Exec gets into details as automakers justify closures to Congress
David Shepardson / Detroit News Washington Bureau
Washington -- General Motors Corp. disclosed Friday it will close 58 dealers in Michigan, as top executives from GM and the Chrysler Group LLC sought to explain the closings of more than 2,200 dealerships to a skeptical congressional committee.

During more than four hours of testimony, GM President and CEO Fritz Henderson and Chrysler Deputy CEO Jim Press defended their decisions to drastically pare back their dealer networks.

GM said reducing its dealers by up to 2,600 by the end of next year will save the company more than $2.5 billion a year. Chrysler won permission from a bankruptcy court to shed 789 dealers -- or 25 percent of its dealer network -- on Tuesday, and the dealers closed the same day.

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"This has been the most difficult part of executing our plan: the human story of the people who are affected by the painful but necessary actions," Henderson said.

Press said closings are "gut-wrenching, but it was an absolutely necessary part of our effort to assure the long-term viability of the new Chrysler Group."

GM has sent letters to about 1,400 dealers it is seeking permission to close in bankruptcy court. The automaker expects another 1,280 dealers will voluntarily stop selling during the next year. Some of those include Saturn and Hummer dealers who will be off GM's rolls after the final sale of those brands.

GM has received 856 appeals from dealers it wants to close, and the company has reversed itself on 45. A total of 99 percent of continuing dealers have accepted agreements with the automaker; 96 percent of the 1,400 dealers that GM wants to close have agreed to a wind-down plan.

By contrast, Chrysler closed dealers just 26 days after it notified them of its plan. Chrysler offered no appeal process and no money to closing dealers.

GM is offering up to $1 million for each closing dealer as part of its wind-down agreements. GM also agreed to make changes to its agreements with its continuing dealers to win their support. While closing GM dealers will have until late 2010 to close, they will not be able to order 2010 model cars starting this fall.

Press noted that the average Chrysler dealer sold just 405 vehicles, compared with more than 1,200 for Toyota and Honda Motor Co. dealers. About half of the closed Chrysler dealers sold fewer than 100 vehicles each last year. The 789 dealerships accounted for just 14 percent of company sales.

GM said a majority of its dealerships are unprofitable.

Bankruptcy allows automakers to cancel unprofitable contracts. Dealers are normally protected by state laws. GM had to spend nearly $2 billion to buy out its Oldsmobile dealers after it discontinued the brand in 2004.

GM disclosed the state-by-state breakdown of 1,323 dealerships it plans to close by the end of the year -- including nearly 20 percent of GM's 298 Michigan dealers -- the sixth-highest in any state.

Alaska is the only state that escaped the ax.

Pennsylvania will lose 90 dealers -- the most of any state -- out of its 370 dealers. That's nearly 25 percent. The names and communities haven't been made public.

GM revealed the criteria it used in selecting closing dealers:

• 50 percent of the rating was based sales performance.

• 30 percent was customer satisfaction.

• Profitability and capitalization each counted for 10 percent.

Dealers whose score was less than 70 got termination notices.

Another 400 GM dealerships that sold 50 or fewer vehicles a year also got closing notices. Some selling non-GM brands lost their dealerships even if they had higher scores, as did dealers with brands that are being phased out, such as Pontiac. GM has given its surviving dealers until Dec. 31 to shed the other brands.

The testimony came before a House Energy and Commerce subcommittee chaired by Rep. Bart Stupak, D-Menominee.

A House bill introduced this week to reverse the closing decisions now has 105 co-sponsors, including House Majority Leader Steny Hoyer.

Dealers donate millions to members of Congress and carry significant political clout in Washington. The Obama administration is worried that the bill could gain steam and win passage.

House members emotionally defended hometown dealers.

Rep. Greg Walden, R-Ore., said the decision to close a GM dealership in Burns, Ore., will force customers to travel three hours and 136 miles to Payette, Idaho, to get to the nearest GM dealership.

"That's the equivalent of driving from Philadelphia to Washington, D.C.," Walden said, adding that the dealership closings could cost 190,000 jobs.

"In this Alice-in-Wonderland world of 'rationalization,' where up is down, and less is more, how are customers served by less competition and higher prices?"

Rep. Joe Barton, R-Texas, noted that he has a GM assembly plant in his district as well as closing dealerships. He saw both sides of the issue, but urged automakers to "show a little mercy. You can err on the side of leniency."