Hoyer: No Economic Benefit To Closing Dealerships

For Immediate Release:

June 9, 2009

Contact:Corey Boles and Josh Mitchell

Dow Jones

U.S. auto dealers' political muscle was on display Tuesday, as House and Senate lawmakers increased pressure on General Motors Corp. (GMGMQ) and Chrysler LLC to pull back on planned dealership closings.

House Majority Leader Steny Hoyer, D-Md., voiced support for legislation to require the auto makers to honor existing franchise contracts with dealerships slated to be shut. And a bipartisan group of senators sent letters to top executives at GM and Chrysler criticizing the plans.

The House bill, introduced by two Democrats this week, would effectively halt plans by GM and Chrysler to close a combined 3,400 dealerships.

Hoyer said that neither the White House nor the companies themselves had offered any economic rationale for the closing of the dealerships.

"The dealers are being affected in a way that will adversely affect many, many communities around this country without an economic benefit to the manufacturers," Hoyer said in his weekly press conference.

Nearly 800 Chrysler dealers were scheduled to close this week as part of the auto maker's restructuring. GM has said it would close about 2,600 dealerships, though many would not be shut until October 2010. The auto makers said they need to shrink their dealer networks to cut costs, improve the image of their brands and ultimately boost sales. The plans were made under the guidance of President Obama's auto task force.

The bill introduced by Reps. Frank Kratovil, D-Md., and Dan Maffei, D-N.Y., would require Chrysler and GM to abide by existing franchise agreements, which dictate under what circumstances a dealership may be closed and requirements for payments to closed dealerships.

"This is not the government telling either company how to run their business," said Kevin Lawlor, communications director for Kratovil. "There's a role for the government to tell people when they have to honor their contracts."

Bailey Wood, a lobbyist for the National Automobile Dealers Association, which is pushing the legislation, said the intent is to ensure dealers are treated fairly and to limit the closings.

"Closing dealerships will not make either Chrysler or GM any more viable, and Congress is realizing that," Wood said. Hoyer didn't say whether he believed the legislation would succeed, but he said it was a cause he believed in.

The second-ranking House Democrat said he had signed a letter along with Maffei, Rep. Chris Van Hollen, D-Md., and more than 110 other House members that was sent to President Obama urging him to ask the car makers to delay closing any dealerships.

"We also question the criteria being used to determine which dealerships should be closed and the fundamental fairness involved in this effort," the letter said. "It is our view that the market should make these decisions rather than leaving it up to the manufacturers whose poor leadership contributed to their demise."

Also Tuesday, about two dozen senators sent letters to company executives accusing them of using bankruptcy protection to violate the rights of car dealers. Among the senators signing the letters were Senate Commerce Committee Chairman John D. Rockefeller IV, D-W.Va., and the panel's top Republican, Sen. Kay Bailey Hutchison of Texas. The letters were sent to Chrysler President Jim Press and GM Chief Executive Frederick "Fritz" Henderson.

The senators, writing less than a week after the executives testified in Congress, demanded information about the rationale behind the planned closings.

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