GM, Chrysler executives defend dealership closings

Under withering criticism in Congress, General Motors and Chrysler executives on Friday called the closings of hundreds of dealerships painful steps needed to right-size the auto giants. Down-on-their luck dealers said the moves would needlessly devastate their local economies and livelihoods.

"Many dealers and the communities they serve frankly feel blind-sided," said Rep. Greg Walden, R-Ore.

GM CEO Fritz Henderson told a House panel the dealer cuts were "quite painful" but necessary to save over 200,000 jobs at GM's remaining dealers.

"In essence, this is our last chance," Henderson told the House Energy and Commerce Committee's oversight and investigations subcommittee.

Chrysler Deputy CEO Jim Press said the cuts were part of the shared sacrifices by the United Auto Workers union, bondholders and others needed to avoid liquidation.

"Going through bankruptcy was not our choice," said Press, who along with Henderson and the other witnesses were required to raise their right hands and testify under oath.

But the committee heard from shutout dealers such as Frank Blankenbecker III of Waxahachie, Texas, whose voice cracked as he recalled the hard work of his father, a World War II veteran, to build their family business.

"I am glad that he is not alive to witness this travesty. To have risked his life for a country that would do what they are doing would destroy him," he said.

The carmakers' explanations won few converts from House members, who wagged their fingers at the executives and questioned their motivations. Many of the dealers, they argued, had been profitable and received little warning or opportunity to plead their cases.

"There's something wrong with a business model that basically says, 'In order to survive, we've got to crush our local dealers,'" said Rep. Peter Welch, D-Vt.

Rep. Mike Burgess, R-Texas, confronted Henderson about GM's decision to maintain a parts distribution center in the district of Rep. Barney Frank, D-Mass., the chairman of the House Financial Services Committee. Frank had urged Henderson to keep the facility open.

"What is the number I need to call? Is it 1-800 Car Czar?" Burgess asked. "I have a nagging suspicion that there is a political calculation."

The committee released a GM document that, for the first time, provided a state-by-state list of 1,323 dealerships the automaker plans to wind down. Pennsylvania had the most with 90, followed by Ohio with 79, Illinois with 66 and California with 65. Alaska was the only state spared. GM has declined to release the name of individual dealerships.

Among Chrysler, Dodge and Jeep dealerships, Pennsylvania has lost 53, followed by Texas with 50 and Ohio with 47.

Chrysler is closing 789 dealerships and GM plans to cut about 1,350 by the end of next year. Lawmakers said the cuts would hurt many rural communities, forcing consumers to drive long distances to have their vehicles serviced.

"When it comes time to purchase a new vehicle, many of my new constituents will abandon GM or Chrysler and go to whichever brand is still locally sold by a person they trust within their community," said Rep. Bart Stupak, D-Mich., the subcommittee's chairman.

Dealers said the closings put 100,000 jobs at risk and charged the companies with failing to be transparent about how they reached their decisions. Many dealers said their stores had been performing well despite the economic downturn.

"We have been GM to our community," said Bob Thomas, owner of a Chevrolet-Cadillac dealership in Bend, Ore.

The auto executives said their companies have been slowed by too many dealers, with many representing the same company often competing against each other for sales. Many dealerships date to the 1940s and 1950s, they said, when motorists lived farther apart and Detroit automakers dominated the U.S. market.

In total, GM is expected to reduce its dealer body by 2,500 through the shuttering of dealerships, anticipated attrition and the shedding of its Saturn, Hummer, Pontiac and Saab lines.

Henderson told the committee that 856 dealers had appealed GM's decision to sever ties. As of now, GM has reversed itself on 45 of them, he said.

GM said in the document that the company judged dealerships based on their sales, customer service index, capitalization and profitability. Sales accounted for 50 percent of the score and customer service was worth 30 percent. Dealers scoring less than 70 received a wind-down agreement.

Italian automaker Fiat Group SpA closed a deal earlier this week to become the new owner of most of Chrysler's assets, saving the company from liquidation. The new company is called Chrysler Group LLC.

GM filed for Chapter 11 protection on June 1 and the company hopes to emerge from bankruptcy as a new company in 60-90 days.