December 9, 2009 / 4:12 AM / 9 years ago

Congress plans remedy in GM, Chrysler dealer dispute

WASHINGTON (Reuters) - General Motors and Chrysler would be forced to resolve disputes arising from their plans to close more than 2,000 dealerships, under a Congressional proposal agreed late on Tuesday.

Dalgleish Cadillac new and used vehicle salesperson Leo Durocher stands in the used vehicle lot, with the former General Motors headquarters (R) seen behind him, in Detroit, Michigan June 19, 2009. REUTERS/Rebecca Cook

Senator Richard Durbin and Representative Steny Hoyer, the No. 2-ranking Democrats in their respective chambers, announced a plan for binding arbitration for dealers wishing to challenge the termination of their franchise agreements.

The congressional plan goes further than either company proposed last week in an effort to head off a legislative remedy. But lawmakers said they were careful not to undercut efforts by GM and Chrysler to return to profitability.

Both are propped up by billions in government loans and are trying to compete in an uncertain market after restructuring in bankruptcy this year.

“Closed dealerships across the country deserve a transparent review of their termination and the right to get back business if they were terminated on faulty grounds,” Durbin said.

Fiat-led Chrysler closed nearly 800 showrooms in June as part of its restructuring while GM is shutting down more than 1,300 dealerships through next year. The goal for both is to operate their retail networks more efficiently.

A number of retailers are bitter over the closures, but it is unclear how many will seek reinstatement through arbitration.

The measure is expected to be hitched to financial services legislation working its way through Congress.

GM said in a statement it is working constructively with Congress on a resolution that balances the interests of the company and its dealer network. Chrysler had no immediate comment.

Representative Chris Van Hollen, who helped spearhead the measure in Congress, told reporters that the initial proposals submitted by the companies did not go far enough, requiring lawmakers to intervene.

GM, for instance, offered limited arbitration that would be based on whether closures were made solely on business decisions. Some dealers have complained that political and other issues were motivating factors.

Chrysler did reverse its previous position by agreeing to an appeals process, but that did not satisfy lawmakers either.

“Profitable dealerships that were closed for possibly unfair reasons deserve the opportunity to hear why they were closed and discuss the merits of reopening with an independent arbitrator who can make a binding decision,” Hoyer said.

The arbitrator under the legislative plan would be required to consider dealer profitability over the past four years as well as how a dealer would support the plans at GM and Chrysler to become viable.

Arbitration would also take into account how well a dealership was capitalized and dealership performance.

Dealer groups have endorsed the plan, the lawmakers said.

GM already has heard hundreds of appeals and reversed dozens of closures earlier this year. It has also budgeted up to $600 million to compensate dealers. Chrysler offered no similar compensation.

Dealers are influential with lawmakers since they generate jobs and tax revenues, and contribute millions to political campaigns and causes.

The Obama administration has urged Chrysler and GM to work out a compromise on their own.

Reporting by John Crawley; Editing by Matthew Lewis and Lincoln Feast

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