Bills challenge automakers
July 9, 2009
By Justin Hyde, Free Press, Washington Staff
WASHINGTON — Congress and the Obama administration are colliding over General Motors Corp. and Chrysler Group LLC’s moves to shed 2,100 dealers, which the House appears poised to reverse next week.
One version of a bill to save dealerships has nearly enough cosponsors to pass in the House, where dealers have focused their lobbying so far. A similar bill, which passed unanimously in a House committee late Tuesday, would restore the 789 dealers cut from Chrysler and 1,300 dealers GM is winding down. It would essentially turn back the clock, restoring the franchise deals that GM and Chrysler had before their bankruptcies.
Across the nation, the closing of dealerships struck a nerve on main streets that the rest of the turmoil in the auto industry has not. The nation’s powerful dealer lobby has summoned its political might to press its case through legislation. A Senate version of the bill has only 15 sponsors, but dealers said they focused first on passing the bill in the House.
Automakers said the proposal could upset the complicated deals they made to move quickly through bankruptcy.
They argued that the dealer cuts are crucial to their survival, saving each company billions of dollars a year.
“This legislation, if passed, would put our long-term viability at risk,” said GM spokesman Greg Martin.
While automakers and the Obama task force have defended the moves to shed dealers, the dealers have contended the closures arbitrarily slayed small businesses with little justification — an argument that’s won significant support in Congress.
General Motors Corp. and Chrysler LLC auto dealers left out of their companies’ futures say decisions on who survived were made arbitrarily, slaying small businesses with little justification.
They’ve found a receptive audience for that case among many members of Congress.
“I think the closing of these dealerships was punitive and secretive, and it’s the most un-American thing for the government to help force you out of business and deprive you of the American dream,” said Rep. Steven LaTourette, R-Ohio, who sponsored the amendment to save GM and Chrysler dealers that the House Appropriations Committee approved Tuesday.
The bill reversing changes in GM and Chrysler’s dealerships has more than 200 cosponsors and appears likely to pass the House next week — where supporters include House Majority Leader Steny Hoyer, D-Md. Three Michigan Republicans — Reps. Thad McCotter of Livonia, Pete Hoekstra of Holland and Vernon Ehlers of Grand Rapids — have signed on in the House.
Jack Fitzgerald, a Maryland-based dealer who had seven of his 32 franchises on the East Coast targeted for closure by GM and Chrysler, said dealers will win more support on Capitol Hill next week — including in the Senate where they have not pressed their case yet — because they can explain their plight better than the automakers can explain the reasoning behind the cuts.
“The purpose of the bill is simply to put the dealers back to where they were back before bankruptcy,” he said. “If the dealer can’t open, he can’t open. He won’t be closed by some theory that some manager has in Detroit.”
GM has noted that nearly all of the 4,100 dealers who were offered a revised franchise agreement to stay with the new GM signed it. But Fitzgerald said that was only because of coercion by GM, which now has more power to close dealers through 2010 with the new pacts.
“They can do anything they want to you under the new agreement,” he said. “It’s a master-slave agreement.”
Because the U.S. government owns a majority of GM and 8% of Chrysler, Congress and the Obama administration have authority to dictate terms they couldn’t to companies owned by private investors.
The House and Senate bills offer no additional money for automakers or dealers. But those dealers who can’t or don’t choose to reopen could force GM and Chrysler — under state auto franchise laws — to pay them for part of the value of their businesses before the automakers filed for bankruptcy, money that’s in short supply at companies surviving on $70.1 billion in government money.
“This legislation would seek to overturn the bankruptcy court decisions after the fact, to protect a single stakeholder group among so many that have had to sacrifice,” GM spokesman Greg Martin said.
The bankruptcy cases orchestrated by the Obama administration allowed GM and Chrysler to escape state laws that dealers had shaped over several decades with their political clout that made it expensive for automakers to unilaterally cut dealerships. GM estimated that its decision to close the Oldsmobile brand cost at least $1 billion in payments to dealers.
Automakers contend they face several costs from having too many dealers, with GM saying that propping up its dealer network cost $2.1 billion a year, and Chrysler arguing that having too many dealers costs it $1.5 billion a year in lost revenue. GM, Chrysler and Ford Motor Co. dealers all have sold far fewer vehicles on average annually than Toyota, Honda and Nissan dealers, their main competition.
GM has set up its own lobbying offensive against the bills, giving dealers who support the changes a Web site with a form letter and talking points to contact lawmakers. But those arguments have made little headway against emotional appeals from closing dealers, many of whom have strong political ties with lawmakers and can point to jobs and tax payments lost in the cuts.
GM and Chrysler “have never made the case,” LaTourette said. What dealers “don’t get is why the guy on Main Street stays open and the guy on Elm Street closes. They’ve done a horrible job of advocating that.”
