GM, Chrysler: Dealer Cuts Crucial to Turnaround

Top executives of bankrupt General Motors and Chrysler defended slashing their dealer networks, telling Congress on Wednesday that eliminating more than 2,300 dealerships was crucial to saving the companies.


The loss of dealerships and an estimated 100,000 jobs linked to them prompted more than three dozen lawmakers in the House and Senate to ask the Obama administration to intervene.

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"We have no choice. We're all being called to sacrifice in order to build a stronger, more viable GM," Chief Executive Fritz Henderson said in prepared testimony for a Senate Commerce Committee hearing.

Jim Press, Chrysler's president, told lawmakers that a quick turnaround of its dealer network was crucial for facilitating a successful transition into an alliance with Italy's Fiat SpA .

GM plans to cut nearly 1,600 dealerships over the next 18 months, while Chrysler wants to reduce its network by 789 showrooms by June 9. At risk are dealerships at both companies that employ a total of more than 100,000 people, industry estimates show.

Potential job losses are a big concern for Congress, which has been largely silent on the broader restructuring of both companies by the Obama administration.

Senator John Rockefeller, the Democratic chairman of the panel, said he is worried about the impact on communities.

"Let me be very clear—I don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real notice and no real help. That is just plain wrong," said Rockefeller.

John McEleney—chairman of the National Automobile Dealers Association and a dealer selling vehicles made by GM, Toyota and Hyundai Motor in Iowa—also testified and emphasized the need for government help.

Press said the struggling U.S. auto industry cannot support the number of dealers now in operation. A smaller network would reduce costs, he said.

GM wants to cut 1,100 of its smaller and least profitable dealerships and will lose another 470 by getting rid of its Saab, Saturn and Hummer brands.

The company expects those dealerships slated for closure to agree to wind down their operations in an orderly fashion over the next 18 months.

Henderson estimated GM would operate between 3,500 to 3,800 U.S. dealers by the end of 2010. GM dealers, he said, would have a retail share of 17.3 percent in an industrywide annual sales market of more than 10 million vehicles.

GM plans to end up with about 3,600 showrooms. Chrysler, which is close to stepping out of bankruptcy court protection, plans to operate 2,392 dealers.

The bankruptcy court in New York will hear Chrysler's proposal for cutting dealerships this week.

"The new Chrysler Group LLC dealer network will be in better retail locations with more modern facilities that are convenient and better positioned to serve customers," Press said.

The U.S. government would own 60 percent of GM and 8 percent of Chrysler on completion of their restructurings. Both companies would be privately held for the foreseeable future.