GM, Chrysler: Slashing Dealerships Is Necessary

General Motors and Chrysler say they need to trim their network of franchises so when they emerge from bankruptcy proceedings they will be successful. In a Senate hearing Wednesday, lawmakers questioned whether the companies are abandoning the loyal dealerships and consumers who have supported them.

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As Chrysler wraps up a bankruptcy and General Motors begins its, both companies are cutting ties with local car dealerships, many of them anyway. Both automakers say they need to trim their franchise networks. But in a Senate hearing yesterday, lawmakers asked if the companies are abandoning loyal dealers and customers. Of course you have to cut costs, but maybe not in my backyard. NPR's Audie Cornish reports.

AUDIE CORNISH: Meet Peter Lopez, a West Virginia auto dealer who was a star witness of the Senate Commerce Committee hearing.

Mr. PETER LOPEZ (West Virginia Auto Dealer): Our dealerships service six county areas in West Virginia and I am the face of Chrysler and General Motors to my community and my customers.

CORNISH: Lopez has two franchise contracts, one with General Motors and one with Chrysler. Both are being cancelled. Lopez himself sunk well over a million into his dealerships in the last two years alone. He made showroom upgrades and employs 18 people. None of that mattered.

Russell Whatley, a Chrysler dealer from Mineral Wells, Texas is facing a similar fate.

Mr. RUSSELL WHATLEY (Chrysler dealer, Mineral Wells, Texas): Every dealer's biggest fear is on June the 9th we lose all options on these cars. We can no longer sell them, we can no longer dealer trade them, they have no incentives, no rebates, no warranties, they're just planter boxes.

CORNISH: June 9th is Chrysler's deadline to close 789 of its dealerships. Chrysler president James Press says in order to make the company viable for its pending sale to Italian automaker Fiat, they had no choice but to consolidate the stand-alone dealerships of Jeep, Dodge, and the Chrysler brands.

Mr. JAMES PRESS (Chrysler President): We are trying to bring all three brands under one roof, because by trying to run three separate brands in channels and dealer bodies we've gone broke. We can't do that any longer.

CORNISH: Trimming a bloated dealer network and driving up business at the remaining ones is also the goal at General Motors. GM President Fritz Henderson says that in order to survive, the company must shed more than 2500 dealers because there are too many of the franchises too close together.

Mr. FRITZ HENDERSON (General Motors President): Over the years, many GM dealers could not earn enough profit to renovate their facilities and retain top tier sales and service staffs. And for those who could raise capital, it made little business sense for them to invest in a market already saturated with GM dealers.

CORNISH: But lawmakers took issues with the way the companies were conducting the closures with little oversight and no real chance for appeal. Senate commerce chair Jay Rockefeller of West Virginia called the whole process unfair.

Senator JAY ROCKEFELLER (Democrat, West Virginia): I honestly don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave it to local dealers and their customers to fend for themselves with no real plan, with no real notice, no real help. It's just plain wrong.

CORNISH: But it was not clear to lawmakers, such as South Carolina Republican Jim DeMint what, if anything at all, should be done.

Senator JIM DEMINT (Republican, South Carolina): I think it's starting to hit all of us in the face what government managed economies feel like.

CORNISH: What it felt like was a four hour barrage of questions from lawmakers to the auto firms about their decision-making. The Senators quizzed the two automakers about the speed of the closures and the selection process. They demanded GM turn over a list of the franchises slated for closure that it's so far tried to keep secret.

Senators asked what would happen to consumers and dealers in minority communities or in rural communities or on a particular street in their home state. They asked GM to improve their appeals process. They asked Chrysler to make good on its pledge to help canceled dealerships get rid of inventory. Missouri Democrat Claire McCaskill pointed out the limits of how far lawmakers can go.

Senator CLAIRE MCCASKILL (Democrat, Missouri): I think we all have to acknowledge that these companies are broke and they're not going to succeed unless they get smaller, and we've got to figure out a way forward that's fair to the dealers, but at the same time, I don't think we can micromanage and insist they stay bigger. That's why they went broke.

CORNISH: Still more than 300 local car dealers are set to fight the Chrysler closures in bankruptcy court today. While GM has let 1100 franchise dealers know that it won't be renewing their contracts next year, and the company is deciding whether to close more factories to prevent excess inventory.

Audie Cornish, NPR News, the Capitol.

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Despite Relative Strength, Ford Faces Challenges

Ford Motor Co., which has managed to survive without getting billions of dollars in help from the federal government — and without heading to bankruptcy court — is in an odd situation these days.

Although its position could help Ford win over new customers, it could also put the automaker at a disadvantage when facing rivals GM and Chrysler.

Increased Competition

At Harold Zeigler Ford, a relatively small dealership in a rural part of western Michigan, Sales Manager Ted Holloway says people are beginning to take notice that Ford is the only Detroit carmaker surviving on its own.

"A customer will come in the door and say, 'We're going to look at a Ford because they didn't take any government money' and whatnot," he says. "And it's funny to hear, but it's true."

Holloway says so far he is hearing that from only a few customers — though a few customers can make a big difference for a small dealership.

Holloway says, however, he is also seeing increased competition, especially from Chrysler, whose dealers have been slashing prices in recent months to cut inventory. Chrysler dealers that are going out of business are cutting prices even lower. It's tough for Holloway to compete against that.

"If somebody's coming in solely on price, and price is the only thing that matters, you know what, there's a good chance they might wind up buying a Chrysler," he says.

And while dealers like Holloway have their own problems, Ford as a company has challenges, too.

Advantage GM, Chrysler

Ford is now up against two competitors that will have tens of billions of dollars of debt wiped out. Ford was able to avoid bankruptcy because it took out more than $23 billion in loans a few years ago. It has to pay those loans back; GM and Chrysler don't have the same burden.

GM and Chrysler also now share a financing division, GMAC, which got its own help from the government that could make it easier to finance new car deals. Ford doesn't have this advantage, either.

And talking about these challenges publicly is a bit tricky for Ford, because it supported the government's involvement at GM and Chrysler. Ford officials don't want to seem like they are complaining now.

"We understand that, you know, some of what's going on now has the potential to change the competitive dynamic," Ford spokesman Mark Truby says.

He says Ford supported the efforts to save GM and Chrysler because, ultimately, it was better for the economy and better for the chain of parts suppliers on which Ford depends. Now Ford just has to keep up with the changes going on across town.

"We're going to try to work with all the parties to ensure at the end of the day, Ford's not disadvantaged," Truby says. "Because we think, all things being equal, we can win with our products."

An Upper Hand For Ford?

Product development is one area where Ford may have the upper hand. GM and Chrysler have been forced to cut back on some projects while they work their way through bankruptcy. Independent auto analyst Erich Merkle says that gives Ford the advantage.

"I know that seems strange given all the money that the government's dumping into these companies," he says. "But at the end of the day, Ford has by far the strongest product pipeline, they certainly have momentum in their favor, and I think they will win a lot of consumers as they move through this, relative to GM and Chrysler."

Merkle says winning new customers may be enough to make up for all the other disadvantages Ford has compared with GM and Chrysler.

Ford seems to see the opportunity. On Tuesday, it announced it would increase production over the summer, while GM and Chrysler both plan to have many of their plants closed.

Dustin Dwyer reports for Michigan Radio.

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