Obama Auto Task Force Warns Against Dealer Plan

July 21, 2009 - 4:23 PM
The Obama administration urged Congress Tuesday not to intervene in the closings of hundreds of General Motors and Chrysler dealerships, warning it could undermine the automakers' ability to rebound.

Ron Bloom, chief adviser on President Obama's auto industry task force, reports on the restructuring of General Motors and Chrysler and the broader state of the American automobile industry on Capitol Hill before the House Judiciary Commercial and Administrative Law Subcommittee, in Washington, Tuesday, July 21, 2009. (AP Photo/J. Scott Applewhite)

Washington (AP) - The Obama administration urged Congress Tuesday not to intervene in the closings of hundreds of General Motors and Chrysler dealerships, warning it could undermine the automakers' ability to rebound.
 
Ron Bloom, the leader of the White House's auto task force, told a House Judiciary subcommittee that a plan approved by the House to restore dealerships would set a "dangerous precedent" and could jeopardize the taxpayers' recovery of billions in federal aid to GM and Chrysler as they emerge from bankruptcy.
 
"By all measures, these companies had far too many dealers relative to the number of cars they were selling," said Bloom, who told skeptical lawmakers that the average Toyota dealer sells four times as many vehicles as an average Chevrolet dealer.
 
The administration's position was met with sharp resistance from lawmakers, who complained that many dealerships received little warning of the closings in a process that was fueled by political calculations.
 
"Viable companies don't ransack their dealerships based on a criteria that seems to range from arbitrary at best to overtly political at worst," said Rep. Trent Franks, R-Ariz.
 
Rep. Lamar Smith, R-Texas, accused the administration of trying to "bully businesses into government-run deals that benefit political allies."
 
And Rep. Dan Maffei, D-N.Y., told Bloom "the Congress and American people were left in the dark" during the auto industry restructuring. "We don't want a bailout of the auto industry to become a wash out for the auto dealers," Maffei said.
 
The House approved a measure last week that would force GM and Chrysler to restore about 3,000 dealerships expected to be closed through the bankruptcies. The Senate has not yet considered the plan.
 
GM and Chrysler have opposed the legislation because they contend the reductions are needed to create a profitable dealership network as they lose market share.
 
GM is reducing its 6,000-dealer network by more than 2,000 by not renewing franchise agreements next year and winding down stores with outgoing brands. Chrysler closed 789 of its dealers as part of its bankruptcy, reducing its dealer count to about 2,400.
 
Dealers have mobilized support for the bill, arguing that nearly 200,000 workers could lose their jobs through closings that won't save the companies any money.
 
"The assumption that dealers somehow impair these companies is absurd," said Maryland car dealer Jack Fitzgerald, who joined other auto dealers at the hearing.
 
Bloom, appearing stoic before his critics, acknowledged the cuts were "exceedingly difficult and painful." But he said congressional involvement could make it more difficult for GM and Chrysler to access private capital markets amid all the uncertainty.
 
Under tough questioning, Bloom reiterated the administration would not be involved in day-to-day decisions at the companies and expressed hope the government could recoup much of the $65 billion in federal aid to GM and Chrysler.
 
But he said the dealership closings were part of the necessary sacrifices from union workers, retirees and bondholders.
 
"These companies would have been liquidated and all of their dealer franchise agreements would have been terminated and just about all of their dealers would have failed," he said.
 
Asked why GM Chairman and CEO Rick Wagoner was fired by the White House, Bloom said Wagoner "had worked very hard but he was not the best person to take the company forward."
 
Chrysler emerged from bankruptcy in June and GM exited bankruptcy on July 10, helped by billions in federal aid. The government now owns nearly 61 percent of GM and 8 percent of Chrysler.
 
Bloom said it was too early to know whether the auto industry restructuring would work but expressed optimism. "We believe these companies are positioned for success," he said.