GM's Henderson: Smaller Dealer Network Will Reduce Costs
June 03 2009 - 1:40PM
Dow Jones News
Top executives at General Motors Corp. (GMGMQ) and Chrysler LLC
defended plans Wednesday to cut ties with thousands of auto
dealers, telling skeptical U.S. lawmakers the reductions are
critical to their companies' survival.
GM Chief Executive Officer Fritz Henderson and Chrysler
President Jim Press, testifying before Congress for the first time
since their companies filed for bankruptcy, suggested the auto
makers waited too long to reduce their dealer networks. The
companies' plans to close about a combined 3,400 dealerships will
reduce expenses while improving brand image and sales, the
executives said in prepared remarks for a hearing scheduled for
Wednesday afternoon before the Senate Commerce Committee.
"This is our last chance to get it right, to fix permanently
those parts of the business that have diverted us from consistently
building winning cars and trucks and the consumer experience to
match," Henderson said in his prepared remarks.
The planned dealer closings have blown up into a major political
issue on Capitol Hill, where dealers have ramped up lobbying in
recent weeks to oppose the auto makers' plans. Lawmakers from both
parties, whose districts stand to be equally affected by the
closings, have responded by pressuring President Barack Obama's
auto industry task force. Dealers have accused the administration
of requiring deeper cuts than needed.
Wednesday's hearing was called by Senate Commerce Committee
Chairman John D. Rockefeller, D-W.Va., along with the committee's
top Republican, Sen. Kay Bailey Hutchison of Texas, who threatened
to hold up a war-funding bill last month because of the dealer
closings.
Dealers told the committee the cuts won't produce the cost
savings claimed by the auto makers. They said the closings were
being done hastily and without regard to state franchise laws that
require manufacturers to compensate dealers slated to be
closed.
"Rapid dealer closings increase unemployment, threaten
communities and decrease state and local tax revenue without any
material corresponding decrease in the auto makers' costs," John
McEleney, a GM dealer in Iowa and chairman of the National
Automobile Dealers Association, said in his prepared testimony.
Many dealers fear they will be unable to sell vehicles that they
purchased from GM and Chrysler by the time they close, McEleney
said. He called on the Obama administration to provide more money
to Chrysler to buy back the dealers' inventory and to give dealers
more time before closing.
GM plans to sever ties with about 2,600 dealers, while Chrysler
is closing 789 dealerships. The plans are part of the auto makers'
Obama-led reorganizations, and will accompany major concessions
from other stakeholders, including the United Auto Workers union,
big lenders and individual investors.
"Today's automotive industry cannot support the number of
dealers currently in the marketplace," Press said.
While the average dealer in the U.S. sold 525 vehicles and made
a profit of $279,000 in 2008, Chrysler dealers sold on average 405
vehicles and lost $3,431, Press said.
"There's not enough business for the number of dealers Chrysler
has today, given that we have less than two-thirds of our former
sales volume," Press said.
Henderson said that the closings will help GM reduce
dealer-related expenses for information technology systems, sales
incentives, training, service parts and advertising. He estimated
that GM spends about $1,000 per vehicle in dealer support.
Even after the cuts, GM will still have the nation's largest
dealer network, Henderson said, which he estimated would be between
3,500 and 3,800 dealers by the end of next year. The number of
units sold per dealer would nearly double compared to today's
levels, he said.
"Consolidation will enable us to focus our resources on top
performers and core brands of Chevrolet, Cadillac, Buick and GMC,"
Henderson said.
-By Josh Mitchell, Dow Jones Newswires; 202-862-6637;
joshua.mitchell@dowjones.com