By William Ehart, The Washington Times
July 23, 2009
Auto dealer Jack Fitzgerald told Congress on Wednesday that General Motors Co. and Chrysler Group LLC are peddling a “big lie” when they say that trimming their dealer ranks will save them billions of dollars.
“It costs them nothing for a dealer. All of that nonsense is contrived,” Mr. Fitzgerald testified before a House Judiciary subcommitee. The longtime owner of Fitzgerald Auto Malls, with several branches in Maryland, has lost three Chrysler franchises and may lose two GM showrooms.
Michael Robinson, GM’s general counsel for North America, testified that the automaker would save $2.5 billion annually in “subsidies” such as dealer-support payments and costs such as local advertising assistance by terminating 1,300 franchises by the end of next year.
An independent analyst told The Washington Times after the hearing that while there are too many dealers for the amount of cars being sold, dealers don’t represent a substantial cost to the companies.
“These costs are probably not extremely sizable,” said Jesse Toprak, a senior analyst with Edmunds.com and a former dealership manager.
“What I think should be looked at more closely here are the more indirect costs of having too many dealerships, which are basically the price cannibalization of competing same-brand stores in a small radius and the potentially subpar customer experience due to the cutthroat nature of these metropolitan dealerships,” Mr. Toprak said.
But he added that the benefit to the automakers is hypothetical and that the decisions on dealer closings may have been rushed.
“I’m not sure if the companies had time to carefully evaluate in detail the criteria for the dealer closures,” Mr. Toprak said.
Many dealers and lawmakers have expressed the same concern, asking the automaker to cushion the blow for rejected dealers.
Panel members such as Rep. Dan Maffei, New York Democrat, faulted the automakers for “a lack of transparency and a lack of consultation with the dealers.”
Mr. Robinson testified that the company is paying nearly $600 million to the dealers it is terminating.
The payments represent $1,000 per car in inventory as of May 30 and rental assistance for facilities, the company said. The wind-down payments can be as much as $1 million per dealer, GM has said.
Chrysler attorney Kevin Orr told the subcommittee that the automaker can’t afford to make such payments.
After the hearing, a GM spokesman rejected Mr. Fitzgerald’s accusation.
“It’s disappointing, but Mr. Fitzgerald knows better,” said GM spokesman Greg Martin.
“GM provides millions [of dollars] in support programs to prop up the weaker parts of the dealer network,” costs its competitors don’t incur, he said.
Judiciary Committee Chairman John Conyers Jr., Michigan Democrat, called on the automakers to ease dealers’ pain, citing “unfairness” in the process. However, Mr. Conyers said he does not favor legislation to do so.
GM already has paid $150 million to the rejected dealers, and many dealers are asking the company to accelerate the process, Mr. Robinson said.
“I don’t know what the consequences will be for the dealers or for us if Congress passes a law saying we have to take these dealers back,” he said.
“We cannot go through this sweeping transformation without a comparable effort to reshape our retail dealer network, one that was frankly created in the ’50s and ’60s before we had our network of interstate highways,” he said.