- The Washington Times - Wednesday, June 3, 2009

Top executives at struggling automakers General Motors Corp. and Chrysler LLC defended their decisions to slash nearly 2,000 dealerships before a Senate panel on Wednesday, arguing they had no choice but to make the cuts if they wanted to stay in business.

In prepared testimony two days after the company declared bankruptcy, GM President Fritz Henderson told a Senate Commerce Committee hearing that the current network of car dealers was established in the 1940s and 1950s, before the national interstate highway system was built, at a time when American manufacturers dominated the car and truck market. But with the rise of Asian auto makers and the freefall of American firms, the car company needs to slash costs across-the-board — including dealers — to become viable again, he said.

“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 we are taking to ensure our viability,” Mr. Henderson told lawmakers. “Reinventing GM — real change — does require shared sacrifice.”

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Likewise, Chrysler President James Press described closing dealerships as “an absolutely necessary part of our effort to assure the long-term viability of the new Chrysler Group.”

GM announced the second-largest industrial bankruptcy in history on Monday, capping months of uncertainty as the White House struggled to save the storied automaker. The latest pledge by the Obama administration to pump an additional $30 billion into the company brings the total to more than $50 billion taxpayer dollars that have been invested. In return, the government received a 60 percent majority stake in GM.

Chrysler filed for bankruptcy in late April.

Senate Commerce Chairman Jay Rockefeller demanded answers from the GM and Chrysler on their plans to shutter 1,100 and 789 dealerships, respectively.

“We are talking about dealers who have invested everything they have,” the West Virginia Democrat said, adding that fewer dealerships might mean higher prices for consumers. Mr. Rockfeller said both companies have a responsibility “to assure this committee that it is not using this restructuring process as a way of unfairly increasing prices on hard-working [consumers] that have remained loyal to them.”

John P. McEleney, chairman of the trade group National Automobile Dealers Association, disputed the notion that cutting dealerships would help the struggling companies’ bottom line, contending that franchise owners actually represent the bulk of car manufacturers’ revenues.

“The dealer — and not the manufacturer — invests in the land, buildings, facility upgrades, personnel, and equipment necessary to sell and service vehicles,” Mr. McEleney said. “The manufacturer does not sell cars to consumers. A manufacturer sells cars to a dealer, and the dealer sells the car to a consumer.”

Fewer dealerships mean that Chrysler and GM will lose market share in those communities where retailers are eliminated, he added.

The dealerships being cut employ about 100,000 people, according to Mr. Rockefeller.

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