By Jodi Xu, Wall Street Journal
Maryland Rep. Roscoe Bartlett isn’t a fan of cuts in the dealership ranks of General Motors and Chrysler. “There is no law in this country to prevent people from doing really dumb things,” he says, and cutting dealerships is one such “dumb” thing that will reap manufacturers nothing but shrinking sales.
The Republican Congressman says it is hard for him to believe manufacturers are “closing down the dealers that they don’t even own. “When I first heard about the cuts, I thought they are cutting the manufacturer-owned dealers,” Bartlett says.
The Automobile Dealer Economic Rights Restoration Act of 2009, a bill on which Bartlett is a sponsor, aims to “restore the economic rights of General Motors and Chrysler car dealers as they existed prior to each company’s bankruptcies.” That means dealers will be given the power to negotiate the closures with manufacturers, as stated in the contracts governing the dealers relationships with the auto makers. “This is all we are asking for,” Bartlett says.
Legal experts think the bill’s supporters are fighting an uphill battle. Although more than 40 States have statutes protecting auto dealers’ rights, bankruptcy laws essentially shield companies against many liabilities in order to allow them to reorganize and re-emerge from the process as healthy companies. “When it comes to a conflict like this, usually federal bankruptcy law trumps the state law and dealership contracts,” said Don Workman, head of restructuring practice of Washington law firm Baker Hostetler.
“I don’t know how many times I have to repeat this,” Bartlett says, dealerships “are not liabilities at all, they are the assets.”
The two auto makers are set to chop 3,300 dealers from their ranks as they move through bankruptcy court. The Obama administration’s auto task force has approved the cuts, which account for more than one-third of total GM and Chrysler dealers.
“The auto makers want to close down some dealers because they are not selling enough cars, but what they don’t understand is there is no way to sell more cars with fewer dealers,” Bartlett says. “And I say it is a lose-lose decision.” Instead of closing down dealers, “what they should have done is to set up more dealers to introduce real competition,” Bartlett says.
“If this bill gets passed, I wish other parties like suppliers will follow suit,” Bartlett says. It will be hard to imagine a bankruptcy judge justifying allowing the companies to do things that will hurt themselves, he says.
“It is not even bipartisan. It is just common sense,” Bartlett says.
UPDATE:
Senator Grassley Wades Into GM, Chrysler Dealer Fight
Car dealers got a welcome jolt of support Friday, when Republican Sen. Charles Grassley of Iowa announced a separate bill to restore auto dealer rights. It accompanies a nine-day-old House bill that has garnered support from 163 represenatives in the U.S. House.
In an email to the Wall Street Journal, Senator Grassley said: “The government has bent over backwards to save the big car companies and take care of the Union leadership. So, we have to make sure the little guys are looked after and their rights are protected.”
The announcement of the Senate bill definitely serves as a confidence booster, said Jack Fitzgerald, a long-time car dealer with a dealership network in Maryland and Pennsylvania who is organizing a group fighting the car maker plans. “It’s good news for us.”
