Administration opposes aid to auto dealers

President Obama’s new auto task force chief told Congress on Tuesday that proposed legislation to aid closed auto dealers would hamper the government’s ability to recoup money invested in General Motors Co. and Chrysler Group LLC.

“Political intervention of this nature could … jeopardize taxpayer returns by making it far more difficult for the companies to access private capital markets if there is ongoing uncertainty about whether Congress will intervene to overturn judicially approved business decisions any time that it disagrees with the judgments of the companies,” said Ron Bloom, the former investment banker and United Steelworkers union official who now heads the president’s auto team.

He repeated that the administration “strongly opposes” a provision of the financial services appropriations bill passed by the House that would restore franchise agreements with dealers terminated as part of the automakers’ bankruptcies.

“… [A]t this point it would set a dangerous precedent, potentially raising enormous legal concerns, to say nothing of the substantial financial burden it would place on the companies,” Mr. Bloom told the House Judiciary commercial and administrative law subcommittee in prepared testimony.

The amendment to the approprations bill was added by Rep. Steven C. LaTourette, Ohio Republican, but endorsed by top Democrats such as House Majority Leader Steny H. Hoyer of Maryland.

The government has given $50 billion to GM, most of which has been converted to an equity stake whose future value depends on the company’s business success. GM still must repay $6.7 billion in loans. Chrysler owes the government $8 billion out of a $15.2 billion loan.

Taxpayers own 61 percent of GM and 8 percent of Chrysler - ownership that members of the panel said entitles them to better explanations of how decisions were made on issues such as the amount creditors recovered in bankruptcy and the closing of more than 3,000 dealers across the country.

“We don’t want a bailout of the automakers to turn in to a washout for the auto dealers,” said Rep. Dan Maffei, New York Democrat.

Mr. Maffei and Rep. Frank Kratovil Jr., Maryland Democrat, are co-sponsors of a separate dealer rights measure, the Automobile Dealer Economic Rights Restoration Act, which has attracted growing bipartisan support. Mr. Bloom said without federal intervention, GM and Chrysler would have liquidated, costing “many, many hundreds of thousands of jobs” and likely driving nearly all auto suppliers into bankruptcy.

“The fundamental reality facing the companies and the dealer networks is the following: By all measures these companies had far too many dealers for the number of cars they were selling,” Mr. Bloom said.

“For example, Toyota sells four times as many cars per dealer,” he said, adding that independent analysts agree.

He said even the North American Auto Dealers Association (NADA) agrees there are too many domestic dealers.

NADA, the dealers’ main interest group and a key lobbying force behind the dealer rights measures, objected primarily to the speed of the dealer terminations, he said.

A group spokesman called that a “mistatement of our position.”

“NADA is on record as consistently disagreeing with the idea of drastic cuts in the number of auto dealers. Since dealers cost automakers next to nothing in overhead expenses, cutting dealers at this time does nothing to make either GM or Chrysler more viable,” the group said in a statement after Mr. Bloom’s testimony.

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