John D. Rockefeller, IVSenator
Three weeks ago, Chrysler announced that it was terminating 789 franchises nationwide. I spoke with Pete Lopez, an auto dealer in Spencer, West Virginia, present here today, who had just learned his contract was being terminated. He was devastated and filled with anxiety. In a flash – his work, his livelihood, and the economic security of his employees were in serious jeopardy. Compounding this news, a few days later Pete learned that GM was also going to terminate his other franchise, putting more of his workers at risk of losing their jobs.
This story is sadly not unique to Pete Lopez, who I want to sincerely thank for coming forward to give his testimony in front of this Committee. We are grateful for your time and thank you for all that you do.
This is a story echoed throughout West Virginia and throughout the country. Nearly 2,000 dealerships are closing throughout America and over 100,000 jobs are at risk.
We have to do better. We can save some of these jobs and help these communities.
Let me be very clear – I don’t believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real notice and no real help. That is just plain wrong.
We are talking about dealers who have invested everything they have in their dealerships, people who have contributed to their communities, and whose families in many cases have been selling automobiles for decades.
We are also talking about the consumer. People who are working as hard as they can to make ends meet in this challenging and difficult economy and doing the very best they can.
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.
Each company has a responsibility to assure this Committee that it is not using this restructuring process as a way to unfairly increase prices on hardworking Americans who have remained loyal to our domestic auto industry.
I have also read that both companies have claimed it is eliminating “underperforming” franchises, somehow implying that the dealers themselves are responsible for the companies’ problems.
I’d like some answers to these reports. Local auto dealers did not lead GM and Chrysler into financial ruin – and any suggestion otherwise seems quite absurd.
Each company says it took great care to evaluate each dealership on its individual merits and that each dealership knows exactly why his or her franchise was terminated.
However, I have read the boilerplate termination letters that they sent to dealers in my state, and I have not seen personalized explanations for their franchise termination. In fact, GM didn’t even sign a person’s name to the letter and simply closed by saying, “Sincerely, General Motors Corporation.”
We also know that Chrysler gave its dealers less than one month’s notice prior to termination – which is truly unbelievable.
It is impossible for any dealer to wind down his or her business on such short notice. It appears that Chrysler cared little about the devastating impact that such a short timeframe would have on the dealers and their employees – and the many families affected by these decisions.
Chrysler’s “plan” to assist dealers with their inventory is equally troubling and extremely insufficient. It puts all of the burden and costs back onto the dealers themselves, without the company taking responsibility for the losses that dealerships will suffer.
At this point, GM, to its credit, has provided its dealers until October 2010 to continue operations. Although the specific details are not yet clear, it is also my understanding that the company plans to repurchase the dealers’ new inventory and parts.
However, with the recent news that that GM will enter bankruptcy, dealers and the Committee are rightly concerned that the company will not honor its commitment.
Is GM ready to promise the Committee today that it will live up to its word even if it enters bankruptcy? That question must be answered at this hearing.
I want to emphasize today that the consequences of Chrysler and GM’s actions are very real in West Virginia and so many other states.
One dealer I know of is being terminated after building a million dollar showroom within the past year; another has more than $1 million in inventory, but was given less than a month to sell it; and several more are being terminated, even though their families have been selling GM and Chrysler cars for generations.
Local dealers are a valued and important face for GM and Chrysler in rural communities. Consumers in West Virginia have as much loyalty and trust in their local dealers as they do in the companies themselves.
One 70 year old West Virginia consumer told me that he has been buying GM cars from the same dealership his whole life, but will no longer buy GM cars because of the callous way that the local dealership was terminated. “How could a company decide to cut one-third of its outlets and not realize that it will hurt their future sales?” he asked.
GM and Chrysler – we are hearing from these dedicated Americans and we need you to hear them too.
I am very glad that we have this panel here today. It is a chance for you to make your case as to why your companies are taking these actions, or tell us what you are going to do differently moving forward.
I have many questions for you today – but most specifically and for the record, I would like to ask that the panel address the following key issues:
1. The insufficient transition period given to dealerships whose franchises were terminated;
2. The inability of dealerships to sell vehicle and parts inventory at cost in order to make these franchises whole, as well as the difficulty in disposing of specialty tools;
3. Minimizing job losses by assisting dealerships in maintaining their used vehicle businesses and service and repair centers;
4. Making certain that consumers have access to quality service and how their warranties and service contracts are honored; and
5. Actions that Chrysler and GM are taking to assist terminated dealers during this restructuring period.
My concern runs deep when it comes to the economic viability of Main Street, West Virginia – I will never stop fighting to see that hard working families get a fair shake.
These are the most challenging economic times since the Great Depression. We all have to come together and do everything we can to make sure dealers, employees, and consumers are treated fairly.
I do understand the need for Chrysler and GM to reorganize, but to do this at the expense of workers and consumers is just plain wrong.
This Committee and the American people will not stand for it.
Kay Bailey HutchisonSenator
Thank you Mr. Chairman. Would you allow me to ask every person in the audience who is a dealer to stand. We really wanted to see the people who are facing the issues we’re talking about today. I think after the supplemental appropriation the week before last, just as I was offering my amendment to try to extend the time for these Chrysler dealers be able to shut down their businesses in an orderly way, I got word that you were going to set this meeting for this week. I appreciate it because I think we need to hear what is really happening. It’s been about ten days since we had the debate on the floor and we had the assurances of Mr. Press of Chrysler, that there would be contact with the dealers who were being closed. I want to set the stage because it was just the week before last that I was contacted by some of the dealers in my state who were affected and they received a letter from Chrysler dated May 13, 2009 saying that the agreement would be rejected with these dealers as of June 9th and that meant about three weeks notice. Here was the attachment to the letter:
“As a result of its recent bankruptcy filing, Chrysler is unable to repurchase your new vehicle inventory. As a result of its recent bankruptcy filing, Chrysler is unable to repurchase your parts inventory. As a result of its recent bankruptcy filing, Chrysler is unable to repurchase your essential special tools.”
Many of the dealers, some who have been in operation and have had the burden of paying the taxes, hiring the employees, doing business in a community and being an employer providing a part of the economy of this great country, were notified after years of service that they have three weeks and basically no obligation from the company. So, I introduced an amendment to just say, sixty days. Not three weeks. Sixty days. Well, then as we started debating this on the floor, all of the sudden, I had five co-sponsors and then ten and then fifteen and by the end of the afternoon, as I was talking to the Chrysler executives, we had 38 bipartisan, Democrats and Republicans who were cosponsoring the amendment. The agreement that came forward from that process was that Chrysler would indeed do everything possible and make commitments to the dealers, that they would take every piece of inventory and the specialized equipment could be transferred by June 9th. And so, I looked forward today to hearing from Mr. Press about the progress on that and I look forward to hearing from the dealers about whether they believe that they have had that kind of outreach from Chrysler.
In addition, just this week, General Motors has begun its process, saying that it would close up to 40% of its dealerships, which would be approximately 2,300, give or take, of the dealerships in this country following on 789 dealerships from Chrysler. Now just to put this in perspective, the families of these dealers who have made such an investment and who have taken, really, the financial burden for these dealerships, they buy the inventory, they take the financial risk. It’s a huge burden for those around the country.
But we’re also talking about 40,000 employees of these dealerships. We’re talking about 40,000 families besides the dealers themselves, and we’re talking about communities. I remember selling ads for the high school football program in my hometown, and who was the first person to buy that high school football program for the students that came in for their first experience at selling? It was the auto dealer in town. In my hometown, we had one, and I remember that and I know all over this country people remember that. In United Way, who’s there first supporting the community for those less fortunate? It’s the auto dealers and their employees. So they’re the backbone of the community. And so every community where these auto dealers are going to be shut down, it’s going to be a loss, a loss of revenue, because the families are going to have to look for other jobs, but also their own charitable and community events will also suffer.
So, I think it is very important that the CEO’s, who are here, realize what is happening with these dealerships and I, for one, want to know how this process is working. I want to know from GM how it’s going to work and I want to see if there’s any mitigation for these communities and these families that will come forward and it’s not our place to change your decision, it is not. But it certainly is our place, especially where there is so much tax payer money involved for us to make sure everyone is treated as well as can be in this circumstance and we’ve heard from the people who make the cars, the workers. We’ve heard about the bond holders, we’ve heard about the stockholders. And now today, we’re going to hear about the dealers, because I think they had nothing to do with the design of cars, nothing to do with the cost of the company, and yet 40,000 people from Chrysler are losing their jobs and General Motors is yet to come. I think it is Congress’ responsibility to look at the whole picture of this economic impact. Thank you Mr. Chairman.
Fritz HendersonCEOGeneral Motors Corporation
James PressPresidentChrysler LLC
John McEleneyChairmanNational Automobile Dealers Association
Russell Aubrey Whatley IIIOwner/DealerRussell Whatley Motor Company
Pete LopezPresident and CEOSpencer Auto Group