Hoyer talking at a news conference supporting legislation that opposes dealer closings.
Late yesterday the U.S. House of Representatives passed spending bill that included a section, H.R. 2743, intended to reverse the closing of almost 3,000 dealers, which is key to the restructuring plans of Chrysler Group and General Motors Company. The White House had issued a statement earlier that strongly opposed the measure.
The core issue being avoided is that new vehicle sales have declined 40% since 2007, and are not forecast to rebound from the current 10 million annual rate anytime soon. The U.S. dealer network now being pared was built to service a 16 million unit per year industry. Too many dealers are chasing too few sales.
While individual dealers and the politically powerful National Association of Auto Dealers oppose the closings, no concrete plan to keep the dealers open without forcing the recovering auto companies to incur huge costs has emerged.
House Majority Leader Steny Hoyer, a Maryland democrat, spearheaded the revolt after he felt he was brushed off by the President’s Auto Task Force.
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“They could not tell me why shutting down any of those dealers” would save money for the carmakers,” Representative Hoyer said in a press conference before the bill passed.
In detailed testimony in June, Chrysler and General Motors executives explained the rationale for the closings, what they were doing to help disenfranchised dealers, and even outlined the substantial costs involved to keep the dealers open.
Critics of GM’s plan to cut dealerships that claim keeping them open is essentially free were confronted by GM CEO Fritz Henderson, who cited a savings potential of $928,000 per closed dealer – if and when they are fully phased-out under GM’s reorganization plan. Thus far, no one has refuted GM’s analysis.
Jim Press, of Chrysler, presented similar numbers claiming there is a substantial cost to Chrysler to support underperforming dealers. Chrysler since has updated the costs in a statement issued yesterday:
- $33 million annually in administrative costs to maintain 789 discontinued dealers (personnel to support ordering, auditing, processing of payments and invoices, etc.)
- $150 million annually in corporate costs for marketing and advertising for the 789 dealers $1.5 billion in lost revenue due to underperformance in 2008 CY, since the 789 rejected dealers achieved only 73% of their minimum sales responsibility, resulting in 55,000 lost vehicle sales, which equates to $1.5 billion.
- $1.4 billion (over 4 years) for product engineering and development of “sister” vehicles since the company had to develop “sister” vehicles when the majority of the dealer network did not have all three brands under one roof.
All this is just so much political bunkum in my view. It appears likely the bill will not advance in the Senate. Earlier in the week, as the debate in the House heated up, the Democratic Senate Majority Leader, Harry Reid, dismissed congressional meddling in a bankruptcy ruling, and said he wasn’t interested in the issue. “It’s nothing that is certainly on the top of the agenda in the Senate at this time,” Reid said. When you have a bankruptcy, there are winners and losers,” he noted.