new dealers into an 
        existing dealer's area of responsibility. GM intends only to 
        realign current points, not add dealers to a market.

        5. GM has agreed to eliminate paragraph 8 of the Participation 
        Agreement. This paragraph provided special rights for GM in 
        case of an alleged breach by a dealer. Most problematic, it 
        required a waiver of the dealer's rights under state law. Those 
        special GM rights will be eliminated. Any remedy for GM will be 
        determined by the dealer agreement construed according to state 
        law.

        6. Because of the change, GM is extending the time for 
        returning a Participation Agreement over the coming weekend. 
        Rather than noting that the Participation Agreement with this 
        letter of clarification and amendment be received by June 12, 
        the clarification letter provides that it must be received by 
        June 15.

        7. The Participation Agreement provides that Michigan law 
        applies. The clarification letter will use the language from 
        the Dealer Agreement that Michigan law applies except where the 
        dealer's state law would make that inapplicable in which case 
        the dealer's state law could apply.

    To conclude, NADA is not in a position to endorse the modified 
Participation Agreement, but we believe the revised document addresses 
the most serious of dealer concerns.

                                  
