June 3, 2009 / 7:10 AM / 11 years ago

GM, Chrysler to face Senate scrutiny on dealers

WASHINGTON (Reuters) - General Motors Corp and Chrysler LLC, both bankrupt, will try on Wednesday to ease congressional concern, and in some cases anger, over their plans to slash more than 2,400 dealerships.

A car sits for sale at a Chevrolet dealership in Lyons, Illinois, June 1, 2009. REUTERS/John Gress

Members of the Senate Commerce Committee plan to grill GM Chief Executive Fritz Henderson and Chrysler President Jim Press about the lone aspect of restructuring that has triggered a broad response from Congress since dealers are nationwide.

“Rapid dealer reductions increase unemployment, threaten communities and decrease state and local tax revenue without any material corresponding decrease in an automaker’s costs,” said John McEleney, chairman of the National Automobile Dealers Association who sells vehicles made by GM, Toyota Motor Corp and Hyundai Motor Co in Iowa.

At risk are dealers at both companies that employ more than 100,000 people, industry estimates show.

In his testimony, McEleney will emphasize the need for government to provide new financing to Chrysler so the company can buy back unsold inventory, parts and other assets, and give dealers more time to close their businesses.

Press told Congress last month in a letter the company would help dealerships losing their franchise agreements beyond the deadline set by the company. Chrysler plans to shut 789 showrooms, about 25 percent of its dealers, by June 9.

On Monday, a bankruptcy court judge in New York approved the sale of substantially all of Chrysler’s assets to a group led by Italy’s Fiat despite objections from dealers and other groups that Chrysler was moving too fast.

The court must still approve Chrysler’s dealership strategy.

Chrysler, which is close to stepping out of court protection, would not comment on Press’s testimony ahead of the hearing.

Henderson, who steered GM into bankruptcy on Monday, plans to contrast his plan as a softer landing for dealers not part of GM’s future.

GM wants to cut 1,100 of its smaller and least profitable dealerships and will lose another 470 by cutting its Saab, Saturn and Hummer brands.

GM expects to offer an agreement to those businesses slated for closure to wind down their operations in orderly fashion over the next 18 months.

GM plans to end up with about 3,600 showrooms.

That plan must also be approved by the judge overseeing GM’s bankruptcy.

More than three dozen lawmakers in both the House of Representatives and Senate have asked the Obama administration to intervene on behalf of dealerships.

The U.S. government will own 60 percent of GM and 8 percent of Chrysler once their restructurings are complete. Both will be privately held for the foreseeable future.

Additional help for dealers beyond government money intended to help them finance floorplans is not out of the question, according to Sen. Carl Levin of Michigan.

“There may be a remedy that has not been considered yet,” Levin told reporters.

However, Levin said a legislative solution was unlikely.

Editing Bernard Orr

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