Congress is readying for a clash with the Obama administration by moving to reverse the closings or planned closings of nearly 3,200 dealerships by General Motors and Chrysler.
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The US House Appropriations Committee approved legislation this week seeking to restore dealer franchise agreements that were wiped out during the recent bankruptcy reorganisations of GM and Chrysler and a full House vote could come as early as next week, Dow Jones Newswires reported.
The legislation could block the automakers from closing dealerships or effectively force them to increase severance payments to rejected dealers, significantly raising the restructuring costs, the report said.
The initiative has widespread support among house lawmakers and a similar bill has been introduced in the senate.
White House officials visited Capitol Hill this week to try to strike a compromise among lawmakers, automakers and dealers to stop the legislation from proceeding, a person familiar with the meetings told Dow Jones.
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By GlobalDataThe Treasury’s auto task force, which has overseen the taxpayer-funded restructurings of GM and Chrysler, has argued that smaller retail networks are necessary for the companies to become viable.
The report said the house majority leader was pushing for a “fair and transparent process so that it’s clear to the dealers and to the nation at large as to how the auto companies reached their decisions”.
GM North America sales chief Mark LaNeve told Dow Jones he met with about 20 lawmakers on Thursday to explain the company’s decision to cut about 2,400 dealers – or about one-third of its network – by autumn 2010.
He said he sought to distinguish between GM’s and Chrysler’s handling of the closings by pointing out that GM was giving dealers months to wind down their operations while Chrysler’s dealer closings had already occurred.
LaNeve warned that the legislation would threaten to derail a key piece of GM’s restructuring and delay the auto maker’s ‘old’, under-performing assets from emerging from bankruptcy court.
“Everybody acknowledges, every dealer acknowledges, we have too many dealers in aggregate,” LaNeve told Dow Jones.
GM spokesman Greg Martin said the dealer closings were needed to improve brand value and ultimately boost the auto maker’s bottom line and that reversing the closings “would put our long-term viability at risk”.
Chrysler said the house legislation “would jeopardize the viability of the new company”. The company added in a statement that it “used sound business judgment during the bankruptcy process to determine the appropriate size for its dealer network”.
Chrysler recently terminated over 780 dealerships.
GM estimated its closings would save it US$2.4bn a year in dealer subsidies, advertising support, incentive payments and other expenses, the report noted.
