GM’s Henderson, under pressure, will release list of closed stores

Neil Roland

Automotive News | June 3, 2009 – 9:14 am EST


GM’s Henderson, under pressure, will release list of closed stores

WASHINGTON — General Motors CEO Fritz Henderson reluctantly agreed today to comply with a senator’s request to turn over the bankrupt automaker’s list of dealerships to be eliminated.

Senate Commerce Committee Chairman Jay Rockefeller, D-W.Va, asked Henderson to supply the list, as well as analysis of cost savings that would result from closing the stores. Henderson protested that GM is not making the names public because discontinued dealers don’t want to be identified.

“We’re giving them a 12-to-15-month window to decide what to do with their business,” he said.

But in the end, he answered, “Yes, sir,” when asked by Rockefeller to provide the information.

Chrysler President Jim Press also agreed to comply with the request. The identity of Chrysler’s 789 dealerships targeted for closing was made public in a Bankruptcy Court filing three weeks ago.

The exchange came after the executives said their companies will save billions of dollars by eliminating a combined total of 3,400 dealerships over the next two years.

The number of GM units sold per dealer will nearly double by 2010 and provide a greater return on investment than they now offer, Henderson told the committee.

"The end result will be between 3,800 and 3,500 U.S. GM dealers by the end of 2010, depending on attrition levels, with a retail market share of 17.3 percent in a retail sales market of just over 10 million," Henderson said.

GM pays about $1,000 a vehicle for dealer and salesperson incentives, advertising, field sales, service and training, and information technology support, he said.

Limited appeals

Henderson and Press said they plan to consider appeals from dealers. They also pledged to improve communications and to buy shuttered dealers’ inventory at fair prices for resale to surviving dealers.

But in the end, both Henderson and Press acknowledged that they are not going to change plans to eliminate at least 95 percent of the dealers already targeted.

Dealer consolidation will enable GM to improve its brand image and increase sales opportunities for high-performing stores, while attracting more private capital, Henderson said.

“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,” he said in prepared remarks.

The executives’ testimony was delivered at a hearing convened to “address the insufficient transition period” for discontinued dealers, said Commerce Committee Chairman Jay Rockefeller, D-W.Va.

“Local auto dealers did not lead GM and Chrysler into financial ruin — and any suggestion otherwise seems quite absurd,” Rockefeller said in a prepared statement. “We also know that Chrysler gave its dealers less than one month’s notice prior to termination — which is truly unbelievable.”

Press said Chrysler notified its 789 discontinued dealers on May 14 that they would be terminated on June 9.

“That termination date is needed to ensure that our new dealership structure will be firmly in place at or about the time the new company is formed with Fiat — something understandably important to Fiat,” he said.

Chrysler’s alliance with Fiat has to be completed by June 15 under financial commitments made by the U.S. and Canadian governments, Press said.

Chrysler has already sold or redistributed 89 percent of all vehicles in discontinued dealer inventory, he said.

Press said the discontinued Chrysler dealers as a whole sold only 73 percent of their minimum sales responsibility, costing the company $1.5 billion in lost revenue.

These dealers lost an average of $73,000 last year, more than 20 times as much as the average Chrysler dealer, he said.

While they account for 25 percent of the less than 3,200 dealerships, they represent only 14 percent of sales volume, he said.

NADA’s rebuttal

The leader of a dealer group disputed the executives’ contention that eliminating stores would save or make money for the car companies.

“We don’t understand how these drastic dealer reductions will increase the viability of GM and Chrysler,” said John McEleney, chairman of the National Automobile Dealers Association.

He cited a study for NADA by the Casesa Shapiro Group in New York that said, “Far from being a burden to the manufacturer it represents, the automobile dealer supports the manufacturer’s efforts by providing a vast distribution channel that allows for efficient flow of the manufacturer’s product to the public at virtually no cost to the manufacturer.”

In a separate statement today, McEleney said GM delivered a 24-page “participation letter” to its surviving dealers yesterday asking them to sign “a one-sided, open-ended operating agreement.”

“If I sign it, I will be committing my business to spend hundreds of thousands of dollars that I know about today, and committing to millions of dollars of potential financial obligations in the future, he said.

GM spokeswoman Susan Garontakos said the letter was sent to urge some surviving dealers to move to a different location, others to drop underperforming brands, and still others to consolidate with a nearby dealer.

“This was a very thorough, very thoughtful process” she said. “Each dealer was looked at individually.”

The company won’t release a copy of this letter, Garontakos said, citing its confidentiality.

On Tuesday, Automotive News reported most dealerships are being offered between $100,000 to $1 million to shut down over that period.

The U.S. government will own 60 percent of GM and 10 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 U.S. Sen. Carl Levin, D-Mich.

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

But Levin said a legislative solution was unlikely.

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