Executives from bailed-out General Motors Corp. and Chrysler faced intense congressional heat Wednesday for plans to close about 2,000 dealers as part of their bankruptcies, demonstrating the potential complications of the government's direct involvement in the auto industry.
"I honestly don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, no real notice, no real help," said Senate Commerce Committee Chairman John D. Rockefeller IV (D-W.Va.), who convened a hearing on the issue.
The standing-room-only crowd -- which included about 30 dealers and more senators than Rockefeller said he had seen at a hearing in 24 years -- gave weight to suggestions that the Obama administration's decision to take ownership stakes in the companies made members of Congress a rump board of directors.
Lawmakers acknowledged they probably could do little more than make life uncomfortable for the companies. But they also could spread that same discomfort to the Obama administration, which must balance congressional concerns with a vow not to get involved in daily operations of Chrylser or GM.
"If there were any more impetus to try to get back to profitability and try to get the government out of your business . . . today's session ought to be that impetus," Sen. Mark R. Warner (D-Va.) told GM Chief Executive Fritz Henderson and Chrysler President James Press.
Several senators said they were uncomfortable with probing the inner workings of manufacturing companies. But they all agreed the pain and job loss the dealer cuts would impose on communities was a tragedy. Two dealers explained the heartbreak they were facing as their franchise agreements with Chrysler and GM were being terminated.
"To be arbitrarily closed with no compensation is wasteful and devastating," said Russell Aubrey Whatley III, owner of a Chrysler dealership in Mineral Wells, Texas, that has been in his family for decades. "A 90-year investment is just gone and neither my family or my employees have nothing to say about it."
Like nearly every other senator, Rockefeller told of calls and e-mails from dealers in his state complaining about the cuts being enacted by GM and particularly Chrysler, which last month gave 789 dealers less than three weeks to liquidate their vehicles, parts and specialized tools before their franchises are terminated Tuesday.
GM was taking a slower approach, but its cuts affect many more dealers. The company last month notified 1,100 of its 6,000 dealers that it was terminating their franchise agreements by October 2010, with a goal of reducing its dealer network by as much as 42% during that period. As part of its bankruptcy filing, GM notified most of its dealers this week that they will have to operate under strict new rules or the court could end their franchise agreements.
Dealer groups have estimated the cuts could cost 100,000 jobs, as well as billions of dollars in lost state and local tax revenue.
Henderson and Press defended their decisions, saying they were painful ones made so the companies could become leaner and profitable.
"They were gut-wrenching [decisions] but absolutely necessary for Chrysler' survival," Press said.
Obama administration officials pushed them to be more aggressive about their restructuring, but did not dictate the numbers or review a list of dealers whose franchise agreements would be eliminated, the executives said in response to inquiries from Republicans about White House involvement.
Although Chrysler had released a list of dealers it is cutting, GM has not, saying the dealers themselves did not want to be named while they try to wind down their businesses through next year. But the committee flexed some power on that point, as Rockefeller agreed to a request by Sen. Mark Begich (D-Alaska) that GM provide a list. Henderson said he would do so, but it was unclear whether the list would be made public.
But senators did not agree to a request by the National Automobile Dealers Assn. that the government provide more money to Chrysler so it could purchase any leftover vehicles at the dealers it was terminating.
Press said the company had offered help and 97% of the 42,000 vehicles at the dealerships have either been sold or Chrysler has commitments to redistribute them to dealerships that are staying in business.
Chrysler, however, was not guaranteeing it would reimburse dealers for those cars, which after Tuesday they cannot sell.
"Every dealers' biggest fear is on June 9 we lose all options on these cars," Whatley said. "They're just planter boxes on June 9."
On Tuesday, all of GM's dealers received a fresh round of letters, copies of which were reviewed by The Times. One letter, sent to dealers singled out for termination, offered cash payments to help them unwind their businesses, with a goal of selling off their inventories and closing between January 1 and October 31 of next year. Those dealers will still be allowed to provide warranty service, but will not be able to purchase more new vehicles, and must provide their customer lists to GM. In addition, they waive their right to sue the automaker.
"This is a difficult step, but one that is part of GM's court-supervised restructuring efforts," the letter said.
The other letter, sent to dealers that GM intends to maintain, laid out strict new operating rules for dealers, including obligations to purchase more cars and trucks than in the past and boost performance. Each dealer "must substantially increase its sales of new motor vehicles" or face possible elimination. They also must waive their right to sue.
Both letters asked that dealers agree to the new terms in writing by June 12. If not, GM said, it would move to terminate their contracts in U.S Bankruptcy Court.
"If we sign that letter, we sign our life away," said Pete Lopez, whose Chrysler and GM dealerships in Spencer, W. Va., are being terminated.
Henderson said that 647 dealers had already signed and returned the new agreements, while only 10 had declined to sign.
Senators said they normally would not be involved in the business decisions of private companies. But with the government funneling billions of dollars to the two automakers -- and in GM's case taking a majority ownership stake -- they had an obligation to probe complaints from dealers.
"You find yourself with a board of directors of essentially 535 members," said Sen. John Thune (R-S.D.) , who acknowledged he was uncomfortable delving into the inner workings of the companies. "We are now partners and as partners these are the type of questions you get to answer."
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