Defending Dealership Closings

Many auto dealers agreed to purchase extra cars when they heard General Motors and Chrysler neared the bottom. But in order to get government assistance the two companies agreed to shutter around two thousand dealerships, which many dealers call disingenuous at best.

"The manufacturers were begging these dealers to buy more and more inventory from them," says Bailey Wood, a spokesman for the National Auto Dealers Association. "I knew of some dealers who, the day they got their closure notices, that actually had a closure notice in hand as a truck full of brand new cars that they ordered on their lot as they were opening up their closure letter."

Senator Bob Corker (R-TN) opposed any government aid to the auto industry. But he recently introduced a bill that forces Chrysler and GM to reimburse auto dealers for all inventory purchased in the last nine months. Chrysler emerged from bankruptcy under new ownership, but the bill applies retroactively to dealers it already closed. Corker called the closings an “assault” on small businesses.

"They basically just said you were toast," Corker said. "You know at the very minimum, to allow them to operate for six months, which is really at no cost to the companies – to allow them to get rid of that inventory, would have been something that people would have deemed semi-fair."

GM’s restructuring plan was more flexible than Chryslers’. GM ended contracts with about 800 dealers, but many others will remain open through next year, and some until 2012. The company says that will give them time to sell off remaining inventory. GM will pay dealers that close $1 million.

Both of Michigan’s senators oppose Corker’s bill. Democrat Carl Levin said Chrysler and GM need to have the freedom to make their own decisions. "It could not only hurt them but it is taking over the management of companies, which I think most people want to keep the government out of," says Levin.

The companies say they can save billions of dollars by closing so many dealerships.

"The alternative here was much, much worse, which was disintegration and then just selling off the pieces," Levin said. "So as painful as this, and it’s a major pain for families, communities, dealers and suppliers, nonetheless, the alternative was an even a greater amount of pain."

Levin and Sen. Debbie Stabenow (D-MI) supported a bill to subsidize new car purchases. The president may sign the “cash for clunkers” bill soon. The bill gives consumers up to $4,500 to buy new vehicles. Drivers qualify for the money only if they turn in an older gas-guzzler for a more fuel efficient car. Stabenow said the bill helps dealers clear their inventory but also sustain the American auto industry.

The "cash for clunkers" bill won’t help Chrysler dealers that already closed. Industry officials estimate 100,000 jobs could be lost between Chrysler and GM closings. That’s why there is growing support in the House to force the auto companies to reopen all of their dealerships. Three of those dealerships are closing in Livonia, Rep. Thaddeus McCotter’s (R-MI) hometown.

"Dealers are actually victims of a decision government made against them in conjunction with the companies," McCotter said. "It was the actual over expansion of government in terms of dictating more of the terms what the restructuring we had already been going through had to look like, that led to them being hurt.”

McCotter endorsed a bill to reinstate dealers franchise agreements from before the companies entered bankruptcy, which already has over 130 co-sponsors from both parties.

"I think it also strikes a lot of members, just the simple inequity of it," says McCotter. "Because people could have run a perfectly good business and they get no answers as to why now everything they built up and all their employees are lost and the jobs are gone and the communities suffer."

When it comes to car dealers, Michigan lawmakers are walking a fine line. Local jobs are at stake if a dealership closes, but some say it’s a small price to pay for saving the U.S. auto industry.

Created by Bureau Chief and Executive Producer Melinda Wittstock, Capitol News Connection from PRI provides insightful, localized coverage of participating stations’ congressional delegations.

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