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Thursday, 04 June 2009 14:18

Senate Commerce Committee Reviews Dealership Closures

Automakers Make Case for Closings

The U.S. Senate Committee on Commerce, Science and Transportation held a hearing to review “GM and Chrysler Closures: Protecting Dealers and Consumers.” Sen. Jay Rockefeller, D-W.Va., chairman, opened the hearing defending automobile dealers against the dealership closures by automakers.

Rockefeller also expressed concern about consumers. “Chrysler is eliminating 40 percent of its dealerships in my state, and I have heard that GM will eliminate more than 30 percent. This means that some consumers in West Virginia will have to travel much farther distances to get their cars serviced under warranty and such a dramatic decrease in dealerships could mean less competition in the new vehicle market. Basic economic principles tell us that less competition could lead to higher prices for consumers.”


Rockefeller called for the panel to address the following key issues:
•  The insufficient transition period given to dealerships whose franchises were terminated;
•  The inability of dealerships to sell vehicle parts inventory at cost to make these franchises whole, as well as the difficulty in disposing of specialty tools;
•  Minimizing job losses by assisting dealerships in maintaining their used vehicle businesses, and service and repair centers;
•  Making certain that consumers have access to quality service and how their warranties and service contracts are honored; and
•  Actions that Chrysler and GM are taking to assist terminated dealers during this restructuring period.
As of now, 789 Chrysler dealers have been eliminated as a result of the bankruptcy, and GM projects that 2,641 of their dealers will be forced to close their doors by the end of 2010. Though their restructuring plans are somewhat different, both corporations have the same goals in mind. As James Press, Chrysler’s vice chairman and president, said in his testimony, “The goal of the sale of our assets to a new company is to position Chrysler to move forward as a strong, financially sound automotive company serving our customers with a broader and more competitive lineup of environmentally friendly, fuel-efficient, high-quality vehicles, and an equally high level of customer service through an efficient dealer network.”
Witnesses who provided testimony were:
•  Fritz Henderson, president and CEO, General Motors Corp.;
•  James Press, president, Chrysler LLC;
•  John McEleney, chairman, National Automobile Dealers Association;
•  Russell Aubrey Whatley III, owner/dealer, Russell Whatley Motor Co.; and
•  Pete Lopez, president and CEO, Spencer Auto Group
Henderson testified on behalf of General Motors and explained in detail its dealer network restructuring as GM’s viability plan. Henderson attended yesterday’s hearing to “discuss why GM needs to have fewer, better dealers selling at higher volumes, who are able to better take care of customers; the costs associated with having under-performing dealers; and the objective process we are using to make the changes we need to make.”
Further, Henderson said, “The reality of our situation is this: all parts of GM, including the dealer network, must become smaller and more efficient to reinvent GM as a company that is not only viable, but capable of surviving cyclical downturns. GM’s viability plan calls for fewer, stronger brands, as well as fewer, stronger dealers.”
Opposed to the 1,240 Toyota dealerships and the 3,358 Ford dealerships across America today, GM has roughly 6,000 dealerships throughout the United States. By the end of 2010, GM hopes to have between 3,500 and 3,800 dealers in the United States. As Henderson describes, “A smaller dealer network reduces GM’s costs, primarily related to support we provide for information technology systems, dealer and salesperson incentives, field sales, service and training, service parts and advertising. This support costs GM roughly $1,000 per vehicle.”
Press backed Henderson with statistics specific to Chrysler. He said, “As a whole, the Chrysler dealer network is not profitable and therefore not viable. In 2008, the average U.S. automotive dealer sold 525 vehicles and made a profit of $279,000, according to the National Automobile Dealers Association, but Chrysler dealers sold only an average of 405 vehicles … and on average lost $3,431.” Moreover, he emphasized there are too many dealerships for the amount of business Chrysler was doing.
Project Genesis, Chrysler’s most recent restructuring effort, is aimed at bringing all three brands (Chrysler, Jeep and Dodge) under one roof and at producing fewer overlapping products. Press said, “For Chrysler, excess dealerships are costly in several ways. First is the problem of maintaining several dealership channels … Second, as a result of overdealing, the marketing and advertising messages are split between multiple products, diminishing the reach and frequency of each campaign … Finally, poor-performing dealers cost us customers … In fact, in 2008 the 789 discontinued dealers achieved sales of only 73 percent of the minimum sales responsibility, representing 55,000 lost unit sales and $1.5 billion in lost revenue in 2008.”

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