Asst. Senate Majority Leader Dick Durbin has helped craft a compromise that could give a reprieve to some of the thousands of dealersv GM and Chrysler want to cut.
Federal lawmakers have reached a compromise on a measure that could provide a reprieve for some of the thousands of dealers cut by General Motors and Chrysler as part of their bankruptcy reorganizations.
The two companies collectively cut more than 2,100 retailers, asserting that they needed to streamline their distribution systems and focus on high-volume showrooms that generated solid marks for customer satisfaction. But those moves generated an immediate backlash among dealers, who make up of the most politically powerful lobbying forces in the country.
The new measure, which would require arbitrators to balance the economic interests of dealers, the two carmakers and the public, has been endorsed by both House Majority Leader Steny Hoyer, D-Md., and Assistant Senate Majority Leader Dick Durbin, D-Ill.
“Closed dealerships across the country deserve a transparent review of their termination and the right to get back in business if they were terminated on faulty grounds,” said Durbin, adding, “GM and Chrysler have the right to determine the size and scope of their business. But Congress has a responsibility to protect taxpayer’s money when addressing the future of companies like GM and Chrysler.”
The bill, which must still pass separate votes in the House and Senate, and then clear the White House, is notably more favorable to dealers than the proposed arbitration process outlined, last week, by GM and Chrysler. It would give dealers 45 days to seek binding arbitration and then allow an arbiter another six months to issue a final ruling.
That could, however, prove problematic for the two carmakers. Chrysler terminated 789 dealers immediately upon notification, back in June. GM is given its 1,350 retailers until October of 2010 to wind down their operations, though the company reports that many have already closed and that its expects a large majority to be out of business before the October deadline.
The join House/Senate bill would require the arbiter to consider factors such as a dealer’s profitability between 2006 and 2009, its “current economic viability,” and its customer satisfaction ratings and overall performance. But various mitigating factors could also be considered, such as the state of the local economy where a dealer operates.
That would be balanced against the “economic interest of the covered manufacturer,” according to the language of the bill, as well as “the economic interest of the public.”
Dealers have argued that among other things, the forced closures could have a sizable impact on communities around the country, since their showrooms provide significant tax revenues and employment.
Tamara Darvish, leader of The Committee to Restore Dealer Rights, created by the National Automobile Dealers Association, hailed the Congressional compromise as a way to create “a fair, neutral, transparent and balanced arbitration procedure for all dealers who lost their franchises.”
The two Detroit makers have been trying for years to trim their dealer count, often citing Toyota as an example of a more efficient distribution system. The Japanese maker operates less than half the showrooms of its rivals, adjusted for their different sales volumes. The maker’s have argued that this means higher profits for those dealers who, in turn, devote more of their revenues to supporting the Toyota brand.
A GM official said the company’s goal is to reach a “resolution that balances the interests of GM and its dealers.” Chrysler also said it supported the arbitration process. It’s unclear if and how the two makers might try to block or modify the compromise bill.
The new bill notably deletes the proposed compensation GM and Chrysler might have been required to pay to the retailers they abandon. That was something the two makers had been hoping to avoid by using the cover of bankruptcy to reduce their dealer headcounts.