Car Dealers, Reeling, Get Senate Hearing
[imgbelt img=car-dealer-thumb.jpg]The U.S. Senate’s commerce committee asks why Chrysler and GM are cutting out nearly 2000 car dealers, closing hundreds of small town businesses.
[imgcontainer left] [img:car-dealer-pete-lopez320.jpg] [source]ReutersPete Lopez, a car dealer in Spencer, West Virginia, whose businesses Chrysler has decided to close, listened as Chrysler president James Press defended the company’s decisions at a hearing of the U.S. Senate’s commerce committee Wednesday.
Three rural car dealers sat elbow to elbow with the chiefs of Chrysler and General Motors in Senate hearings Wednesday that exposed the harsh, often bewildering maneuvers underway in the auto industry and the gruesome consequences of corporate restructuring for small businesses.
Pete Lopez, of Spencer, West Virginia (pop. 3800), told the Senate Commerce, Science and Transportation Committee he had learned over the past three weeks that both his car dealerships, serving six counties in rural West Virginia, would be closed. “When I purchased the dealership, the companies welcomed me with open arms,” Lopez relayed to the senators. “Since that time, I have been a faithful customer of both Chrysler and GM, even purchasing additional vehicle inventories earlier this year, at Chrysler’s insistence, to help the corporation through this economic recession.”
Now Lopez may be stuck with the cost of his inventory, auto parts and expensive tools, if Chrysler can’t convince an ongoing dealer to buy them all. After owning the dealerships for just two years, Lopez had grown the business and doubled his workforce. “I have met every financial obligation put forth by Chrysler and GM,” he told the committee, chaired by Sen. Jay Rockefeller (D-WV).
“Now Mr. Chairman, they want to shut me down. What gives the government the right to do that?”
General Motors, similarly, has informed some 1100 car and truck dealers that its contracts with them will end in October 2010. Those with ongoing GM businesses were told this week they must sign a 24-page legal agreement by June 12 or their dealerships, too, would close next year.
John McEleney, chairman of the National Automobile Dealers Association and a “go-forward” GM dealer himself in Clinton, Iowa, received his “participation letter,” Tuesday, June 2. McEleney vigorously objected to GM’s terms before the Senate committee Wednesday.
“If I sign (the participation letter), I’ll be committing my business to spend hundreds of thousands of dollars that I know about today and committing to millions of dollars of potential financial obligations in the future. I will also be subjecting my business to sales performance standards that are not specified in the contract,” he told the committee. “Even worse, GM can alter the terms of these requirements at any time at its sole discretion. The final blow, I must waive any right of protest to any action taken by the manufacturer.”
Fritz Henderson, CEO of General Motors, told the commerce committee that GM’s network of more than 4000 dealers expanded in the 1950s and 1960s, “when we held a dominant share of the U.S. auto market. Since that time, strong new competitors have entered this country, and our market share has shrunk, leaving us with too many dealerships and, in many cases, in the wrong locations.”
The list of GM closings has not been made public. Here’s a list of the dealerships that Chrysler plans to close.
[imgcontainer left] [img:car-dealer-press320.jpg] [source]Senate Commerce, Science and Transportation CommitteeChrysler president James Press told the Senate committee, “there is simply not enough business to go around.”
James Press, Chrysler president, told the committee that the company’s “multiple distribution channels” have become inefficient, “an expensive legacy of more than 80 years being in business.”
Press told the gathering that in the current car market, “There is simply not enough business to go around. With projected annual sales in the U.S. this year of only 10 to 10.5 million compared to historical levels of 16 million, Chrysler cannot support the same number of dealers that we have in the past.” He reported that in 2008 the average Chrysler dealership lost $3,431.
“This puts us at a real disadvantage,” Press said, “because it increases our costs of product development, distribution, marketing and advertising, as well as dealer administration by more than several billion dollars every year.”
The Chrysler and GM announcements have brought outcries from dealers and their customers across the nation, notably in rural areas where the local car dealer, typically, is also a major employer, civic leader, and donor to community charities. (Here are multiple reports about what’s happening with rural car dealerships in Illinois, Iowa, Minnesota, Missouri, Nebraska, North Dakota, Texas, West Virginia, and Wisconsin.)
Russell Aubrey Whatley, III, of Mineral Wells, Texas, whose Chrysler-Dodge-Jeep dealership is slated for termination, told the Senate commerce committee that his grandfather had opened the car business in 1919.
“All dealers like us sponsor school events, Little League, Pee Wee Football, rodeo and many other special events,” he said.
[imgcontainer left] [img:car-mineral-wells-dealer320.jpg] [source]Senate Commerce, Science and Transportation CommitteeRussell Aubrey Whatley III, a third-generation Chrysler dealer in Mineral Wells, Texas, testified before the U.S. Senate’s commerce committee on Wednesday, June 2, 2009. Whatley’s dealership is slated to be closed.