Auto-makers To Cut Off Dealerships

The U.S. financial crisis facing auto-makers has begun to take its toll on the dealers as well. Following the declaration of bankruptcy by both Chrysler and General Motors, two of the U.S.’s largest auto-manufacturers, the companies put forward a plan to restructure their dealership networks. Chrysler will terminate the contracts for 789 dealerships while General Motors plans on terminating over 1,100.

“This has been the most difficult business decision I’ve ever personally had to take, but the decisions had to be made. They were gut-wrenching, but absolutely necessary for Chrysler’s survival,” said James Press, Chrysler President, during a hearing with the Senate Committee on Commerce, Science, and Transportation today.

Dealers have cited a number of concerns over the restructuring. Many dealers were not told why their contracts will be cancelled as opposed to others and questions remain over the reasoning behind shutting down the franchises when the dealers cover all expenses.

Perhaps most distressing for the dealerships is the timeframe in which they have to close-shop. While General Motor’s is giving their franchises till October 2010 to gradually sell their inventory, Chrysler has ordered its dealerships to perform the same task within twenty-six days.

“You just can’t close a dealership in 3 weeks,” said Russell Whatley, a Chrysler dealer who appeared as a witness before the committee. “We have an 8 month supply of vehicles and only three weeks to clear them out.”

Big three automakers bid for bailout

Representatives from the flailing Big Three automakers appeared before the Senate Banking, Housing and Urban Affairs Committee Tuesday to make their case for receiving a 25 billion dollar bailout.

Alan Mulally, president and CEO of the Ford Motor Company; Robert Nardelli, chairman and CEO of Chrysler LLC, and Richard Wagoner Jr., chairman and CEO of General Motors explained that if they were to fail, there would be millions of lost jobs across the entire spectrum of the automobile industry, from those in manufacturing positions to those who work in dealerships.

While the committee members’ opinions about the bailout were mixed, the sense of cautious doubt seemed unanimous.

“Let me say what I have said previously: I support efforts to assist the industry. Not because their leaders necessarily deserve taxpayer’s help. On the contrary, they deserve no more help than do the leaders of the financial companies that created the subprime mortgage mess that has exploded into a global financial crisis,” said Chairman Chris Dodd (D-Conn.)

Dodd asserted that the blame for the Big Three’s dilemma rested on the CEO’s themselves.

“None of us relishes being here today to consider these prospects. That goes for our company and labor witnesses. Their discomfort in coming to the Congress with hat in hand is only exceeded by the fact that they are seeking treatment for wounds that I believe are to a large extent self-inflected,” said Dodd.

However, the Big Three disagreed that they should be held responsible, with the Ford and GM CEOs saying that their companies were headed towards profits until the credit crisis hit. The result was that the consumers ability to buy cars was severely impacted and gains quickly dropped.

The automakers also rejected the notion that they have not been innovative and have been refusing to make needed changes. All three companies have begun the creation of hybrid vehicles and have made attempts to reach more effective labor costs.

The CEOs flatly disagreed with suggestions that they declare Chapter 11, citing that there would be no real benefit since the restructuring that would come with a bankruptcy declaration was already being attempted. This would be coupled with the companies supposed inability to maintain liquidity on remaining products, since they contended that few consumers would purchase a product from a folding company. Mulally also stated that Ford still owed wages to workers that would be lost if the company declared Chapter 11.

An additional witness, Peter Morici; economist and professor at the University of Maryland School of Business, disagreed and said that Chapter 11 was a viable option.

“If Chapter 11 is put off, the successors to GM, Ford and Chrysler that emerge from a bankruptcy reorganization process will be smaller and support fewer jobs than if these companies endure this difficult transition in 2009. More jobs can be saved among GM, Ford and Chrysler and their suppliers if bankruptcy reorganization is endured now than in the future.”