[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
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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
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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
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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\
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\1\ (http://www.nada.org/Publications/NADADATA/DrivingUSEconomy/)
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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.
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\2\ For more on credit and the auto industry, see the attached
Appendix, ``Credit and the Auto Industry.''
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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\
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\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.
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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\
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\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\
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\5\ Allen, Mike. ``Car dealer cuts coming soon.'' Politico, May 13,
2009.
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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\
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\6\ ``The Franchised Automobile Dealer: The Automaker's Lifeline.''
Casesa Shapiro Group, November 26, 2008 (Attached).
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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\
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\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
������������������������������������������������������������������������
Michigan 36,258 48
------------------------------------------------------------------------
Minnesota 19,500 45
------------------------------------------------------------------------
Mississippi 9,460 39
------------------------------------------------------------------------
Missouri 21,603 44
------------------------------------------------------------------------
Montana 4,280 32
������������������������������������������������������������������������
Nebraska 6,584 31
------------------------------------------------------------------------
Nevada 11,025 93
------------------------------------------------------------------------
New Hampshire 7,122 42
------------------------------------------------------------------------
New Jersey 32,152 56
New Mexico 7,458 53
������������������������������������������������������������������������
New York 49,122 44
------------------------------------------------------------------------
North Carolina 32,828 47
------------------------------------------------------------------------
North Dakota 3,196 33
------------------------------------------------------------------------
Ohio 40,937 43
------------------------------------------------------------------------
Oklahoma 19,979 67
������������������������������������������������������������������������
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%
������������������������������������������������������������������������
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%
������������������������������������������������������������������������
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%
������������������������������������������������������������������������
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%
������������������������������������������������������������������������
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
����������������������������������������������������������������������������������������������������������������
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.