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SEN. ROCKEFELLER: This hearing will come to order.
Three weeks ago Chrysler announced that it was going to terminate 789 franchises on a nation-wide basis. I spoke with Pete Lopez, who is here with us, he's an auto dealer from Spencer, West Virginia -- it's not the largest city in the world, but it's one of the finest. And it's right in rural West Virginia, and it sort of sets up the whole tone of this.
And he learned that his contract has been terminated with -- you know, with Chrysler, so obviously he was very concerned about that. We talked on the telephone, and he was, you know -- a lot of anxiety, and concern and worried about his people. And, in a sense, in a flash, his whole life's work -- probably of some 30 years or so, of taking care of people, and servicing cars, and selling cars, both Chrysler and General Motors, you know, just all of a sudden appeared to be very much in jeopardy.
Well, so that's the way he felt. But, then compounding that, a few days later Mr. Lopez learned that GM was also going to terminate their franchise with him, and a lot of other folks, putting more of his workers at risk. This story is obviously not held to Pete Lopez. It's a nation wide tragedy that a lot of us feel very strongly about something that should not have happened and can be corrected.
It's a story, certainly, that is echoed throughout West Virginia. On a nation-wide basis, you've got nearly 2,000 dealerships that are closed throughout America, 100,000 job at risk. Those are not unfamiliar figures these days but, nevertheless, 100,000 people potentially out of work, or probably out of work, is unhappy.
So, we have to do better. We can save some of these jobs and we can help some of these communities, and we have an obligation to do that. Let me be very clear, 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. You don't do that.
So, we're talking about dealers who've invested everything they have, many who have been in it for many, many decades -- a generational thing within families, some of whom are here today. And, you know, they're just looking into a black hole right now. They don't know what's going to happen. They don't know why this has befallen them -- why were they picked; what was the process; was it fair; was there pressure brought; was there any politics involved? All if this we'll get into this afternoon.
We're also talking about the consumer, people who work just as hard as they can, in West Virginia, and all of our states here -- people who work uphill all the time, just striving to make it, to survive. Every penny counts, every mile counts, every part of a car counts, if it isn't working.
But, Chrysler is eliminating 30 -- 40 percent of its dealerships in my state, which is about twice what they're doing on a national average. And GM, I believe, will eliminate more than 30 percent, which is about 40 percent more than what they're doing -- or, 60 percent more than what they're doing on a national basis.
So, this means that some consumers in West Virginia will have to travel much farther distances to get their cars serviced under warranty, because if you don't have a warranty you can't get your car serviced. And we're going to talk about that too -- does that really have to define the terms in a crisis?
So, basic economics also says that the fewer dealerships you have, those that are left -- that are selling Chrysler or GM products, that there's less competition so the price goes up. That's just economics. I think each company has a responsibility to assure this committee that it is not using this restructuring process as a way of unfairly increasing prices on hardworking Americans who have remained loyal to them -- again, over many generations, in many cases, and to the domestic auto industry.
I want to emphasize today that the consequences of Chrysler and GM's actions are very real to so many people in West Virginia and other states. GM and Chrysler, we are hearing from Americans every day, and we want you to hear -- as I'm sure you have, but we want you to hear what people have to say, and so that's what this hearing is about.
So, I'm very glad that we have this panel. It's a chance for you to make your case as to -- those of you who are auto executives, as to why your companies are taking these actions, or to tell us what you're going to do differently, moving forward, if you plan to.
My concern runs very, very deep. I went to West Virginia as a Vista Volunteer. My heart is on Main Street. That's not a political cliche to me. I mean, I really care about what happens to people who work hard, who are always fighting uphill -- always fighting uphill and somehow they never seem to get a fair shake.
So, these are the most challenging economic times since the Great Depression. We have to come together and do everything we can to make sure that dealers, employees, and everybody involved does all right.
And I do understand the need for Chrysler and GM to reorganize. That's not at question here. But, to do this at the expense of workers and consumers in the wrong way, is just plain wrong. This committee and the American people will not stand for it. Thank you.
And I call upon the ranking member, Kay Bailey Hutchison.
SEN. KAY BAILEY HUTCHISON (R-TX): Thank you, Mr. Chairman.
Mr. Chairman, would you allow me to ask every person in the audience who is a dealer to stand?
SEN. ROCKEFELLER: Of course.
(Dealers in audience rise.)
SEN. HUTCHISON: Thank you very much.
We really wanted to see the people who are facing the issues that we're talking about today. I think, Mr. Chairman -- first of all, thank you for holding this hearing, I think that after the supplemental appropriation a week before last, just as I was offering my amendment to try to extend the time for these Chrysler dealers, especially, to be able to shut down their businesses in an orderly way, I got word that you were going to set this meeting for this week. And I appreciate it, because I think we need to hear what is really happening.
It's been about 10 days since we had the debate on the floor, and we had the assurances from Mr. Press, of Chrysler, that there would be contact with the dealers who were being closed. And I want to set the stage, because it was just that week before last that I was contacted by some of the dealers in my state who were affected; and they received a letter from Chrysler, dated May 13th, of 2009, saying that the agreement would be rejected with these dealers as of June the 9th, and that meant about three weeks' notice.
And here was the attachment to the letter: "As a result of its recent bankruptcy filing, Chrysler is unable to repurchase your new vehicle inventory." "As a result of its recent bankruptcy filing, Chrysler is unable to repurchase your Mopar parts inventory." "As a result of its recent bankruptcy filing, Chrysler is unable to repurchase your essential special tools."
So, many of the dealers, some of whom have been in operation and have had the burden of paying the taxes, hiring employees, doing business in a community and being an employer that's providing a part of the economy of this great country, were notified, after years of service, that they had three weeks and, basically, no obligation from the company. So, I did introduce an amendment to just say 60 days -- not three weeks, 60 days.
Well, then, as we started debating this on the floor, all of a sudden I had five co-sponsors, and then 10, and then 15. And, by the end of the afternoon, as I was talking to the Chrysler executives, we had 38 -- bipartisan, Democrats and Republicans, co-sponsoring the amendment.
And the agreement that came forward from that process was that Chrysler would, indeed, do everything possible and make commitments to the dealers that they would take every piece of inventory, and the specialized equipment that could be transferred, by June the 9th. And so I look forward today to hearing from Mr. Press about the progress on that, and I look forward to hearing from the dealers about whether they believe that they have had that kind of outreach from Chrysler.
In addition, just this week General Motors has begun its process, saying that it would close up to 40 percent of its dealerships, which would be approximately 2,300, give or take, of the dealerships in this country, following on 789 dealerships from Chrysler.
Now, just to put this in perspective, these families of these dealers, who have made such an investment and who have taken really "the" financial burden for these dealerships -- they buy the inventory, they take the financial risk, it's a huge burden for those who have stood, and those around the country. But, we're also talking about 40,000 employees of these dealerships, so we're talking about 40,000 families besides the dealers themselves.
And we're talking about communities. Because I remember selling ads for the high school football program in my home town, and who was the first person to buy that high school football program -- for the students that came in for their first experience at selling? It was the auto dealer in town. And in my home town we had one.
And I remember that, and I know that all over this country people remember that. And United Way, who's there first, supporting the community for those less fortunate? It's the auto dealers and their employees. So, they're the backbone of the community.
And so every community where these auto dealers are going to be shut down is going to see a loss -- a loss in revenue, of course, because the families are going to have to look for other jobs, but also their own charitable and community events will also suffer.
So, I think it is very important that the CEOs who are here -- of our auto companies, realize what is happening with these dealerships. And I, for one, want to know how this process is working. I want to know from GM how it's going to work.
And I want to see if there is any mitigation for these communities and these families that will come forward.
And it's not our place to change your decision. It is not. But it certainly is our place -- especially where there is so much taxpayer money involved -- for us to make sure that everyone is treated as well as can be in this circumstance.
And we've heard from the people who make the cars -- the workers. We've heard about the bondholders; we've heard about the stockholders. And now today we're going to hear about the dealers, because I think they had nothing to do with the design of cars, nothing to do with the costs of the company. And yet, 40,000 people from Chrysler are losing their jobs and then General Motors is yet to come.
And I think it is Congress's responsibility to look at the whole picture of this economic impact.
Thank you, Mr. Chairman.
SEN. ROCKEFELLER: I thank the -- (off mike).
SEN. AMY KLOBUCHAR (D-MN): Thank you very much, Mr. Chairman, for holding this hearing. I look forward to hearing from the witnesses.
I wanted to specifically mention my constituent dealers that are here today: Shakopee Chevrolet, a GM dealer; Koronis Motors from Paynesville, a GM dealer; Walser Buick Pontiac in Bloomington, a GM dealer; Scott Preusse Motors in Redwood Falls, which is a Chrysler dealer; Nelson Auto Center in Fergus Falls, which is a GM dealer; and Fury Dodge Chrysler in Lake Elmo.
What's so puzzling for so many of our dealers in Minnesota was that some of these dealers were actually doing pretty well. Walser Buick Pontiac for four out of the past five years has been number two in sales for all Buick-Pontiac-GMC dealers in Minnesota. Fury Dodge Chrysler set an 85-year record for sales in January with 103 new cars sold. They beat the record again in May with 113 new car sales. Koronis Motors increased its new car sales by 30 percent last year and its service work increased by 75 percent. Yet, these three dealers received termination notices. And so understandably, they have questions they want answered today about how these decisions were made, why they were given so little time and if there's any time that can be extended.
They feel that these decisions may have been made in the boardrooms in Detroit, but they're affecting people in the living rooms in Minnesota.
This is about local communities, as Senator Hutchison so eloquently described and Senator Rockefeller described, throughout this country. And it's about homegrown locally owned businesses, as well as the employees and customers who depend on them.
Jim and Tom Leonard who are here today are co-owners of Fury Dodge Chrysler. This business has been in Lake Elmo for decades with 40 workers, they're the largest employer. Because of what was going on, they actually had a rally this Saturday -- 400 people show up. I received 1,200 letters from people in this community that want this dealership to stay open.
And the things that we're most concerned about in Minnesota is first of all, why there isn't some kind of internal appeals process on the Chrysler side for those who think they've been wrongly targeted. You know, when mistakes have been made and acknowledged in the past, would lead one to believe that there could be mistakes made in decisions about which auto dealerships should be terminated.
We're concerned -- I was one of the early cosponsors of this amendment, because we're concerned about the timing. Some of these dealerships have been in business for decades and then they're given 26 days -- 26 days!
On the GM side they were given longer time, but then some of them have been given these letters which only give them until July 12th to make a decision -- not enough time to make decisions, not enough time to make sure that they've sold their parts, not enough time to get their employees some kind of landing ground. And these are employees just like there are employees in Detroit. They're the heart and soul of so many communities in our state.
So what we would like to see is some fairness injected into this process. Obviously, it is your decision to make, but when we're talking about taxpayer dollars, we're talking about families in a very difficult economic time. We would like whatever fairness we can find to be injected into this process and that's why we're here today.
Thank you very much.
SEN. ROCKEFELLER: (Off mike) -- as we always do, and so people understand.
And next would be Senator Johanns.
SEN. MIKE JOHANNS (R-NE): Mr. Chairman, thank you very much. I really appreciate you conducting this hearing and it's good to see you back.
Here's the problem as I see it: I think everybody has spoken very eloquently about the difficulties that this has caused back home and we're all getting the phone calls and letters. I've got bullet points from one of your dealers at Chrysler talking about the jobs that are going to be lost, explaining to me how they don't feel they're costing Chrysler anything; how fair they feel it was -- unfair they feel it was to have so little time after being a part of the organization for so long.
But here's the problem: The deal is done! I never would have believed as a candidate for the United Senate that the United States government could buy General Motors without a hearing, with no vote yes or no; that a dealership plan could be rolled out that literally put people out of work -- this was supposed to save jobs, I thought -- put people out of work with no oversight.
I never would have imagined in a million years that that could be accomplished. And I find that to be extremely bothersome. There are billions and billions of dollars at stake here.
The other thing that I will share with you -- I think if would have called anyone of my constituents back in Nebraska on Friday and said to them, "You know, I've been thinking about it. I think that that $1,000 that you've worked hard to save in your savings account should be invested in General Motors."
Do you know what I think the response would've been? They would have laughed at me and hung up! They would have laughed at me and hung up. And yet, on Monday, our government bought General Motors. And by every definition I can see, that is probably the poorest investment you could possibly make.
And then this on top of all of that with dealerships closing, people losing their jobs -- I don't see how this makes any sense.
So I want to hear today about your role with the administration. I want to know who had this plan. I'm not saying who had it for approval, but who did you submit it to before you rolled it out that is associated in anyway with the administration?
I also want to just mention -- as I wrap up my comments today -- I'm going to speak on the Senator floor about this tomorrow, but I have an amendment that basically says if you're going to use TARP money and you're going to end up with ownership of the stock of a company, you have to get congressional approval.
You see, I think it's time to bring some transparency to this, to shine a bright light on what's going on here, because it's not fair to these dealers. You know, they see Chrysler going into bankruptcy, they see General Motors going into bankruptcy. And they can't even answer the question if they're going to be one of the ones getting a letter. And that's not fair to them. That just simply is not fair.
So I appreciate the chairman's courage in taking this issue on. I think it's enormously important not only to folks back home, but how we operate as a nation and the impact on our economy when we nationalize something like the auto industry.
Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you, Senator, very much.
SEN. MARK BEGICH (D-AK): Thank you very much, Mr. Chairman.
And I appreciate the hearing. Also, welcome back. Thank you for -- one of the meetings I was allowed -- a couple of us freshmen -- allowed to take the gavel. Don't worry, we're not going to get used to it, but I appreciate the opportunity.
To the folks who are here, thank you for attending. I'm not going to go through a long list -- speech here on the whole issue, but I do have questions that I want to ask. So I'm going to ask them in my presentation here so you can start thinking about them, because I think all of us will have issues and concerns. I think Alaska's actually been on the best end of it, if you can call there is any best end. And that is I think in Chrysler we had none that were requested to close in dealers and GM we're not sure yet.
But the issue to me is where do we go from here? How do we ensure the long-term growth of the companies are there if at all? How do you expand the dealerships, because the assumption is these companies are to be reorganized and grow, then in theory, dealership growth will occur with it.
What are you doing with regards to dealerships -- and I can't remember the exact dates -- but in June, when they're no longer an authorized dealer and they still have inventory? Are there situations that you're going to be able to allow them to extend their time so they can sell off that inventory in order to recoup their costs in investment?
Are you doing any mitigation, just as you would do in a layoff situation or a furlough? You might give a package to the employee. What are you doing for the dealerships to ensure that they have capacity to deal with the transition they may have to make?
How do you ensure that the individuals that have warranties in small towns have a place to go to get their work done? Are the ideas that the companies are considering to be even a hybrid of some of these dealerships to make sure that they are warranty dealerships available to communities that may have to go several miles, or in my community it could be hundreds of miles to get a vehicle taken care of?
To me, those are the issues I'm looking to. What's -- (inaudible)? I can complain a lot about what happened, where we are, who caused it. The people who are paying the price now are a lot of dealers that are sitting in this room, a lot of employees of those dealerships.
I know, in my community, dealers are a backbone of a lot of our non-profit work, our community work. They're the ones you see at the Rotarys, the Lions Club. They're the people out there making the community happen. They're the people that I know, as a former mayor, we would go to, and they would be the first at the deck, on deck, to help us make a difference in our community.
So I'm interested in what you're doing to help this transition, but also how you're going to grow your business to ensure that more dealers in the future exist. But also, what mitigation are you going to do to help these folks through this transition, knowing that you would do very similar things for employees when you're doing layoffs? What are you doing in this situation?
I have many other questions, but my time is out. That's the questions I'm going to have, so that gives you a little food for thought again as we move to the question period.
Thank you very much.
SEN. ROCKEFELLER: Thank you, Senator Begich.
SEN. FRANK LAUTENBERG (D-NJ): Thanks, Mr. Chairman.
And those of you at the witness table, who have leadership positions in your respective industries, must have a terrible conscience right now when you think about what's being done to dealers, small businesses, typically family businesses, businesses that have endured for years.
In Mercer County, New Jersey, for instance, Bill Coleman was informed less than three weeks ago by Chrysler that his dealership will be closed. His father started the family business 22 years ago. And people are losing their jobs, wondering if they're next. Across New Jersey, 30 dealerships in all will face the same fate.
And I want to be clear, because there has been double-dealing here. There was an imposition placed on dealers by Chrysler, Mr. Press, who said that they had to buy -- in January of this year, that dealers collectively would have to sell or take another 78,000 cars to be sold in the month of February to help Chrysler protect its viability and to get additional loans from the government.
I remind you that $4 billion went to Chrysler in December, $3 billion in financing help in March. When Chrysler restructures, four and a half billion dollars is committed to restart operations. And frankly, I think it's pretty simple. In the bankruptcy proceeding, what ought to happen, there's a plan there to say to the dealers, "Okay, we shoved this down your throat, and now we'll take them back." That's part of the government -- what ought to be done, to relieve the dealers of additional burdens, besides closing their businesses and smashing their dreams and hopes.
So it's tough, and I know you don't like it, but whether or not you like it, the burden that you're passing on to the dealer network is absolutely unconscionable, and we ought to be figuring out a way to redeem the problems that you've turned to the dealers, Chrysler, General Motors, all of you who are part of the bankruptcy process for which the United States government and its taxpayers is providing the way out.
Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you, Senator Lautenberg.
SEN. BYRON DORGAN (D-ND): Mr. Chairman, thank you very much. This is about the restructuring -- and we've heard a lot about restructuring recently -- restructuring the financial industry, restructuring the auto industry. And watching it all, I'm wondering who's making the decisions in this country about who's too big to fail and who's too small to matter?
The decisions about the auto dealership network, those decisions belong to the manufacturer, not the government. I understand that. I don't think that's the point of this hearing, to decide that we want to create some sort of vision of your network.
But there are questions, it seems to me, serious questions that are in order. I understand a desire to eliminate overlapping dealerships of the same brand of automobile so that you don't have two dealers competing against each other to drive down your price for the same car. I understand that.
What I don't understand is how the decisions have been made, especially with respect to rural areas. Now, among the questions, I think, is how does it square that auto manufacturers that have been losing a great deal of money have ordered the closing of dealerships that have been making profits? It seems strange to me. And in rural states, the important question is, what is the impact, the real impact, on smaller automobile dealerships? What is the impact on consumers?
With respect to the dealerships, what's the impact with respect to inventories, automobiles that they have on the lot, parts inventories? Some dealers have shown me that in January of this year, they were encouraged by their particular manufacturer to buy more cars, get more cars on the lot. "Do that. It's very important that we be able to move cars out and get them on your lot." And so now they discover, "Wait a second. So I brought the cars into the lot. Now I'm told that I'm not to exist anymore."
What about customers in rural states? In my state, a customer that's bought a pickup truck, for example, or a car, and did so because they're brand-loyal -- they've been doing that for years; their parents did it for years; they bought it from a small dealer that's been around for 70 years selling the same car, and they bought it with a warranty -- and now the question is, who's going to service the warranty?
And, at least with respect to the closure of two dealerships in North Dakota, it appears to me those folks will get in their pickup trucks and their cars and drive a three-mile round trip -- excuse me, three-hour round trip -- we don't consider three miles very much -- a three-hour round trip to get service. I just -- I think those questions need to be asked of you. Did you consider all that?
And finally, is there a process for a dealer having heard from on high at 30,000 feet that your view of the ground was as you described it? Is there a process for a dealer on the ground to say to you, "You know what, you made a mistake this time, and I want to make that case to you"? Is there a process for them to make that case? Because perhaps you have made some mistakes. I think it's important for us to have you answer those questions for those dealers, many of whom have been loyal for many, many, many decades to the automobile companies represented here.
SEN. ROCKEFELLER: Thank you, Senator.
SEN. OLYMPIA SNOWE (R-ME): Thank you, Chairman Rockefeller. Welcome back. And thank you for holding this very critical hearing today, Mr. Chairman, because obviously we're all grappling with the devastating effects of the sad state of affairs when it comes to the domestic auto industry, the failures in past leadership that did not provide the requisite leadership, vision, ingenuity to transform the industry, and that ultimately has led us, the taxpayers, to provide a massive infusion, more than $70 billion, to Chrysler and to General Motors.
And now we're confronting stark realities with the worst economic recession since the Depression. And, of course, we're now hearing the news that more than 2,000 auto dealerships that are facing closure nationwide, more than 18 in my state, are going to be disenfranchised arbitrarily, through no fault of their own. They're loyal, in many instances long-standing small businesses in the communities, as you've already heard.
Yet the companies represented here this afternoon have provided no clarity with respect to exactly how or why they've come to the specific decisions that they have made, let alone provide any transparency with respect to these decisions or the arbitrariness of the time frame in which these auto dealers are compelled to make these decisions. So it's a very heavy-handed approach, without question.
Moreover, the companies aren't providing any significant assistance in winding down. As we've heard, Chrysler is providing three weeks to dealers -- three weeks. And as you heard from Senator Dorgan, who's absolutely right, a lot of our dealers were asked, "Would you buy more Chryslers" -- last year -- "so that we can avoid bankruptcy?" And they did. And look where they stand today. They're asked to close their doors.
And Senator Hutchison has mentioned -- and we thank her for her amendment that she offered a couple of weeks ago on the floor to give a little bit more breathing room to the auto dealers, at least to 60 days. But where does that put them at the end of this whole process, where they have no idea what their futures are?
General Motors has stated, for example, in its wind-down agreement, that they'll not be buying back tools or parts from the dealerships that are closing.
And I got a copy of the wind-down agreement last night. It's12 pages, single spaced. It would take a team of lawyers that obviously devised it to make it as difficult and as dense as possible so no one could possibly make a decision within the 10 days they are required to make a decision. They have to sign it within the 10 days or they are closed down with no assistance whatsoever. There's been no detailed accounting or disclosure from the company that will result in dramatic savings.
It's interesting to note the Washington Business Journal for example noted the dealers that paid for the inventory, shipping of the inventory, from the front, to cost of warranty work--you know, purchase the repair equipment and parts. They also say that cutting cost is not a major thing in Chrysler's decision. The automaker has saved some additional expenses by having small dealer network and administrative costs to oversee, but that's about it.
And I know you, Mr. Henderson, have claimed in an interview yesterday there was economic rationale for these actions; while it's been reported neither the White House nor the Auto Task Force are aware of the economic rationale behind the closings or precisely how they were determined. So what exactly is the rationale for shutting a dealership like the one in Sebago Lake, Maine?
I had a conversation with a dealer last night, a heart-breaking story, heart-breaking conversation. He had one of the most thoroughly trained workforces, highest customer service index in the state. And according to a letter from General Motors, they could no longer maintain a productive business relationship. Well, why? This is a business that's been in partnership with General Motors for 80 years, third generation. And GM asked this dealer to pack up and relocate, and now they're targeted for closure due in part to that relocation. This is a dealership that serviced an area of more than 100,000 people, sells over more than $2 million and parts.
And confidentially dealers have informed me that several populous areas in the state of Maine, entire counties, will go from multiple GM dealerships to absolutely none, leaving geographic areas without any dealers, without customers having to rely on providing, you know getting the service that they depend upon, having to drive 100 miles or more for service. Well, if you don't have service you're not going to have any sales. I don't know how you reemerge from bankruptcy and reestablishing viability on that basis when you're reducing your market share to virtually nothing.
The American taxpayer has provided billions of dollars, and ultimately the auto dealers are now on the front lines with the harsh consequences of the failure at the top. And they deserve better, far better than what they're getting. And I hope that we can address the ramifications of these decisions that are having an enormous impact all across the country. Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you, Senator Snowe.
SEN. JOHNNY ISAKSON (R-GA): Thank you very much, Mr. Chairman. You know, I ran a company for 22 years. I had 800 salespeople in the real estate brokers business. They were very much like automobile dealers. They were franchisees who made money if they sold. It seems like to me when you close your dealerships you're firing your sales force. Dealers are not a liability; they are an asset. And I really don't understand the pervasiveness of the closures that are taking place. But I have two questions in case we don't, we go too long and I have to leave. I want to make sure these two questions get answered, and so I'll ask them now.
Mr. Press, on February the 5th, 2009, you were quoted and appealing to your dealers to make 15,000 additional purchases of Chrysler products in order to save the company, and you said the following quote: "You have two choices. You can either help us or you can burn us down. Think of it this way, we are a bucket brigade. Right now 70 percent of positions are filled. If we don't fill the other 30 we're going to burn down. If you decide not to do that, we've got a good memory of who helped us and who didn't."
And I think that recognizes the fact that the dealers are your asset, and that you depended on them. And now so many of them are being closed. And for General Motors I have not seen the list, Mr. Henderson, and I appreciate the times you visited my office along the way. But in the phone calls I've had in the last three days, it appears what Senator Dorgan referred to is correct that there's a disproportionate closure of rural dealerships. At least that's the way it appears to me.
So I think the question of, are they disproportionately being closed in rural areas? is number one; and, number two, what is the rationale to fire your sales force? need to be answered in this hearing.
And Mr. Chairman, I look forward to hearing the answers to both. Thank you.
SEN. ROCKEFELLER: Thank you, Senator. Senator Martinez.
SEN. MEL MARTINEZ (R-FL): Mr. Chairman, thank you very much. And thank you, Ranking Member Hutchison for holding this hearing in a very, very important time. I will echo the remarks of so many of my colleagues about the importance of dealerships to communities and also the very question that Senator Isakson just asked: Without a sales force, how do you remain viable?
But what I want to zero in on, and the questions I would like answered are very, very specific, which are two examples of dealerships that are closed in the state of Florida. One is, Mr. Press, in Miami, Tamiami Chrysler-Jeep Dodge. Mr. Polamis (sp) told me that his dealership was perhaps a top seller in the South Florida area, one of the top 100 in the country. Seems to me the kind of dealership you would want to see continue.
The other one is in central Florida, GM, Mr.Henderson. Holler Chevrolet. I've grown up in Central Florida all of my life. Holler is synonymous with Chevrolet in the Central Florida region. Until Bill Hurtz Chevrolet ceased to exist they were number two. I presume now since they no longer are around, they would be the number one dealer in the Central Florida region. How in the world does it make sense for a dealership like that to also be on the list of closures? In addition to the fact that they are one of the top sellers you have to have in Florida, they also have excellent customer service and everything else. They know how to do this business. They've been in it all their lives.
So the specifics of this is, what rhyme or reason is there to this? Because it is people's livelihoods, it is people's businesses. So we need to understand this so we can answer these questions from our constituents. I think they deserve to understand the rationale why a dealership like Tamiami or Holler would be closed in these two communities where these dealers to anyone who would see it would seem to be incredibly successful dealers, the kinds of dealers you would want for your future company if you're going to make it. That's all I have. Thank you.
SEN. ROCKEFELLER: Thank you, Senator Martinez.
SEN. SAM BROWNBACK (R-KS): Thank you, Mr. Chairman. I'm going to associate myself with every comment that's been made so far, and also I want to thank the panelists for being here. This is a tough time for you too. I'm sure these decisions aren't easy ones that you've made, nor that you make lightly. And I think everybody is pretty frustrated about what's happening and what's taking place.
I do have some questions that haven't made quite sense to me yet. I've had a number of dealers in my state say, We don't cost GM or Chrysler anything. So why are they cutting us off?" And that seemed to me to be a legitimate question to ask. If your sales force isn't costing you anything, why would you cut them off?
The second piece of that though, I'm sure you must have some numbers that say, Here is why we are doing this. I'd like to know what it is that when you look at those numbers that if you radically downsize your distribution network, that you're going to be able to be more profitable in the future by doing that, because I understand you've got more dealerships than Toyota, Honda, others that maybe built their dealership network at a later date than what you did. But if by downsizing that radically, do you substantially upscale your ability to be profitable? That's the question I'd have, if your dealership network, by what the dealers are saying it really doesn't cost you that much. I would really like to understand those numbers on a better basis.
The second piece is, you're operating off one of the most difficult car markets that we've had in 50 years. Now you're looking at 9.6 million in annual sales right now. I think Mr. Henderson, I thank you for coming by my office -- were saying that 10.1 million was the latest monthly figure that you're running at. But a normal year would be a 14, 15 million at least in car sales.
And my colleagues, we're putting up, Senator Stabenow and I, a scrappage bill that in other countries when they put this forward have increased sales of automobiles anywhere from 10 to 30 percent in a months period of time. So if you get back anywhere close to a normal car sales market, do you need this sort of scrunching down of dealerships if you get back somewhere close to normal? This is an extraordinary situation we're in. If we help further with the scrappage program, do you really need to push down that dealer network?
And just finally, we've got a lot of real dealers in my state. They've been very loyal to American brands. Mr. Henderson, you noted that you have a 10 percent market penetration advantage in rural areas. I would hope one would look at that as asset, not a liability and say, well, this is where we'd really like to maintain that market share. Wal-Mart did very well going into rural areas and then into the urban areas with market advantage. And here's a place you've got market advantage. I would hope you'd give some deference to those dealerships in particular.
Thank you, Chairman.
SEN. ROCKEFELLER: Thank you very much, Senator Brownback.
SEN. MARK WARNER (D-VA): Thank you, Mr. Chairman, and welcome back. I want to follow up to Senator Brownback's comments, and one echoing my other colleagues' concerns about the real human effects these decisions have had upon your dealer networks and their employees and families across the country. But also recognizing, as Senator Brownback, the economic reality I think in the last couple years you had actually national auto sales hit about 17 million units. They are down to about 10 million. The economic reality means you've got to shrink.
And I also have to say, at some level as somebody who's spent 20 years in the business sector before I went into public service, if I would have ever thought in my business life that I would see a group of senators trying to micromanage the working use of an American industry like GM and Chrysler, I would have said, never could happen. So if there was anymore impetus to try to get back to profitability and get the government out of your business as soon as possible so that these kind of sessions don't have to happen going forward, today's session ought to be that impetus.
But recognizing some consternation about asking some of these questions, there are as shareholders, the American taxpayer being a shareholder, we've got now that right and responsibility to ask these questions.
So Mr. Press, one of the things I have hard from some of our Chrysler dealers is, not only is a short timeframe but then if you want to make an appeal, if there was this window only between May 15 and the end of the month, and the notion of a dealer trying to put together a whole appeal process, try to make the case back to corporate, that maybe the wrong decision was made, it just seems a bit unreasonable.
Mr. Henderson, again I come from Virginia and we've got a broad dealer network, and an awful lot of concern about your requirement. I believe the document that you sent out said it has to be signed by June 12. And my question is not so much to perhaps not only second- guess the reason why you've got to shrink but my understanding of this document requires basically in Virginia we've got a right to, the dealer has a problem with the manufacturer, you can go to the dealer board and try to have some kind of adjudication rights. Signing this document gets rid of those rights. Going forward, a dealer that signs up on this June 12 date would lose any ability to have a say if you choose to put some other dealer in on top of them. No ability to control the level of inventory coming in.
And I guess from a business guy to business guy, my question would be, If somebody signs up to this new June 12 type agreement, what incentive would I have as a local dealer ever to reinvest in my business and try to build up my business if you at any point could do away with my due process, put another competitor right on top of me or force me to take inventory even if it's not in a good business year.
Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you, Senator.
SEN. CLAIRE MCCASKILL (D-MO): First, welcome back. We missed you, Mr. Chairman. This is painful. There is a great deal of anger and despair, and it shouldn't shock anybody in this room that we're all looking for bad guys. And who we see as a bad guy depends on where we sit and other considerations. Some are going to say the companies have been the bad guys for creating a business model that depended on creating artificial demand. Some will say that it's the unions that are the bad guys for working hard to get agreements that allowed them and their families to aspire to a comfortable place in our middle class, that has allowed us to consume a lot of goods in this country, that has allowed us to have the trajectory of the economic growth we've had.
Some will say it's the president. Some will say it's Congress for authorizing the funds in the first place that are being utilized to invest in these companies. Some would say it's the people that promoted and sold sub prime mortgages to people who couldn't afford them. The bottom line is, we are all going to indulge today in a little Monday morning quarterbacking. The alternative to what has happened is a much more drastic result, and if we're all honest about it we would have to acknowledge that if the actions had not been taken over the last 30 days that have been taken, two giant American manufacturers would cease to exist, and there would be no dealers left standing, and there would be no families that would go to work proudly on the lines making an American automobile for these two proud companies that have such a tradition in our country.
And I think all of us are trying to struggle with how we work through the situation full of pain and despair and anger to come out at the other end with companies that are free of government interference and profitable. We want you guys to go make some money, but this hearing is very important today so that we understand the process that has occurred better. These people deserve a full vetting of what happened and why. And most importantly we need to understand a lot better than we understand right now what happened so we make sure we have not set a precedent.
Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you, Senator McCaskill.
SEN. JIM DEMINT (R-SC): Thank you, Mr. Chairman. It is good to have you back. I think it's starting to hit all of us in the face what government managed economies feel like. If this was a normal bankruptcy situation it would be none of our business what you did with your union contracts or dealers or whatever. But this is a political bankruptcy in a government that has been a part of picking winners and losers. And so we're concerned, but we're also very much to blame for the process that's taken place.
If we wanted to look at who to blame as far as how we ended up with two great companies in bankruptcy, certainly we'd have to look at management, maybe we'd look at the government policies, high levels of taxation at federal and state levels, regulations that we put on our companies. Certainly union contracts have to be in with that mix because some of it got way overboard as far as what was affordable.
We can see those as a mix; it maybe caused some of the problems.
But we can't blame the stockholders, the ones who believed in your companies and put their money in it. We can't blame the customers who trusted the brands and bought the cars. We certainly can't blame the dealers who invested their life savings, their sweat equity, generations of family work. These were private companies out there extending the value of your companies. And now we look at the winners and losers as the private doors open up. Those that caused the problem are owning 80 percent now, nearly 80 percent of General Motors. Those that believed in risk and paid into it, the stockholders, the customers, the dealers, lose everything.
That's what political decision-making does because that's not an economic decision. And again I wish it was none of my business, but I'm afraid that the political side of this has made it our business. And now I've got the same questions everyone else does. Some of you have made a case the dealers do cost you money because of incentives and money you put through their co-op plans and other things. If that's true, cut it out. Give these dealers the option to keep their businesses and what they've invested in.
But we've all gotten calls like I got yesterday. They just moved into, one dealer in South Carolina just moved into a new $4.5 million show room that General Motors had encouraged him to build. And they got the letter yesterday that they were losing the brands that they were going to put in there. That's political decision-making there because this is a dealer who was selling a whole lot of cars and investing a whole lot of money.
So my questions are, this panel too obviously -- is there any way to take a look at this that would actually reward those who have made the businesses work and maybe take a little bit more out of those that brought the company down? But it hurts me to look at this pie chart--it shows the ownership of General Motors today--and see that those who really helped build the company on the outside are not even in that pie.
So Mr. Chairman, I'm just "outraged out," as one of my constituents said. And so I yield back to you.
SEN. ROCKEFELLER: Thank you, Senator DeMint.
SEN. ROGER WICKER (R-MS): Thank you. And I'm sure our witnesses realize that eventually they are going to get a chance to speak also. But by way of opening statement, I want to read an e-mail I got last week from a dealer in Mississippi, and I won't read all of it, Mr. Chair. But it dramatically outlines the real life situation that this hearing is about.
The e-mail says: "I learned on May 14 that Chrysler is terminating my franchise and giving me less than 30 days to sell off an inventory that is bloated as a result of ordering cars at their request to keep them afloat. They are not buying back inventory, parts, special tools or specialized service equipment that I was required to buy. This is in violation of state laws in all 50 states but is being done under bankruptcy because they can get away with it."
"My brother has a Chrysler-Jeep next door and stands to be handed my franchise for free that I spent 21 years developing. This is not the way free enterprise is supposed to work. I am solvent, well- capitalized, profitable, and employ over 50 people. I have millions in investment in dealership-specific real estate to sell and service Dodge vehicles. I have been the number one Dodge dealer in Mississippi for 15 straight years."
This is a dealership that has been terminated.
"I have an open floor plan line with JP Morgan Chase, profitable, well-capitalized, nearly all new facilities, great location, and have won every major award from Chrysler over the past 20-plus years. We are currently five star certified," unquote.
And so I would just simply add that he is certainly hoping to be pulled off the, quote, "rejected list," wants to be given time for his brother and him to work out a reasonable deal between them and operate the three brands under one roof.
Mr. Chairman and my colleagues, this is the type of real-life situation that we face today and I hope the testimony will answer these types of scenarios and I look forward to hearing the information.
SEN. ROCKEFELLER: Thank you, Senator. And now, Senator Udall.
SEN. TOM UDALL (D-NM): Thank you, Mr. Chairman, and also let me say great to have you back, and Senator Hutchison, thank you for your amendment on the floor that I think provided -- it tried to provide a more orderly process to dealership closings. I agree we need to ask tough questions regarding dealership closings and there's no doubt that cars have become an integral part of the American story.
I bet if you ask any American they'll remember fondly their first car, even if it was just the old family truck. So it's tough for me to believe that we're here today with two of America's auto makers in bankruptcy. It's more unbelievable, though, for all the folks across the country whose jobs depend on Chrysler and GM. Because of these workers and the thousands of others who depend on the auto industry, I support efforts to get the auto companies back on their feet. But I'm concerned about the process.
I want to make sure that we are going to save as many American jobs as possible and taxpayers are going to see a return on their investment. There are towns in New Mexico that depend on local dealerships for jobs and economic activity. We need to keep those communities in mind as we move forward. I hope that today we can look into the dealership closings with those two goals in mind -- saving American jobs and watching out for the taxpayer. I look forward to hearing from the panelists and having them talk about those issues. Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you, Senator Udall. And finally, Senator Pryor.
SEN. MARK PRYOR (D-AR): Mr. Chairman, I want to have mercy on the committee and I'm not going to give an opening statement. I would like to submit one letter from one of my car dealers into the record if that's possible. Thank you.
SEN. ROCKEFELLER: (Inaudible) -- time.
SEN. PRYOR: Thank you. (Laughter.)
SEN. ROCKEFELLER: I thought you'd like that. Oh, I'm sorry. Senator Thune, I didn't see you walk in. We welcome your statement.
SEN. JOHN THUNE (R-SD): Thank you, Mr. Chairman, and I'll try and be merciful to our panelists too who've been sitting here, I'm sure, for a long time and submit a statement for the record but do look forward to hearing from the panelists today about their plans with respect to the dealers across our country. Many of us didn't support the auto bailout legislation last December but the fact remains that the taxpayers are now a very big part of this industry and we have an obligation to make sure those resources are used well and also to make sure that they're in the -- that when we make decisions that support the manufacturers we also give consideration to the thousands of car dealers across the country who are impacted and could be losing their livelihoods through no fault of their own. So I'm anxious to hear from our panelists today and look forward to posing some questions later on. Thank you, Mr. Chairman.
SEN. ROCKEFELLER: Thank you very much, Senator Thune, and I'd just like to say that to the panel you've waited some time for this, and it's not every hearing that all of the members speak. But this is the largest turnout that I can remember in 24 years on the Commerce Committee. So there's some pretty deeply held feelings here and I think it was important to allow everybody to say what was on their mind and what was hurting in their heart, and they have done so.
I (will just introducing ?) the panel -- Mr. James Press, who's president of Chrysler; Mr. Fritz Henderson, who's chief executive officer of the General Motors Corporation; Mr. John McEleney, who's chairman of the National Automobile Dealers Association; Mr. Pete Lopez, president and CEO, Spencer Auto Group; and Mr. Russell Aubrey Whatley III, owner/dealer Russell Whatley Motor Company. And I'm going to do a little switch here. I'd like to start by calling on the two auto dealers and I think they will help us set a tone and it will be helpful to all concerned. So, Mr. Lopez, if you would be willing, sir, we call on you for your comments, if you'd try to hold them to five minutes. We've done pretty well at that.
MR. LOPEZ: Chairman Rockefeller and ranking members, I thank you for the opportunity today to speak before you, this committee, to discuss how our dealerships by GM and Chrysler are drastically hurting small businesses.
My name is Pete Lopez. I'm from Spencer, West Virginia, a small, rural town of approximately 3,800 people about an hour out of Charleston, West Virginia. I'm the owner of Spencer Auto Group, which is made up of two dealerships on Main Street, America -- Chrysler- Jeep-Dodge plus Chevrolet-Pontiac-Buick dealerships. 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.
Mr. Chairman, within the past three weeks, I have been informed that both of my dealerships will be closed. My Chrysler dealership will be closed within six days now while Chevrolet dealer's franchise agreement will be terminated by the 12th if I don't sign the new contract, which I haven't been there to see. I, in fact, learned about my Chrysler dealership closure by a friend of mine that called me 9:00 o'clock one morning while he had The New York Times on his computer, and that's how I found out that we were losing our Chrysler dealership.
I did not receive a call from Chrysler. I called our representative three or four times. Finally, at five until 6:00 that evening I got a call from one of our Chrysler people and they told me I knew more than they did -- that we were being closed and they were not to comment on it.
My investment was approximately $1 million. We paid $500,000 for the store. When I bought the dealership, they wanted us to capitalize it with $300,000. We did with 500,000 (dollars). When I purchased the dealership two years ago, there was nine employees. Currently, I have 18 -- 15 full time and 18 -- three part time. My monthly payroll is 36,000 (dollars) to $38,000.
Being in a small town like Spencer, we don't sell large amounts like many dealers in metropolitan areas. Last year, Spencer Auto Group sold 57 Chryslers, 44 GM new vehicles. Given the size of our market, I also sell used Chrysler from Chrysler Financial and GM vehicles. Approximately 15 percent of our total revenue for the town of Spencer comes from Spencer Auto Group.
Like most of the small town dealers, my investment goes beyond the showroom. We actively support charitable causes, Little Leagues, 4-H camps, clubs, active. We even donate a car to Roane County High School for their drivers' education. By the way, I want to show you an award that Mr. Bob Nardelli sent us thanking us for the -- how we participated in the Nardelli challenge. In a flat market, we -- they asked us to buy extra cars, sell extra cars, and we did exactly that. This is one of two that we're receiving. Also, my dealership --
SEN. ROCKEFELLER: Mr. Lopez, I don't want to in any way disturb your presentation but we do need to keep presentations to about five minutes.
MR. LOPEZ: Okay.
SEN. ROCKEFELLER: And so those who would simply, you know, read their written -- your statements are already in the record, all of it.
MR. LOPEZ: Okay.
SEN. ROCKEFELLER: So and you just pick and choose what you want to talk -- (inaudible).
MR. LOPEZ: Okay. I will do that. Number one, I will say there are many, many people. We have a senior citizen base. Our community, Spencer, West Virginia, the people -- if you take my dealership -- if they take my dealership -- if GM -- General Motors and Chrysler takes my dealership my customers -- and I'm a customer -- (inaudible) -- also -- will have to drive an hour to an hour and a half away.
There is one little lady that I love dearly and she's 79 years old. She lives 30 miles away from me. I pick her car up, service it, take it back to her. How many metropolitan area dealers are going to do that? We are the face of the community and we are. We participate in everything. We have a -- we have a wonderful -- (inaudible) -- and I'd like to invite everybody to come to Spencer and see exactly what I'm talking about. And I thank you.
SEN. ROCKEFELLER: Thank you, Mr. Lopez, and I call now upon Mr. Whatley.
MR. WHATLEY: Thank you, Mr. Chairman, and Senator Hutchison for holding this hearing, and let me tell you a little bit about our dealership. My name is Russell Whatley. I am the Chrysler-Dodge-Jeep dealer in Mineral Wells, Texas. We are located 40 miles west of Fort Worth with a population of 17,000.
Today, over 200 towns in Texas that have franchised dealerships have only Chrysler, Ford, or GM stores. That is over two-thirds of our Texas towns with dealerships.
My grandfather opened this dealership in 1919, and has kept it open through the Depression, World War II and countless economic setbacks. In the 90 years that we have been here, 36 other new car dealerships have come and gone in our town. We have stayed open because we are committed to customer service.
Today, Mineral Wells is a fast-growing little city with five new hotel chains under construction, new schools, new restaurants and many corporate relocations. To meet the needs of a growing city, we have purchased five acres of land on a busy highway. We hired a builder, and have drawn up plans for a new building. All these plans have been shown to the dealer placement people with Chrysler.
We are not a cost to Chrysler. No dealership is a cost to Chrysler. We pay for everything we use and we take all the risk. We are Chrysler's customer. In a typical month, we pay Chrysler over $2,500 in fixed expenses alone, plus all the parts and the vehicles which are paid for in full and up front.
All dealers like us sponsor school events, Little League, Pee Wee Football, rodeo and many other special events.
We are a tiny, small store, but just in the past 40 months alone, our dealership has gross sales of almost $18 million, or $443,000 per month. We have collected and paid the state and county over $805,000 in taxes and fees, or $20,126 per month. Plus, we have paid the county $52,668 in property taxes -- all this in a down economy, and does not include income or payroll taxes. I was told in 2007 that our area enjoyed a 20 percent market share. While we did not sell every customer, local people still depend on our service, recalls and warranty work. We service 1,548 vehicles per year on average.
I was told by the factory that if we were not here, another dealer certainly would be. To be arbitrarily closed with no compensation is wasteful and devastating. There is absolutely no reason to close profitable dealerships which contribute to Chrysler's bottom line.
But another issue here is the three-week time frame. You just cannot close a dealership in three weeks. It is not possible. Over the past three to four months, we were practically forced to order heavy inventories. We were told Chrysler has no cash flow and they rely on the dealers, and if we do not order vehicles, we will all be out of business. We were also told explicitly, we will remember who did not help us. Now we have an eight-month supply of vehicles and only three weeks to clear them out. Other dealerships are full; Chrysler Financial is gone; GMAC is not on board yet. There is just no place to go with these cars. Chrysler says they will try to put buyers and sellers together and that they will endeavor to assist in selling these cars, but the contract we had to sign clearly states they have no responsibility and no obligation to do anything.
After June the 9th, we cannot sell these cars as new, used or even to other dealers. We need a firm, real plan, not just what they will try to do. Plus, we have warehouses full of parts that will go unidentified after June the 9th. They'll be impossible to sell, just a total loss.
I have employees with families who have worked at this dealership for years, and I worry about their loss and what they're going to have to do. A 90-year investment is just gone, and neither my family nor my employees have any say about it. We have done nothing wrong here and should not be suffering this loss.
I certainly hope you can help us. This is a pretty terrifying time. And I want to thank you for your time and your interest.
SEN. ROCKEFELLER: Thank you very much, sir.
I would call now on Mr. James Press, who's the president of Chrysler.
MR. PRESS: Thank you, Mr. Chairman. I appreciate it.
Mr. Chairman, Senator Hutchison and members of the committee, I truly appreciate this opportunity to discuss why and how Chrysler is realigning its dealer network. I can surely empathize with the dealers who were not brought forward into the new company, and I understand their disappointment more than you could know. 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.
It's a well-documented opinion of the administration -- many members of Congress said over the years Chrysler has not moved fast enough to make the tough choices necessary to remain competitive. There are two main elements that we can control as an automaker to make those changes. It's our products and our dealer network. Chrysler is already investing in the high-quality, fuel-efficient vehicles consumers want. Our alliance with Fiat will make our product line-up even stronger. But unless we also complete a significant realignment of our dealer network, neither Chrysler nor our customers could benefit.
Chrysler maintains multiple distribution channels, which is an inefficient and expensive legacy of more than 80 years being in business. This puts us at a real disadvantage, because it increases our costs of product development, distribution, marketing and advertising, as well as dealer administration by more than several billion dollars every year. As an example, we have to build and market two similar minivans -- the Chrysler Town and Country and the Dodge Caravan -- to satisfy multiple dealer networks. Any separate Dodge and Chrysler franchise in close proximity competes with each other, not other makes, in order to sell and later service what is basically the same vehicle. As a result, the company spends more while the dealer network as a whole is not viable, not profitable.
In 2008, the average Chrysler dealer lost $3,431, selling only 405 new vehicles. When we look at all automakers together, the average U.S. dealer make a profit of $279,000 on 525 sales. Why is this important? Unprofitable dealers can't afford to invest in advertising, facilities, people, training or a high level of customer satisfaction.
As a result of the credit crisis and the global automotive industry depression, there is simply not enough business to go around. With projected annual sales in the U.S. this year of only 10 (million) to 10.5 million compared to historical levels of 16 million, Chrysler cannot support the same number of dealers that we have in the past. The time frame for discontinuing dealers is driven by the Chapter 11 process, includes the requirement to complete our strategic alliance with Fiat by June 15th or to liquidate the company.
It's important to note that prior to May 1st, Chrysler had been planning and working to avoid bankruptcy. Only after filing on May 1st did we begin the necessary process of actually identifying which dealers would go forward with the new company.
The dealers were selected by a process that was rigorous, robust and rational. The methodology was consistently applied to every dealer in the United States. It included factors such as sales, customer satisfaction with buying and service, facilities, market potential, whether a dealer in large markets also sells competing marks -- makes out of the same showroom. And while our plan reduces our overall dealer county by 25 percent, the dealers represent 14 percent of our volume. Forty-four percent of the discontinued dealers sell competitive vehicles, so they have other brands to sell. Half of the discontinued dealerships sell less than a hundred a year. And 84 percent of the dealers sell many more used cars than new. And hopefully those dealers will continue selling and servicing used cars.
Chrysler is working hard to assure a soft landing for all the discontinued dealers. Every dealer was contacted by a representative from his or her business center. We've offered help to every dealer in the disposition of vehicles, parts inventory and tools.
On May 14th, there were 42,000 vehicles in stock at the discontinued dealers. Today I'm very happy to report that 97 percent of those vehicles have been sold or we have commitments in place to redistribute them from the affected dealers.
We're grateful to loyal Chrysler customers who have supported us, and it's important to our future that we take care of their needs throughout this process. All Chrysler vehicle owners will receive a letter assuring them that warranty claims will continue to be honored, and we have a toll-free hot line to answer any questions.
I'd also like to note that Congress can give a significant boost to the success of our realigned dealer network by passing the fleet modernization legislation discussed earlier.
To summarize, there's no question that Chapter 11 has been a painful process in which many of our stakeholders were required to make unprecedented sacrifices, including our dealers. Facing that reality, we used a thoughtful, fair process to select dealers for the new company, and we're working hard to minimize the impact on everyone.
Together, the new Chrysler group and Fiat will bring exciting, stylish and fuel-efficient vehicles to the North American consumers. Our realigned dealer network will be much stronger and make the company stronger and more profitable, preserving hundreds of thousands of direct and indirect jobs in every community across the United States.
I thank you for this time and I look forward to answering your questions.
SEN. ROCKEFELLER: Thank you, Mr. Press.
I call now upon Mr. Henderson, Mr. Fritz Henderson, who is the chief executive officer of General Motors.
MR. HENDERSON: Good afternoon Mr. Chairman, Senator Hutchison. I welcome this opportunity to testify today. It's our obligation to be open and transparent in all we do to reinvent General Motors, particularly with the American taxpayer as our single largest investor.
Before I explain why and how we go about restructuring and consolidating our dealer network, I want to talk about the human story behind our plans. Our actions have forever changed the lives of people, families and whole communities. For our dealers, they are valued partners, friends, and the face of GM to our customers. Personally and professionally, I feel strong, deep ties to dealers. I personally have worked at dealerships in my summer in college; my father 39 years calling on Buick dealers; my brother 25 years. It's in my family.
Through my career over -- and over my career, I've visited dealers in 48 countries around the world, including the United States. I've walked their stores; I've shared stories with them; I've had dinner with them; and I've success -- we've celebrated their success in good times and dealt with bad times together. I don't see dealers as dots on the map or lines on a spreadsheet. They're members of a larger GM family, which makes this process so heart-wrenching for me and for the corporation. A dealer closing is as painful as a plant closing.
But we have no choice. We're all being called upon to sacrifice in order to build a stronger, more viable General Motors. This is our last chance to get it right, to fix permanently those parts of the business that have diverted us from consistently matching and building winning cars and trucks and a consumer experience to match. Our dealer network must match a smaller, stronger, leaner GM built for today's market and competitive realities.
Historically, much of GM's dealer network growth occurred in the '50s and '60s, when we held a dominant share of the U.S. auto market. Since that time, strong new competitors have entered this country, and our market share has shrunk, leaving us with too many dealerships and, in many cases, in the wrong locations.
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. Everyone agrees -- even our dealers themselves -- that a restructuring of GM's dealer network must take place.
We set out to do this restructuring as carefully, responsibly and objectively as we could. We started with a full analysis of every market and every dealer throughout the U.S. to assess individual market requirements and dealer performance, especially in the metrics of sales and customer satisfaction. We also carefully considered our dealer network coverage in rural areas. We wanted to make sure that we maintain the strong competitive advantage we have in rural areas, in some cases -- and on average -- more than 10 points in market share above our national average. We also take -- we took great pains to ensure that minority dealers were considered equitably and proportionally.
Most importantly, instead of terminating agreements immediately, we're providing advanced notice and wind-down agreements to dealers who we could not retain in the network long-term. If and when those agreements are executed, those agreements will allow dealers to stay in business with us until October of 2010, the expiration date of their current dealer agreement, so they can sell down their vehicle inventories and provide warranty service and roll down their parts inventories over time.
We want to support our dealers to help them wind down their business in an orderly fashion and have a structured package of transition incentives that is intended to benefit them relative to their alternatives. Of the 1,380 letters that were sent earlier this week, 647 have been returned already signed. We've had 10 who've said they're not able to sign it, and the remainder of them, we're working with them every day.
We also have an appeal process to consider one-by-one if we've made mistakes, because we rightfully recognize we do make mistakes, and we deal with each and every one of those individually.
Yes, consolidations will bring cost savings. A smaller, more healthy dealer network reduces GM's costs, primarily related to the support we provide for information technology, salesperson incentives, sales, service and training, parts and advertising. The total cost of distribution is roughly a thousand dollars per vehicle, or a multi- billion dollar expense for the company.
But this effort is all about creating a healthy, stronger and profitable dealer network, one that improves our brand image and increases the opportunity for sales and service provided by our high- performing dealers. It's about focusing our resources on our top performers and core brands so that we can attract and retain more private capital and the best dealer-operators and, yes, new customers from our competitors.
The end result will be between 3,500 and 3,800 U.S. GM dealers by the end of 2010, depending on attrition levels, with a retail share of a little over 17 percent and our objective is in 2010 a retail market of just over 10 million units, with fleet on top of that. That means that the number of units sold per dealer would nearly double compared to today's levels and provide a greater return on their investment.
Even with the cutbacks, GM will still have the biggest, most extensive dealer network in the country, more than any of our competitors, including Toyota, Honda, Nissan, Ford and Chrysler.
To conclude, this is one of the most difficult and painful times in GM's history, but we see a path to a better future, where GM -- where at GM we not only survive but thrive. And we want our employees, communities, and especially our dealers to thrive with us.
We're grateful for your support during this critical time. We understand our responsibility to the American taxpayer. We take that very seriously. A new GM will contribute to America's economic strength and competitiveness, and this, of course, starts and ends with great cars and trucks and great dealers.
Thank you very much.
SEN. ROCKEFELLER: Thank you, sir.
Finally, Mr. John McEleney, chairman of the National Automobile Dealers Association. Please, sir.
MR. MCELENEY: Thank you, Mr. Chairman.
Mr. Chairman, Senator Hutchison, my name is John McEleney. I'm chairman of NADA, the National Automobile Dealers Association, and I'm also an automobile dealer. My dealership is McEleney Auto Center in Clinton, Iowa. We operate GM, Toyota and Hyundai franchises. We've actually been in business 95 years. We provide jobs for 140 people. My family also held a Chrysler franchise between 1984 and 2007.
Mr. Chairman, we commend you and we thank you and Senator Hutchison for convening this hearing. In three face-to-face meetings with the president's auto task force and in numerous meetings with the manufacturers, no one has explained why dealer reductions will make Chrysler and GM more viable. Over 90 percent of Chrysler and GM's revenue comes from the dealer, because the dealer buys the cars, the parts and even the dealership signs from the manufacturer. The retail network, the land, the building, the employees -- the dealers pay for all of it. Dealer cuts won't save any money, because dealers don't cost the manufacturers any money. When a dealership closes, the manufacturers will tell you that they lose market share.
Where is the objective standard and where is the public accountability for these decisions? Seven hundred and eight-nine Chrysler and 1,350 General Motors dealerships face terminations. These dealerships employ over 100,000 people. These people deserve more.
The Chrysler dealership terminations are particularly harsh. These 789 dealers were given 26 days to wind down. Also, Chrysler has refused to buy back vehicles, parts and special equipment. No manufacturer has ever done this. Just four days after Chrysler dealers received their termination letters, media reports said that Chrysler already was planning to reenter some of the very markets that they were abandoning.
With respect to GM, the effects were actually broader. Yesterday, GM delivered to my dealership a, quote, "participation letter," which every GM dealer must sign. Even though I am one of the, quote, "go-forward dealers", I will have to make significant changes that could threaten the viability of my dealership and my employees. Actually, GM's letter is a 24-page binding legal contract. Senator Snowe referred to a 12-page agreement. Mine is 24.
If I sign it, I'll be committing my business to spend hundreds of thousands of dollars that I know about today and committing to millions of dollars of potential financial obligations in the future. I will also be subjecting my business to sales performance standards that are not specified in the contract. Even worse, GM can alter the terms of these requirements at any time at its sole discretion. The final blow, I must waive any right of protest to any action taken by the manufacturer.
The contract actually says, "This document shall be null and void if the dealer changes any term or provision or if it is not executed by the dealer on or before June 12th." That's next Friday. That's seven days from now.
So my choice is this: sign the completely one-sided, open-ended legal document, give up all my basic rights as a dealer, or face the consequences of cancellation of my franchise during the pending bankruptcy. The other 4,000 go-forward dealers have the same choice. This really is no choice at all. It's a classic example of opportunistic and overreaching behavior by the manufacturers, and that's exactly what has prompted the enactment by legislatures of all 50 states of franchise laws that govern the relationship between dealers and the manufacturers.
No other manufacturer has forced dealers to sign such an onerous agreement. This is not necessary for GM's viability, and federal funds are being used to empower GM to do this. This is a manipulation of the bankruptcy process to eviscerate the state franchise laws, laws that inject balance in the inherently one-sided economic relationship between the dealer and the manufacturer and that also provide consumers with a reliable, convenient and competitive retail auto network.
So we urge the following: First, the executive branch should provide sufficient debtor-in-possession financing to enable Chrysler to buy back the parts, the inventory, the manufacturer-specific tools from the terminated dealers. This is standard practice in our industry.
Second, the terminated Chrysler dealers need more time to make an orderly transition. No manufacturer has ever imposed such onerous rights -- terms on such a tight deadline.
Third, the terms of GM's go-forward agreements must be changed. No manufacturer has ever imposed such outrageous terms in dealer- operator agreements.
Fourth, franchise laws of the 50 states should remain intact and apply with full force and effect once Chrysler and GM emerge from bankruptcy. Since this entire bankruptcy has been negotiated by the executive branch, Congress should intervene if necessary to make sure these actions are taken.
I thank you for holding this important hearing and thank you for the opportunity to testify.
SEN. ROCKEFELLER: Thank you very much. I'll start the questioning and, again, we'll do it in order of appearance. And that's more taxing for some than for others.
First of all, I just want to clear something up for the record. I got a note saying that some of the press or some others were -- felt that Pete Lopez -- that I have been rude to you by interrupting you. That was -- I don't think that you -- about our relationship that's a fair thing to say. However, for the record, let me just say that a lot of people come here and testify for the first time and they have a fairly lengthy statement, and I wasn't sure -- I wanted you to get through the parts you wanted to get through in five minutes.
MR. LOPEZ: That's okay. I didn't take it that way.
SEN. ROCKEFELLER: Neither did I.
MR. LOPEZ: Absolutely not, I'm delighted to be here.
SEN. ROCKEFELLER: Mr. Lopez, both Chrysler and GM have terminated their franchise agreements with you, correct?
MR. LOPEZ: Yes, they have.
SEN. ROCKEFELLER: Can you wind down your Chrysler dealership in 26 days --
MR. LOPEZ: No way.
SEN. ROCKEFELLER: -- that the company gave you?
MR. LOPEZ: There's no way. I don't think you could do a personal bankruptcy in that amount of time. I have 1.2 -- I'm down to probably 48 cars, 24 of each. And, by the way, in February I was called by Chrysler, and I want to tell you the conversation.
The representative calls me and says, "I need you to take 35 cars." And I said, "I can't do that. I'm not going to put myself out of business." And she said, "Well, you have to. We're in this together." And I said, "No, we're not in this together. I will go through my inventory and I will take what I can. I'll try to help."
She calls back and she says, "You need to take 23. We can live with 23." I said, "Well, I can live with nine. I will take nine. I'll do my share." And she said, "Well, I'll have to call Detroit." And I said, "Well, just give me that number. Let me call them." And she calls me back in five minutes and says, "Well, the nine will do."
And I wasn't going to let her put me out of business, just like the gentleman beside me. I have employees that I care about. They've been with me from the beginning. And it's just -- it's unbelievable how we have been treated. There is no rhyme or reason. In West Virginia, there is a dealership that sold 19 cars last year, and he has his franchise in his front yard. And he takes -- they take Spencer Auto Group. There's no rhyme or reason.
SEN. ROCKEFELLER: Mr. Press, were you an auto dealer like Mr. Lopez, would you know how to close down a dealership in 26 days? Can you tell me how you'd do it?
MR. PRESS: Well, we're in the process of working through a bankruptcy with Chrysler Corporation in not too many more days. It's very difficult. It's strenuous. The fact of the matter is that in our situation we did not plan or have in our minds the desire to have a bankruptcy.
SEN. ROCKEFELLER: I wish you'd answer my question.
MR. PRESS: Okay.
SEN. ROCKEFELLER: Would you know how to do it? Could you do it in 26 days if you had to?
MR. PRESS: I would have to find a way to do it. Yes, sir, I would. I would have to find a way to achieve the shut-down required within that time period, as we're being required within our time period that's given to us, yes.
SEN. ROCKEFELLER: Mr. Lopez, on January 9th, I think it was, of 2009, that being this year, Mr. Press, according to all reports, including newspapers within the business, did indicate what you said, and that is, got a lot of people on the telephone and said, "You've got to buy 78,000 cars" --
MR. LOPEZ: Absolutely.
SEN. ROCKEFELLER: -- to keep us going."
MR. LOPEZ: Absolutely.
SEN. ROCKEFELLER: And, one, I want -- you've already said that you got that. But what kind of pressure does that put on you?
MR. LOPEZ: Well, of course, you know, I said to her at the time, to our Chrysler representative, I said, "You know, I am not -- right now I'm sitting on six months' worth of inventory." For me to take the kind of cars that she wants me to take, I'm not going to put myself out of business. I think I'm a better businessman than that. I know how to run my store and I know what my store can sell and what we will sell. And I just didn't want to -- why should I put that kind of money on my floor plan? And I did help. We're a small dealer, like I said. I went through the inventory and told her I would take nine. And I didn't have to take any, but she demanded that we take 35 and then to 23 and then to nine. And that's what we did; and then the same thing the next month.
SEN. ROCKEFELLER: When -- did GM threaten any action if you did not sign their so-called wind-down agreement? Did you feel coerced or threatened in any way?
MR. LOPEZ: No, sir. GM, we did not have that. In fact, GM has a gentleman that I've dealt with, Tony Napoleon, who has just done a great job with us. Now, the letter that you're talking about as far as signing by the 12th of this month, we just got that yesterday and I have not had a chance to look at it. But my understanding, if we don't sign it, we automatically are gone. And, by the way, GM sent us paperwork that said that we had an appeal process. And I called Mr. Napoleon, who is our district manager, and he told me exactly what to do and how to do it, and I've done it.
Now, my understanding, there is no appeal. There's no appeal whatsoever. So we're all left -- you know, from what I hear about the letter, if we sign it, we sign all our rights away. You know, one time we had a thing in West Virginia where consumers -- we wanted to video the closing so everything was above board. And I think the attorney general ruled on it that it -- we took away our consumers' rights. And I don't think you can do that. That's what they're doing to us. They're taking our rights away.
SEN. ROCKEFELLER: Thank you, sir.
SEN. HUTCHISON: Thank you, Mr. Chairman.
Mr. Whatley, did you get a call from Chrysler earlier this year asking you to buy inventory to help the company stave off bankruptcy?
MR. WHATLEY: Yes, ma'am. And we took the full allocation time. And I believe there was two months we actually over-ordered allocation, trying to be a good soldier.
SEN. HUTCHISON: Mr. Press, I've heard this from other dealers now, several, besides Mr. Lopez and Mr. Whatley. And if the company called and said, "Help us in this, and we need you to take these cars, and then we will stave off bankruptcy," and then, going forward, of course, you're into bankruptcy now, and the dealers, they're not getting the assurance that you have given to me and you have said that you plan to give, it's not forthcoming to them.
So could you explain how it is that you are going to take this inventory from the dealers? You've mentioned 89 or 90 percent, but that isn't happening. At least they don't see it. So could you help me with that?
MR. PRESS: Yes, I will. Thank you.
SEN. HUTCHISON: And perhaps help them.
MR. PRESS: Of course. We have established a program, after we learned of the bankruptcy, that would allow us to redistribute the cars from the affected dealers to those dealers that are going forward, as well as parts and their special tools.
The process will begin when two things occur: Number one, the terminations take effect, because they're not terminations -- the effective date has not occurred yet. The cars are not ready to be taken from the inventory of the affected dealers. And second, a floor plan source has to be put in place for the incoming new dealers.
Again, we started that process within 10 days and established a relationship with GMAC. They're putting a floor plan position as we speak. Over 80 percent of the affected dealers have a floor plan available now to take these vehicles.
SEN. HUTCHISON: Do they know that? Because I'm not hearing that from one dealer that they understand that there is a plan in place that this inventory will be taken.
MR. PRESS: The dealers do know that. They've been called. We have a log, a form log, confirming the discussion with every dealer. E-mails have been sent. The dealers who have agreed to have the redistribution occur are getting their daily status. We have now 97 percent of the vehicles committed by the dealers going forward to relieve these dealers of this inventory and about 51 percent of the parts.
SEN. HUTCHISON: Mr. Whatley or Mr. Lopez, tell me if that's your understanding.
MR. LOPEZ: We have had no contact with the business center whatsoever until Monday, June 1, after your office had called them and kind of rattled them. I did get a call then that said, "Rest assured, we will try to come up with a plan to remove your inventory after June the 9th." I've seen no reports. I've seen -- I've not talked to anyone except for the one phone call that your office did seem to generate from them. I've had no other contact whatsoever.
I also have the official terms here of the agreement. It says that Chrysler will assist in selling cars. They will request new dealers to buy cars and that Chrysler is only facilitating the sale of the inventories by attempting to identify potential buyers.
On the contract that we signed -- (inaudible) -- it says, "Dealer understands and acknowledges Chrysler has no obligation and is not responsible for any action or agreement."
SEN. HUTCHISON: Do you see a disconnect here, Mr. Press? (Laughter, scattered applause.)
Let me add one thing to that. In Waco, Texas, a town of 122,000, all three Chrysler dealerships are being closed. Now, the view is that another dealer is going to come in from out of state, not someone who is a part of that community, and new dealerships are going to be created in Waco, because there would be no dealers for Chrysler in this town of 122,000.
Help me understand what appears to be an effort to change the contracts with the dealers that are in place to make better contracts with new dealers coming in.
That's what it appears. Am I wrong?
MR. PRESS: Well, I'd actually -- first of all, I would like to address Mr. Whatley afterwards. I am sure we can take care of his issues. And as I told you, we will be redistributing the vehicles.
I can't understand why he did not receive a phone call. We have a proof-of log that he did, so we'll look through that. And I apologize.
Second, we're not changing the contracts of dealers. This is a case where we are trying to bring, first of all, all three brands under one roof. Because by trying to run three separate brands and channels and dealer bodies, we've gone broke. We can't do that any longer.
And second, there are other reasons for the dealer actions that have been taken. Within that bringing-the-three-brands-under-one- roof, we want to do it in a way that we bring the performers along that will allow us the best return on all of our investment.
There are some dealers whose performance is sub-standard. In this case, we have set -- and the dealers realize -- that there's a minimum sales responsibility based on market share that they should receive in their town.
In the case of the dealers that have been -- that have not been taken forward, we will lose -- last year we lost 55,000 units of sales in the deficient sales positions. That's about $1.5 billion of revenue.
It's better in the short term for us, where we have dealers that may not be able to perform to the market standard, to replace them at some point with a stronger dealer.
The dealer is our customer in that market; we realize that. But they're our only customer. If they're not able to sell to the level that we need to generate our revenue, then obviously -- and they're sub-standard from average -- then obviously we need to make a stronger dealer -- (word inaudible).
MR. LOPEZ: Senator --
SEN. HUTCHISON: My time is up.
MR. LOPEZ: May I respond to something?
SEN. HUTCHISON: Mr. Chairman, my time is up. Would you like for him to answer that question?
SEN. ROCKEFELLER: Was that Mr. --
SEN. HUTCHISON: Mr. Lopez.
SEN. ROCKEFELLER: Mr. Lopez. Please, but briefly.
MR. LOPEZ: Okay.
They were talking about the two parts of the Dodge and the Chrysler, the vans. One is a Dodge and one is a Town and Country. You've got a Dodge version that is less expensive than the Town and Country. We're all under the same roof.
We didn't ask them to build those two different vehicles. It doesn't make any difference what they build; we sell them.
SEN. ROCKEFELLER: Thank you, sir. (Applause.)
SEN. AMY KLOBUCHAR (D-MN): Thank you very much, Mr. Chairman. Thank you.
I just want to make clear everyone here wants you to succeed. They want General Motors to succeed; they want Chrysler to succeed. The dealers want you to succeed.
And one of my focuses here is just to make this process as fair as possible.
Some of our dealers want more time, and then some of our dealers feel that they should be able to stay in business because they're profitable.
Mr. Henderson, I do appreciate that General Motors has this appeals process and that you've been taking it seriously. I know that some decisions have been reversed; is that correct? (No audible response.)
And what I don't understand, the interrelationship here with the letters that are June 12th. Because some of our dealers have appealed. They've done everything right; they want to go through this process. They think they have facts on their side.
But then if they get this letter that says they have to be done by June 12th, are they out then? Can they appeal?
MR. HENDERSON: Thank you, Senator.
Let me see if I can't explain both the process for winding down as well as the process for continuing.
The reasons for the dates -- in this case, June 12th -- have to do with the fact that we're a company in bankruptcy as well. And that means that we march to a timetable. And I'll try to make it clear in a moment why there's an aggressive timetable.
But we march to a timetable to try to make sure that we understand which dealers come with us to the new General Motors and which dealers are not able to.
So let me talk about the process of wind-down.
We've gone out to our dealers, as I said. Almost half of the dealers signed it the day they received the wind-down agreement, and I respect the fact -- it's 12 pages. But many dealers said, we accept it because we structured it with a set of benefits that were overwhelmingly better than they had if they did not sign it. And that's the reason why we've had --
We had 85 percent of our dealers, for example, sign up for it in Canada in five days.
SEN. KLOBUCHAR: Okay. Mr. -- I want to get to Chrysler, so if we could just --
My real question here on behalf of my dealers is can they still appeal?
MR. HENDERSON: Yes. Yes --
SEN. KLOBUCHAR: And how will they be able to do that when it's June 12th?
MR. HENDERSON: We have -- we're actually working around the clock. We have a team of people dedicated --
SEN. KLOBUCHAR: So they should appeal before June 12th?
MR. HENDERSON: Absolutely, ma'am, every day. We're dealing with these every single day.
SEN. KLOBUCHAR: Okay.
The other question I had, and we have a -- just to give one example -- we have examples -- (inaudible) -- everywhere, but --
We had been told this is one dealer that is located -- location, location, location -- each one we've talked to, that is key. They're located between Toyota and Nissan on the road near the Mall of America -- 150,000 cars a day, profitable, one of the most profitable dealers in Minnesota. And yet this is one --
They're appealing, but it's been decided to be closed down. So I just want to have you remember that image in your mind.
My second question really is of you, Mr. Press. Now, you don't have any kind of appeals process. Is there any way you can institute an appeals process at Chrysler?
MR. PRESS: Our case may be different. I'm not familiar with General Motors.
What we've done is we've created a new company that will be formed at the end of this process. And the dealers that will be in that new company have been identified from all of the dealers that were with the old company.
In regards to that, we have a limited period of time from when the bankruptcy was filed to when the new company has to be finalized. If we do not have a finalized dealer organization, that new company will not be formed and the company will have to liquidate.
We also, in terms of the process, the strategic market representation actions -- the consolidation of single brands -- were done from a point of view not of the mistake or what a dealer has or hasn't done. It isn't up to an appeal from a dealer. It's a strategic market rep decision of what the new company wants their dealer body to look like.
SEN. KLOBUCHAR: And we have many dealers, of course, that invested $5 million, who had got the cars when you guys asked them to get the cars. And so they clearly feel that they haven't been treated fairly here.
And one of the things, as I look at what can we do to help them right now, clearly the time would help them. The -- some type of an appeals process would help them.
And I'd say the other thing is that I understand that you are agreed to purchase these vehicles. Is that right? To repurchase them, to put them out on the networks?
But one of their concerns is that while you're going to take possession, the dealership will still have to pay interest on the loans used to purchase the vehicles. And, in short, they're going to continue to hold most of the risk.
And I wondered what assurances that you can give to the dealers that Chrysler will actively market these vehicles and what's going to happen to them. That's what they're concerned -- they're really left holding the risk.
MR. PRESS: Of course. I understand that. And I hope at some point I'll get a question I can defend my comment about buying cars; but I'll do that later. I respect the time of the Committee.
SEN. KLOBUCHAR: Yup.
MR. PRESS: With regard to this repurchase, the redistribution agreement, obviously it's in our best interest to control these cars so they don't get on the used car markets; they don't deteriorate used car values, we want very much.
Second, we've stopped making cars for the last 30 days -- for 30 days, and probably for the next 15 days. Our inventories are the lowest they've ever been since we've kept records in our company.
We have plenty of homes, of dealers who want to buy these cars, and 97 percent of them have been committed for.
After June 9th, the new -- the position of our new GMAC relationship, we'll be able to take the cars by the middle of June. We'll have the cars -- for those dealers who have signed the agreement to allow us to take them, they'll be gone.
For the dealers that haven't signed an agreement, as soon as they do, those cars will be gone by the first week of July. That's a -- we have to control those cars, and that's a commitment that we've made. And we said we would continue to -- (cross talk) -- on that.
SEN. KLOBUCHAR: And the parts? The parts?
MR. PRESS: The parts, we already have 51 percent of the parts committed. We continue to work on those parts, and by the same time period, we plan to have those accomplished as well.
SEN. KLOBUCHAR: Thank you.
SEN. ROCKEFELLER: Thank you.
SEN. MIKE JOHANNS (R-NE): Thank you, Mr. Chairman.
We've spent a fair amount of time understanding a process. Now I want to dig a little deeper there.
Let me start with Mr. Henderson.
Mr. Henderson, just in terms of how you got to this-list-of- dealers-survive, this-list-of-dealers-don't, how'd you get to that list? Did you form a committee at General Motors, or something like that?
MR. HENDERSON: We have -- we went back and looked at history, Senator, of both sales effectiveness as well as customer service.
And a series of other metrics as well, but those two would be the most important in terms of evaluating it. And not just simply a one- year, but going back multiple years.
SEN. JOHANNS: Okay. And who headed that up at General Motors? Give me a name.
MR. HENDERSON: His name would have been Mark -- (inaudible).
SEN. JOHANNS: Okay. And what relationship did you have then with the Auto Task Force, the administration, as you were working your way through this process?
MR. HENDERSON: The Auto Task Force was not involved in the process at all.
SEN. JOHANNS: Were they made aware of your process, or did you surprise them like you surprised the dealers?
MR. HENDERSON: They were aware of the process, but they were not involved in it, no.
SNE. JOHANNS: Okay. Did they ever see any of the documents that were produced?
MR. HENDERSON: We have not shared a list, for example. We don't have a list of which dealers we've both agreed to -- we've decided to wind down, nor have they seen a list of those dealers that would go forward. So they're involved in all aspects of our business, but they're not driving this one.
SEN. JOHANNS: Well, I'm not asking who's driving it. I'm asking were they aware.
MR. HENDERSON: They're aware of the process, yes.
SEN. JOHANNS: Okay. Did they ask you to do anything different?
MR. HENDERSON: In their finding, in March 31st -- or March 30th, I believe -- they indicated that they felt our plans in this area were too slow and that we were not aggressive enough.
And that was, by the way, one of half a dozen other observations which had a similar pattern, that we were not aggressive enough and not moving fast enough. And this was one of the areas where they had that same observation, Senator.
SEN. JOHANNS: And that was the Auto Task Force?
MR. HENDERSON: Yes.
SEN. JOHANNS: Okay.
The second thing is, Mr. Henderson, you mentioned -- well, both of you did actually kind of -- (inaudible) -- as you went through to determine dealerships and some criteria you used, and you made a comment we don't have necessarily a list. You have to have a list. You have to. You just can't say Dealer A, Dealer B. So I would like -- and if you can answer this yes or no that you can provide this -- a list of how or the list of the dealers in the order of ranking that you made in order to determination who was there at the end of the day and who will not be there.
Now, if you say you don't have a list I will not believe that. There's no way you could do this without a list.
MR. HENDERSON: Senator, we have a list but we've not made it available to anybody because our dealers would prefer to not be identified as to which ones are winding down because --
SEN. BEGICH: Yeah. Well, they're going to be identified and --
MR. HENDERSON: They don't want to know today.
SEN. BEGICH: Mr. Chairman, I'd -- I'd just like to see it, and I'll leave it to the chairman as what's the appropriate way to get that but I think it's important for us to understand because that seems to be some great conflict here, and how you created the list and who is on the top and who's not. And I think it's fair because the reality if they're all going to know sooner or later and we're all going to know and we're going to come back to you and ask you again.
SEN. ROCKEFELLER: The senator has made a request for three sets of documents. I happen to agree with him. I think they should be produced for this committee and I'm asking Mr. Press and Mr. Henderson if they will so do.
MR. PRESS: Yes, sir.
MR. HENDERSON: Yes, sir.
SEN. ROCKEFELLER: Thank you. Senator Lautenberg?
SEN. LAUTENBERG: Mr. Henderson, you used the term soft landing, and in the short form would you describe what the soft landing is?
MR. HENDERSON: Yes, Senator. If the dealer signs the wind down agreement they will have until October of 2010 to wind down their inventory. So will have over 12 months to wind down their inventory, wind down their parts inventory, transition perhaps to another franchise. They'll be able to use the GM auction so they can buy used cars so they get -- and they get a compensation, and part up front and the part at the end for rent support and inventory sale.
SEN. LAUTENBERG: Forgive me, but a soft landing ultimately is like a parachute with holes in it. Maybe it'll slow down the trip but the end is going to be terrible. And that's the conclusion that one has to come to because as people react to the prospect of GM not being there, of not having the parts supply -- and you may counteract this verbally but the fact of the matter is the image that's drawn is one that says gee, why do we want to do that -- these guys are not going to be around 2010. How am I going to get rid of the part supply. What am I going to be left with. You said there may be a take back at that point.
I, frankly, think that a soft landing is wishful thinking at this point, and it's -- it is temporarily maybe keeping things going but the end is clearly in sight. And I think people are going to defer to the time when they're going to have to say to their families, look, we can't -- we don't have the income anymore -- we don't have the employees. Will you expect that the employees would hang around until the last day that they can continue working or do you think they might look for something else to get out while the getting's good?
MR. PRESS: Senator, the reason -- one of the reasons why we -- with all due respect we will supply it -- we have not been public with the list of the dealers who will agree to the wind down agreement is because we give them 12 to 16 months to determine what they would like to do with their business without having that hanging over them, sir.
SEN. LAUTENBERG: Mr. Press, you apparently said to the dealers either help us or burn us all down. Would having the availability of some degree of financing -- do you think it'd be a good idea for the company to take back the inventory that's out there in dealer hands?
MR. PRESS: Yes. That's why we developed the redistribution process so we could accomplish that, sir.
SEN. LAUTENBERG: But you're saying now you don't have the means with which to accomplish that?
MR. PRESS: We are. We are 97 percent complete in the redistribution of product and that it -- we will be done before the -- by the June 9th deadline.
SEN. LAUTENBERG: Mr. Henderson, General Motors has announced plans to eliminate 1,100 dealers. Under franchise laws in my state of New Jersey and other states, the companies must compensate dealers and take back unsold inventory of the franchise -- (inaudible).
While the bankruptcy proceeding may remove the legal obligation to purchase this inventory, is there more of an obligation besides following the legal line for your company to take back this remaining inventory from dealers that -- because you talk about when sightings of the foreign car competition was coming around and it's too bad why the GM leadership at the time didn't see the handwriting on the wall. But is there, again, something beyond the legal obligation to step in and take back the remaining inventory?
MR. HENDERSON: Sir, as I said, if a dealer signs the wind down agreement they will be able to no question wind down the inventory over that period of time. If they don't wish to sign the agreement -- if they floor plan their vehicles or get their wholesale financing with GMAC today they have the right to voluntarily terminate their agreement, return the vehicles to GMAC, and it's our responsibility to redistribute the vehicles with GMAC -- a responsibility that was confirmed on Monday through the bankruptcy court.
SEN. LAUTENBERG: I want to ask either of you, Mr. Press or Mr. Henderson -- the industry fell behind as overseas companies developed vehicles that were more fuel efficient than those made in Detroit. Oil prices inevitably rose, you were stuck with trucks and SUVs that few people wanted, and now President Obama has proposed strict new efficiency standards.
How can you assure us with a degree of reasonableness that you'll be able to make these more fuel efficient cars and trucks to help your companies return to profitability when all of these years there was no credibility given to your assessment of the marketplace or your engineering to beat the competition?
MR. HENDERSON: Senator, in our history we've never missed a CAFE standard or fuel economy standard in the U.S. or --
SEN. LAUTENBERG: Well, you know the kind of fight there was here about the CAFE standards.
MR. HENDERSON: And then the second is just recently -- I understand. Secondly, just recently as part of the industry we threw our weight fully behind harmonizing more aggressive and more stringent fuel economy standards. Not only GM but the industry pulled together, and we're quite confident that the men and women of General Motors will deliver vehicles which meet all those standards and excite customers.
SEN. LAUTENBERG: I'm sure the men and women will deliver what's put out there but the leadership shows that it didn't understand what it's going to take to be competitive. Mr. Press, do you want to comment?
MR. PRESS: Yeah. Senator, in our situation our new company has an alliance with Fiat, and Fiat will be the operating entity within the company. They have the highest -- the best performance of all European manufacturers in CO2. Their technology is all available to us. We are already at work to adopt that technology, to build it in American plants, and in fact the equity incentives that they have are based on the introduction of very high-mileage technology, engines, and products in U.S. plants.
SEN. LAUTENBERG: Lord help us. Thank you very much.
SEN. ROCKEFELLER: Thank you. Senator Dorgan?
SEN. BYRON DORGAN (D-ND): Mr. Chairman, thank you very much. The one disagreement that I've heard here, among others, is that the auto manufacturers have responded to the dealers by suggesting that the dealers are a cost center -- or implying that the dealers are a burden. The dealers have said quite the opposite -- quite the contrary. It seems to me to the automobile manufacturers you don't have a business without dealers.
I mean, you can manufacture but if you don't sell them you're out of business. So the dealers, it seems to me, are an asset. And I was looking at the statement on Page 5, Mr. Press. You talked about examples of lost revenue and cost associated with, in this case, discontinued dealers but I assume you would associate them with the continued dealers as well. The overwhelming costs are not costs that are local to Mr. Lopez and Mr. Whatley.
Product engineering development for sister vehicles $1.4 billion over four years -- those are decisions you made, not the dealers. I mean, the decision to build a Town & Country and a -- the Dodge version of that and have both of them, that's your decision, not their decision. But lost sales due to dealer underperformance 1.5 billion (dollars) annually, and someone asked a couple of questions on cost burden and so on.
But you are eliminating dealers. Waco, Texas -- my colleague says you're doing to eliminate the Chrysler dealerships in Waco, Texas. Are you going to replace them with new dealers? And another question for both General Motors and Chrysler -- how many are in a position where you're just going to eliminate the local dealership and then replace them with other dealers because you felt the local dealer was underperforming? Can you provide us a number?
MR. PRESS: Excuse me. First of all, with regard to the multiple sister platforms, we had to do six of those and they are not our request. It's because we have standalone dealers. If there's a Jeep or a Dodge standalone only dealer and we don't do a Dodge version of the van then they can't be supported. We've stopped making those. The dealer body stand alone is not viable any longer. So that's the reason for it and the cost. The answer is we can provide you with the list. It's not a large number of those points that we are going to be going back into but I can give you that number.
SEN. DORGAN: Would each of the companies provide us with the number of the dealerships that you're going to close and that you will then replace because you felt the current dealerships were underperforming?
I want to ask Mr. Lopez and Mr. Whatley, you heard the manufacturers suggest that you're a burden and a (cost-setter ?). You say you are not.
MR. LOPEZ: Yes, sir.
SEN. DORGAN: They say they advertise for you. They --
MR. WHATLEY: I have brought dealer billing statements for the last couple of months showing everything that we pay, and it's everything from paper clips to signs to training, a whole lot of things. I don't even know what they are. We just pay it every month.
SEN. DORGAN: They send somebody around every now and then to check up on you.
MR. WHATLEY: No, they send us -- it's electronic billing statements. We're billed every month.
MR. LOPEZ: They just take it out automatically.
MR. WHATLEY: They take it out automatically.
MR. LOPEZ: You come in one day and your account will be less $6,000 for parts of a vehicle that you have to work on.
SEN. DORGAN: I understand you're leasing their signs and doing all those things. But they're also saying, "Well, we send the regional or local rep around to check" --
MR. LOPEZ: We don't have one.
SEN. DORGAN: You don't have one.
MR. WHATLEY: I don't even know who our rep is anymore. We haven't seen one in so long.
SEN. DORGAN: Okay, so that's not so expensive, is it?
MR. WHATLEY: No. We don't have one. They call us on the phone. We're billed for everything.
MR. LOPEZ: By the way, I paid $480 for my -- and Chrysler is in bankruptcy -- paid $480 this month so my certified mechanics could take a test on the computer -- $480.
MR. WHATLEY: And Senator, I just got a bill yesterday for $200 for sales training for next month, when I'm not even a dealer. (Laughter.)
SEN. DORGAN: All right. Well, some things are counterintuitive to me. And I understand that you want to change your dealership network. That's your responsibility, not the government's. I understand all that. And yet, I mean -- and I don't know much about big cities; that's not what I know much about. But I know areas out there where somebody's selling five, eight cars a month, a good small business that some would probably say, from up high, too small to matter, but a business in the community that's making a little money, doing some service, brand loyalty under customers.
In my hometown, you got people that stopped at the Regent Garage. They would only buy Chevrolet and I.J. Case tractors for the rest of their lives. I mean, that's just -- they wouldn't stop anywhere else. When it was time for a car, they'd go back to the Chevy; time for a tractor, they'd go back to the Case -- never think of buying a John Deere. And the same was true on the other side for other dealerships in small towns.
So what I don't understand is if the local dealers are not a burden -- and it seems to me, in this back and forth, boy, they're not much of a burden to you at all; it seems to me they represent the ability to sell what you manufacture, even the smaller ones.
It's just counterintuitive that you would decide, "You know what, I'm going to limit the ability to sell out there by reducing the number of people that are going to sell." You know, I went through a master's degree in business and so on. They never taught that. It seems to me that you would want to maximize the opportunity to continue selling a product that's been piling up on the lots.
MR. WHATLEY: May I make one more comment?
SEN. DORGAN: Yes.
MR. WHATLEY: Excuse me. Say we stock about 65 new cars. The dealer next to me is 30 miles away. He's completely full. He's already stocking everything he can stock. He's up on his floor plan. He's full. By eliminating me, that other dealer is not going to order one extra vehicle. He doesn't frankly care if I'm there or not. He's already doing all he can do. So they just lost my 65 cars' production. You multiply this times 800 dealers -- how much production are they losing?
SEN. DORGAN: All right. Mr. Lopez?
MR. LOPEZ: I wanted to respond to what he said about as far as the cars that they made us take. They are sitting there -- he says 97 percent that is taken care of. No one's called me. I haven't heard a thing. At that time I had 41 cars. Now I'm down to 24. And I'm selling them and I'm not going to take a loss on them. I can't afford to. I'm a small dealer. I'm selling them at net, and I will do that. No one's called me and said, "Can we help you? Can we send them to another dealership?" We've done it all on our own. We've seen nothing.
And also I wanted to tell you, when you talked about the representative, there is not a representative from Chrysler or GM. It's all done by phone, by computer. How about our inventory that we have in stock? I have $138,000 worth of parts from Chrysler and $128,000 in General Motors. They're going to be worth nothing, not one penny. How can they say we cost them anything? We don't cost them a penny. In fact, we are their face. We are out there. You know, and in our community, I sell cars and I'm delighted to represent them.
I want one thing -- one question answered. If they do take our franchise, can they, will they -- can they and will they give us first option if they decide to open up in that area again, we as a dealer? I am a profitable dealer. I have never been reprimanded; got awards. If they decide two years from now that a Chrysler dealership in Spencer, West Virginia -- (inaudible) -- why won't it be me?
SEN. DORGAN: Chairman, my time is -- I've taken more than enough. But I appreciate the testimony, and I think we would very much like to get some reports back from you about your inventory, parts inventory --
MR. LOPEZ: Be glad to.
SEN. DORGAN: -- (inaudible).
SEN. ROCKEFELLER: Thank you.
SEN. SNOWE: Thank you, Mr. Chairman.
Mr. Henderson and Mr. Press, in response to -- I think it was Senator Johanns' question about economic analysis, Mr. Henderson, did you say that you did not perform any economic analysis in dealer by dealer in making these decisions? Did either of you perform an economic analysis using specific criteria by which you made these decisions in targeting these dealers?
MR. HENDERSON: The criteria used, Senator, were sales effectiveness, so the dealers that were notified for wind-down have been consistently underperforming in terms of sales effectiveness. We have made mistakes, however, so that's why we have the appeals process. And second, the customer satisfaction has generally been below average by a significant degree for a significant period of time.
SEN. SNOWE: Well, that's certainly contrary to some of the dealers that I've heard from in terms of, you know, where they rank. In fact, I cited one specifically. So it is truly puzzling, given the fact, in the state of Maine, just so you understand, more than 50 percent of the registered vehicles are either GM or Chrysler, and yet we're going to have some of the largest counties in Maine without any dealerships. It simply doesn't make economic sense.
And it goes to the question that Senator Dorgan raised. The conversation among dealers in Maine, and rightfully so, is that there's speculation that eventually you will come in and substitute your own dealers eventually, because it does not make sense where you are cutting out these dealers. It simply doesn't make -- there's no economic rationale. I don't know where your economic rationale is. But it certainly (didn't find itself ?) in Maine.
MR. HENDERSON: A couple of comments. First, in terms of our coverage of rural areas and smaller towns in the U.S., when we're done with this process, we'll have between 1,500 and 1,600 dealers in those towns. We will be far and away still the broadest distribution system for General Motors vehicles in small towns.
SEN. SNOWE: You know, I guess it's all relative, but that's not going to be true in Maine, okay? And you've got loyal customers and you've got loyal dealers. So the fact that it's relative, broadly speaking, isn't going to help the situation in Maine, looking at the map. And that's what this is all about.
And looking at where you're doing it, you know, even the more prosperous countries, you're concentrating one dealer in the most populated area and city, largest city, and some of the counties don't have any. And that's a wide stretch of geography just in that part of Maine, let alone in the more rural parts of Maine.
MR. HENDERSON: Yes, ma'am.
SEN. SNOWE: So there's not going to be any service, you know, for these vehicles. That's the bottom line here. And therefore, I do not understand how that's going to enhance your ability to expand your market share down the road in the future, not to mention the treatment of the auto dealers.
And I have to say, to get back to this wind-down agreement, I mean, can you imagine having to fill this out? Now, I've heard from dealers who said, you know, you have an appeals process. We've heard that referenced here. But from what my dealers have told me, that, yeah, they sent them. "Did you get the notice of May 14th?" "Yeah, by May 28th." And, oh, by the way, you have to get them back within -- I guess it was by June 2nd or something like that. And they had a two-day turnaround in response to that appeal, in which case there were no appeals accepted. And I wonder, are there any appeals nationally that you've accepted?
MR. HENDERSON: Senator, the date is June 12th. Yes, there are appeals we've accepted.
SEN. SNOWE: But they got their responses when the turnaround two days from when they sent it and got it back. So there must have been a very quick review.
MR. HENDERSON: We are trying to do these quickly, but we have reversed our decisions.
SEN. SNOWE: So did you accept any of the appeals?
MR. HENDERSON: Yes, we did.
SEN. SNOWE: You did? How many did you accept?
MR. HENDERSON: Through yesterday, 11.
SEN. SNOWE: Eleven out of all the dealers across the country?
MR. HENDERSON: Over 500 people appealed. And that means -- and we're continuing to go through them as we speak.
SEN. SNOWE: And what's your cost savings in all of this?
MR. HENDERSON: (As we said ?), one of the criteria was sales effectiveness. These are dealers on average -- and I understand they have to look at individual cases, which is why we have an appeal process -- but on average, these are dealers who have underperformed relative to their peers.
SEN. SNOWE: Well, you know, just -- and Mr. Press and Mr. Henderson, you know, you say that, and that all sounds well and good. But these are individuals who have been faithful. And the one I (cited ?) for 80 years, and that's generally true -- 80 years with GM dealerships -- 80 years -- and relocated at the urging of GM to move, at the urging of Chrysler -- actually, one dealer told me Chrysler was actually begging them to buy cars last year to avoid bankruptcy.
Let me ask you one other question. You've indicated GM will be capable of buying back inventories from as many as 80 percent of closed dealerships. You'd be buying back parts and special tools as well?
MR. HENDERSON: In the case of parts and special tools, we expect, at the conclusion -- if they sign the wind-down agreement, at the conclusion of that wind-down agreement, they shouldn't have any parts.
They would have no problems. We don't plan to repurchase parts. And the tools, at that point, in our judgment, should be fully amortized.
SEN. SNOWE: Mr. Press?
MR. PRESS: In our redistribution plan we do plan to have parts, vehicles and special tools taken from the dealers that are not going forward and brought into the new dealers.
SEN. SNOWE: Thank you.
MR. LOPEZ: Senator, may I respond to that?
SEN. SNOWE: Yes, you may.
MR. LOPEZ: As far as the parts and the tools, what we have -- we did get our e-mail that said that it was up to us to sell them to other dealers. And, of course, they're going to come in and offer us 10 percent on the dollar. I haven't seen anything else that said that Chrysler or GM would buy them back.
MR. PRESS: Obviously, we have a communications issue. We do have information --
MR. LOPEZ: (Laughs.) I have a big one, yeah.
MR. PRESS: -- (it's been printed ?) -- yes. So, I will address -- both of these gentlemen, I would be very happy to do that. It's our failure of not communicating (appropriately ?) to them. Thank you.
SEN. SNOWE: Mr. Henderson, in response to that?
MR. HENDERSON: The same.
SEN. SNOWE: Thank you, Mr. Chairman.
MR. MCELENEY: Mr. Chairman, I know it's not prerogative to ask the questions, but there was a question that came up earlier about the "Go Forward" agreement that I addressed in my testimony, and I don't think we had an opportunity to hear a response to explain or defend that agreement that 4,000 dealers will be obligated to, going forward. If I may ask? I guess I just did. (Laughs.)
MR. HENDERSON: I'm happy to answer the question, Mr. Chairman, if you'd like.
The answer is, we distributed that agreement this week. We have a meeting set up with the NADA Friday where we intend to discuss with them the most objectionable, and the parts of the agreement that they have the greatest objections to. And we're confident we'll find a resolution to this, as we always have.
So, that meeting is Friday. We're trying to pull this forward, and we'll make judgments and decisions quickly to try to address the legitimate concerns in this case of the dealers. Thank you.
SEN. ROCKEFELLER: Thank you very much, Senator Snowe.
SEN. SAM BROWNBACK (R-KS): Thank you, Mr. Chairman.
I hope people watching this see the problems with having government run a private sector business -- when you try to get these questions answered in this sort of hearing. And I think that's why we're in such a difficult, deep, problematic situation today. But, the government's the big owner now here, and so we've got a lot of questions. I don't like the process, just overall, that this is. But, we are where we are.
I want to ask, if I could, particularly Mr. Press and Mr. Henderson, I've had the dealers again in my state, and where I bought my Town & Country Chrysler minivan, he says to me, "Look, we don't cost these guys a penny. We don't cost these guys a dime." Yet, obviously, you've enumerated some costs that -- I think in Mr. Johanns' case you were saying these are what they are.
Why not go, in bankruptcy, a different route on this? Instead of cutting free these dealerships, why not say to your lower performing ones, as you've articulated, and found them, "We can't afford to subsidize and support you. So, therefore, we are not going to provide the network of money and backing to you that we are going to provide to a higher performing category," so that you're not just cutting them free on this.
Because you've had two guys over here saying that -- it looked like they're pretty good salesmen to me, frankly --
MR. LOPEZ: Senator, they don't subsidize us.
SEN. BROWNBACK: What's that?
MR. LOPEZ: They don't -- they do not subsidize us.
SEN. BROWNBACK: Well, but they are saying they've got costs associated with this large dealer network. And you guys are saying, "They're not a penny associated with us." Why not then bifurcate the structure on it, in your bankruptcy filings, so that you can maintain this dealer network that's out here -- that's very important to many community, and very important to rural communities, but you see costs associated with it. Why not look at it that way?
MR. PRESS: Maybe I can start, sir.
I appreciate the question. It's not a cost issue. That's not the basis. In our situation the dealer body we're working with -- the 3,100 dealers, was established roughly at the time when our peak --
SEN. BROWNBACK: Well, I'm going to get cut on time here. But, if it's not a cost issue, then why are you even messing around with it?
MR. PRESS: I'd like -- if I could -- I'll get to that very quickly.
This dealer body number was established when we were selling over two million a year. The new company, coming out of bankruptcy, will sell 700,000 a year. If we try to take 700,000 units of revenue and spread it over the dealer body necessary for two million revenue, the dealer body isn't -- is not -- (inaudible) --
SEN. BROWNBACK: Well, wouldn't they -- wouldn't they atrophy themselves over time, then? And why wouldn't you let it take the natural course, and you just feed the healthier and not the least healthy ones?
MR. PRESS: Okay, because first of all, we are no longer able to produce separate models to support stand-alone dealerships. They all have to be under one roof. We don't have the money in our plan, and we'll no longer spend the money. They will not have individual products.
SEN. BROWNBACK: We are under one roof.
MR. PRESS: We are one -- one roof also. This is -- a number of our dealers are not under one roof -- (inaudible) -- .
Second, it's important to note that the deficient volume dealers are costing us substantial money, in markets that we should be doing a lot more business in.
And third -- and I think even more importantly, a weak dealer that's close to another dealer, costs them both money, because they can't have enough profit, they can't have enough training, they can't have enough -- (inaudible) --
SEN. BROWNBACK: Okay, but if that's the case, why not let them fight it out? That really doesn't matter that much to you.
MR. PRESS: Great point, sir --
SEN. BROWNBACK: Does it?
MR. PRESS: -- and for the last 10 years we have told the dealers, who do -- which dealers would be in our Genesis Program, going forward, and which ones wouldn't. A number of dealers have made their deals and have gone through the process. Slowly, we've done 100 or so a year.
We're out of time. Because of -- and a large factor in our bankruptcy is an inefficient, ineffective dealer body. We're not bankrupt. The new company will not have the same problem, going forward, and that's in the taxpayers' best interest.
SEN. BROWNBACK: Mr. Henderson, your wage and benefit structure is going to be down now with where Toyota and Honda is, in your labor structure, through your bankruptcy?
MR. HENDERSON: Yes. We believe we'll be competitive with Toyota, sir.
SEN. BROWNBACK: Your numbers will be the same, roughly, on your wage and benefits structure?
MR. HENDERSON: Yes.
SEN. BROWNBACK: That's not what I'm seeing in the numbers that I have. I'll have to look at that in the bankruptcy filing.
What about just providing more for the better ones and less for the poorer ones? And so you let this atrophy? Because we're at the -- the reason we're stepping into the auto market anyway is because we're in a catastrophe right now, as a country and an auto industry. So, that's why we're providing the parachute for the overall automakers when a lot of us would not -- don't like that idea if the first place anyway. But, this is a catastrophe.
But, then you go out and really exacerbate it in smaller communities, off of small businesses. And it seems like that the consistent route here for us to go through this would be, okay, you provide the same slower glide-path on this, that we're trying to do with the auto manufacturers, and that that would make more rational sense given the amount of federal dollars that we're putting into this overall industry sector.
MR. HENDERSON: See if I can't address each of the points, Senator.
First, in our case -- with all due respect to my colleagues and partners here, 67 percent of the dealers who, in our case, have received wind-down agreements were unprofitable, and substantially so, last year.
The second is, we've spent a lot of time talking about small markets. In fact, the disproportionate impact of the GM actions are in metropolitan markets where, if you look at it, this has been exactly where our past has been -- this is our past, we've basically let the dealers work through the issue over time. And we end up with a situation where we have today, where in some, for example, major metropolitan markets we have far more dealers than our principal competitor, Toyota, and we greatly under-performed, because no single dealer is able to perform to scale.
Toyota has three or four dealers in a major metropolitan market, and they grossly outperform us. And no other dealer is prepared to step in and make an investment in the major metropolitan market because they say there's too many dealers. So, "There's no way I'm going to justify putting capital into a General Motors franchise. We're going to put it into a Toyota franchise."
That's what has been our history. And that's not a method, over time, that we can really operate in because, in the end -- there are whole host of issues. Again, we have a very good market position in world markets, and I fully understand that we may have made some mistakes. But, the lion's share of sales in the United States are in major metro markets. There we grossly underperform. In part, it's because our dealers -- our dealer system is not properly structured.
SEN. BROWNBACK: Thanks.
SEN. ROCKEFELLER: Thank you, Senator.
SEN. CLAIRE MCCASKILL (D-MO): Thank you, Mr. Chairman.
I think, Mr. Press, one thing we've discovered today is that there is -- has been a significant breakdown in communication as it relates to your plans to relieve these dealers of their cars and replace them with the dealers, going forward. And these two gentlemen have said that they didn't know it. I'm betting there's others that don't have all the accurate information.
So, I think one of the things we've learned for this hearing is you've got a task in the next 24 hours, and that is to check the phone log and the e-mail log and make sure that you've communicated clearly with all of the dealers that you have, in fact, moved 97 percent of the vehicles, and are on a path to provide some kind of specific assistance as it relates to tools and parts.
MR. PRESS: I will do that, Senator.
Obviously, Mr. Lopez, I'd like to work with him. He had somebody contact him, because he did refuse to sign our agreement. And I would like to work with him so we could communicate.
SEN. MCCASKILL: Okay. Fair enough.
MR. PRESS: Yes, ma'am.
SEN. MCCASKILL: Quickly, Mr. Whatley and Mr. Lopez -- what brands do you sell, Mr. Whatley?
MR. WHATLEY: Chrysler, Dodge and Jeep.
SEN. MCCASKILL: Okay.
And Mr. Lopez?
MR. LOPEZ: I have Chrysler, Dodge and Jeep, Chevrolet, Pontiac and Buick.
SEN. MCCASKILL: Okay.
And Mr. McEleney -- is it McEleney?
MR. MCELENEY: (Off mike.) Yes, that's correct, Senator.
SEN. MCCASKILL: Could you give me a percentage -- what percentage of your dealers in your association are multi-points across manufacturers?
MR. MCELENEY: I'm not sure I can answer that. I can tell you, for example, 45 percent of the Toyota dealers also have General Motors franchises, just for one example. The average dealer has roughly two dealerships on average.
SEN. MCCASKILL: In my former life -- my first husband and his family had car dealerships, so I know a little bit about that. We had Pontiac, BMW and Chevrolet. And I know a little bit about the car business, and undercapitalization, and some of the problems and struggles. And I know the long-going fights between the "mother ship" and the dealers. There have been lots and lots of battles over the years, and I understand the passion and the pain here.
But, 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.
So, let me ask this for -- this is a difficult question, Mr. Press, but I looked in the -- we've gotten some information that came to us, back-channel, about the DIP budget, and this is debtor-in- possession budget in the bankruptcy, and it talks about the budget for the old company. And what troubles me in there, there is an acknowledgment that there may be up to (15 ?) employees of old Chrysler working on this bankruptcy, and there is a pool in this budget of up to $20 million for bonuses.
I can't imagine what kind of kick in the gut that would be if we were to learn, in the next two weeks, that some of the old Chrysler folks -- which are getting paid their salaries, which they should, you guys are doing hard work, but if there's $20 million in bonuses for as few as three to five people that are associated with old Chrysler, I think that would be a huge -- I mean, I think the pitchforks would come out, and I think there, you know, there would be a real problem.
And I want -- I know I asked you about this yesterday, have you learned anything more about that, and can you shed any light on that?
MR. PRESS: No, Senator. I did make an enquiry. We were not able to find testimony. I can only speculate, and I think that would be inappropriate at this time. And I will do my best to see if we can find out, concretely, what that information is relating to.
SEN. MCCASKILL: Well, I misspoke yesterday. It wasn't in testimony, but it is in the preliminary DIP budget -- debtor-in- possession budget that has been circulated and has been talked about, and I believe your CFO has referred to it in various meetings. So, I think we need to get to the bottom of that, and sooner rather than later. I know everything is on a fast track here, but that needs to be also.
Let me also bring up briefly something that is not directly related to the dealers, but rather -- for you, Mr. Henderson, going forward. I understand that you guys are going to try to do a 363 bankruptcy similar the Chrysler?
MR. HENDERSON: Yes, ma'am.
SEN. MCCASKILL: Almost in an unprecedented fashion, there has been a decision made in the Chrysler bankruptcy that if somebody buys a Chrysler car six weeks ago, and there's a defect in that car, there will be liability in the new company for the recall costs, for the warranty costs. They will be required to fix the car.
But if, because of that defect, a child loses their life because of an accident, or if a man loses his legs because of an accident, there is absolutely nowhere for that person to turn. Now, that, to me, seems like a very weird result. And it is very unusual, in bankruptcy, to have absolutely no requirement of insurance for any kind of defects that may be there, especially if the product's going to be carried forward.
I need to know, on the record, Mr. Henderson, if you all are going to seek that same kind of immunity for existing claims, and potential claims for any cars that have been sold prior to the closing of your bankruptcy?
MR. HENDERSON: That would be our expectation, yes.
SEN. MCCASKILL: Well, I'm very troubled by that. I don't get how we can afford to fix the car, but if someone loses their life or limb, that they'll --
MR. LOPEZ: They'll come back -- (inaudible) --
SEN. MCCASKILL: -- that there's no liability.
MR. LOPEZ: They'll come back on us dealers.
SEN. MCCASKILL: Well, and that's another entire issue that needs to be discussed. So, I think that's something we need to continue to ask questions about, and I think that it probably is something.
And, by the way, I've understood that since this happened we've had several companies go back and make filings for 363s now -- thinking that they can come in and absolve themselves of any immunity they might -- of any liability they might have for defects. And I think that's very troubling, going forward.
And I know I'm out of time, Mr. Chairman. Thank you.
SEN. ROCKEFELLER: Senator McCaskill, if I could just follow-on.
Mr. Henderson, when you said that would be our "intention," that doesn't get you very far in West Virginia. I mean, it's either yes or no.
MR. HENDERSON: Yes.
SEN. ROCKEFELLER: That helps.
SEN. JOHN THUNE (R-SD): Thank you, Mr. Chairman.
Thank you all very much for being here today.
And to Mr. Press and Mr. Henderson, it's got to be uncomfortable for you to have to come here. It's uncomfortable, honestly, for me to have you here because it means that we're doing something that is outside the realm of what we know about. I don't think anybody here has any particular -- with some exceptions, any particular expertise in the car business.
I certainly don't profess to, and -- but, you find yourself now with a board of directors, essentially, of 535 members, and you have to be subjected to all these questions, which I'm certain you feel are micromanaging your business. But, we are now partners and, as partners, these are the types of questions that you get to answer.
And I appreciate, Mr. Press, you sharing with me a little bit about what your intentions are, with respect to my state of South Dakota. You had indicated that there are seven dealerships in my state of South Dakota.
And I might add, too, just for a point of reference, in a small state like mine, and a lot of small communities, the car dealership really is the center of gravity for the entire community. It's not only, you know, you go there to buy cars. But, it's -- in my home town it's where people go in the morning to have coffee, you know, to talk about the game last night. It's just -- it really is so important, in terms of just not only the economic vitality of these small communities, but also, in a lot of respects, the cultural center of our communities.
But, you had mentioned that there were seven dealerships that you thought you would close in South Dakota, but that you intended to reestablish these so-called "Genesis" Chrysler dealerships in five of those South Dakota communities or towns. And I guess my question is, if there are five dealers that are being closed -- you know, will the five dealers that are being closed in some of these communities have an opportunity to obtain those dealerships?
Which sort of gets at the point that Mr. Lopez made about, if you're going to create or establish a dealership in his community, he would like to have the opportunity to get that. And I'm not sure that question got answered.
MR. PRESS: Yes, they will have the opportunity.
SEN. THUNE: What's the rationale for completely closing dealerships now if you plan to have a larger presence in the same area in the near term?
MR. PRESS: What that does is it provides the opportunity to put it in an optimal location that may serve multiple communities much more efficiently. The dealer will become much more profitable. And they will have all three brands under one roof, which allows -- if you have a fixed cost for one brand, and you bring in the revenue of Jeep and Dodge into a Chrysler dealership, you have a much more profitable, much stronger dealership, going forward.
SEN. THUNE: Is it also, though -- I mean, do you want to end relationships with some of the 789 dealers that are on your list to close? Is that --
MR. PRESS: Some of the criteria does include a very substandard performer that's costing us quite a bit of volume and revenue by underperforming in the market. In some cases that exists and those dealers are being replaced.
SEN. THUNE: But, you also just said that they would have a chance, if you open a dealership in their community?
MR. PRESS: Yes. Yes, sir. The dealers will have a chance. We're going to give every -- we will give the dealers an opportunity. And, in particular, for those that have single-line stores, that go into a tri-branded store, obviously, those -- (inaudible) -- as well.
SEN. THUNE: But, many of the decisions that are now being made -- we have the Task Force; you've got, of course, U.S. Treasury Secretary Tim Geithner; the White House, a lot of folks involved in the decisionmaking process. I guess I'm curious in knowing what role, if any, did any of those entities -- and by that I mean the Treasury Department, Secretary Geithner, the White House, the Auto Task Force, have in the decisions leading up to the announcement of GM and Chrysler dealership changes?
Because I think there was a -- March 30th the White House issued a briefing on the restructuring plans, and noted specifically for GM, and I quote, "The company is currently burdened with under-performing brands, name plates and an excess of dealers. The restructuring plan does not act aggressively enough to curb these problems."
Were they applying pressure to do something with the dealerships -- either of your companies?
MR. HENDERSON: Senator, I think I responded to Senator Johanns earlier.
Certainly, in the March 30th report -- amongst other things, not solely in this area, the conclusion was we had not acted more, aggressively enough nor fast enough. The actual decisions leading up to what has been launched recently, though, they've not been involved in. They just made the comment. It was their observation that we were not aggressive enough in this area and they felt that we needed to do more, and we have.
SEN. THUNE: Can either of you say -- can affirm that you don't plan to use the bankruptcy as a means to void dealership contracts above and beyond? I mean, the GM plan was announced well before you entered into bankruptcy. They've added to that now, but can you reaffirm that this is not a way -- not just simply a way to void dealership contracts?
MR. PRESS: First, I'd like to respond to your question on the Treasury, from our --
SEN. THUNE: Yeah, I'm sorry. Go ahead. Respond to that. That would be good.
MR. PRESS: The Treasury was not involved, in any way, of the selection, or the development or the guidance on the number of dealers that we should be addressing. They were made aware of, on a courtesy basis only, the process, so they would be aware of it for answering questions.
Second, this is not a way for us to -- this is not a, bankruptcy is not a way that we are using to void contracts. In our case, it's a little -- it's different from General Motors. We actually -- the old company still exists and is no longer functioning. We're building a new company. And, in that new company, a selection of a dealer body for that new company is being made. Those are the dealers that are going forward.
SEN. THUNE: If I might just have a -- and I don't know how much time I have left, Mr. Chairman -- direct one question to --
SEN. ROCKEFELLER: Actually, none.
SEN. THUNE: None? (Laughs.) Okay. All right, then I would yield back.
SEN. ROCKEFELLER: But, I don't want you to feel bad.
SEN. THUNE: (Laughs.) Don't worry.
SEN. ROCKEFELLER: -- (inaudible) --
SEN. THUNE: I don't feel bad. And, in spite of your answer, I welcome you back, Mr. Chairman.
SEN. ROCKEFELLER: Thanks. (Laughs.)
I have a question I want to ask -- others may, there is just a few of us here. There's a meeting with -- we've got to go to. But, I've just got to ask this.
Mr. Press, unless the Automotive News is, you know, an agent of the KGB or something, they did report that in January of this year, in a conference call with your dealers, you said, "You have two choices" -- and everybody's, that's been pointed out, "you can either help us or burn us all down." Why? How? "Get 78,000 -- buy 78,000 cars, Chryslers." Buy 78,000 in one month to help the company.
But, many of them felt coerced to buy cars that they didn't need because they knew Chrysler was considering cutting additional dealers. In other words, there's the whole question of, was there any ethical consideration on your part? You knew exactly what you were doing. Yes, January is different from June 12th, but now it's all very clear to Mr. Lopez and Mr. Whatley just exactly what you were planning back then.
And it strikes me that you have not been forthcoming. You know, Mr. Lopez can't possibly absorb that. So, now you're forcing the terminated dealerships to sell those vehicles in 26 days, which is six more days.
Now, you say that you made a lot of progress in reassigning those vehicles. You've said that quite proudly. My question to you is, will you commit here today to buy back any cars that are left after June 9th?
MR. PRESS: I must address the Automotive News comment at some point. Is this the time? May I have approval to do that?
SEN. ROCKEFELLER: I mean, the floor is yours.
MR. PRESS: Okay, thank you, sir. I appreciate that, because I want to be responsive to your question, but I think it's important.
The Automotive News is not a KGB agent. They're the newspaper for the industry. And they reported correctly the comments that were made, but not in context.
Our company had just come through the December period of time with no production and no revenue. We had less than $2 billion of cash in the bank. February 17th was the viability plan submission to the U.S. Treasury to get a bridge loan to continue to operate and negotiate our alliance. In the month February we needed 78,000 units of production to at least keep the company operating to the point that we could get an extension of a loan from the U.S. Treasury.
And the fact of the matter is, I love the dealers. I love this company. And, because of that, I made it clear to them that if we don't buy the cars now we will lose everything in February. If we buy the cars now, and we gave them substantial incentives to buy the cars and retail them, not to hold them, in a manner that we could generate cash, and my comment was that if 70 percent of the dealers had already taken the challenge -- it's like a fire, a bucket brigade, 70 percent of the buckets have water in them, 30 percent don't -- "don't burn us down; let's all get in this and let's not get bankrupt; let's not have to do this to the dollar -- the dealers."
And that was our desire, and that was the comment I made. And I still wish that we hadn't gone through this process, and I wish we could employ all of the dealers and add more.
SEN. ROCKEFELLER: See, I have great trouble believing that you actually believed that with those 78,000 additional purchase requirements, that that was somehow going to make a new world for Chrysler. I just don't believe that.
MR. PRESS: It did work. We did not go broke and liquidate in the month of February --
SEN. ROCKEFELLER: Quite as quickly.
MR. PRESS: No. We did not -- we did not, we did not liquidate.
And I think it's important to note the reason we're here, Senator, is a meteor hit the industry, and it's a third less than it was. Nobody can cope with that unless they're able to continue to get cash.
And that's why we needed the February 17th deadline. We got that. We were able to save the company. We've got bankruptcy, debt financing, and soon we'll have a new alliance, with a new company, and we will save the company.
And if we hadn't done that in February, none of us would be here at Chrysler.
SEN. ROCKEFELLER: But, the car dealers will be -- and I'm thinking of Mr. Lopez right here, in Spencer, West Virginia 3,800 people are going to be left with the inventory and the parts, and they're going to -- not going to have any help whatsoever from you.
MR. PRESS: We will -- we have taken the challenge, and we will redistribute the inventory of cars and parts, and we will continue to work with them after June 9th. And, yes, Senator, we are committed to take virtually every car we can and redistribute it. And the 97 percent that we've already gotten commitments for is a pretty good signal that we're serious about delivering on that. Yes, sir.
SEN. ROCKEFELLER: And "continue to work with them" --
MR. PRESS: Yes, sir.
SEN. ROCKEFELLER: -- means what, to you, Mr. Lopez?
MR. LOPEZ: I just don't know.
Right now what I wanted to respond to was is, if their whole intention is to put Chrysler, Dodge and Jeep under one roof -- and I am that, and I'm a profitable store. They've asked me to make some changes for our software. I have. If I have to make some changes for my building, I will be glad to do that. I'm looking out -- and it's not personal, it's not just for me or my income, we are a profitable store, but our community, just like you said.
And I want to thank you. I appreciate everything you do for us, Senator. You look out for us, and that's why we're here today. And if I've seemed intense it's because my livelihood and my community cares about what happens to Spencer Auto Group. And I thank you.
SEN. ROCKEFELLER: I thank you.
SEN. HUTCHISON: Thank you, Mr. Chairman.
I just want to come back, because I hear you saying 90 percent, 97 percent are going to be transferred, and you have that out -- you have the information out. And yet I've heard from these two -- from Mr. Whatley and Mr. Lopez, but also from other dealers, that they have not heard this. They don't have a comfort level that they're going to be taken out.
So, many of these dealers, I am told, are selling at fire-sale prices to the surviving dealers. And that's not right. And when we left here 10 days ago I thought that was going to be avoided because of your commitment to work with the dealers. So, there really is a disconnect that I want to connect right now.
Why don't they, and others, know that they don't have to sell at fire-sale prices -- not parts, not specialized equipment, not inventory?
MR. PRESS: I know only Mr. Lopez' situation. I don't know about Mr. Whatley. But, we have had communications with the dealers and offered them the opportunity to enlist our assistance in the redistribution process. The majority of the dealers signed an agreement allowing us to do that.
A small number of dealers have not. They're preserving their effort, through a legal effort, to stop this process. We went ahead and got commitments for their inventory anyway. And as soon as they sign the agreement they will be notified of how the status of their inventory is.
And, if you'd like, I would be more than happen today to discuss that directly with Mr. Lopez, because I think it's important that this transparency be known.
SEN. HUTCHISON: Well, you know, you said earlier that you appealed to the dealers. And, because Mr. Whatley took everything you asked him to take, every time you asked, you're not in -- you didn't go into bankruptcy earlier this year; and you are now. But, here's Mr. Whatley.
I mean, it's just -- I hear what you're saying, and I hear what they're saying, and it's not the same thing. So, do you want -- Mr. Whatley?
MR. WHATLEY: Ma'am, I just don't understand the 97 percent. I don't doubt Mr. Press at all. I think they may have identified 97 percent of the vehicles. But, I have talked to -- I've talked to 10 to 15 dealers a day, from East Texas to West Texas, no one has heard a thing from the Business Center. No one has seen a report. No one's been inquired about their inventory. No one's even asked what inventory they have.
I just don't know where this 97 percent is coming from.
SEN. HUTCHISON: Mr. Press, can you today tell every Chrysler dealer that got in the 789 that they do not have to sell at fire-sale prices; that they will have a communication from you; that you will arrange -- that you have arranged for 90 percent, or whatever the percentage is, for the transfer, so they know? Can they count on that right now?
MR. PRESS: Absolutely, yes. And as soon as the dealers, who haven't signed a release allowing us to take that responsibility, (do so), we'll provide that to them directly as well.
MR. WHATLEY: But, see, everything about this is a "request" to other dealers to buy it. There's no actual, firm -- they're requesting other dealers to buy the inventory, and they're going to try to assist in the sale, but there is no actual plan.
And the dealers -- every dealer's biggest fear is on June 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 on June the 9th.
Our biggest fear is that on June the 9th Chrysler will attempt to relocate these cars. Then we get a call on about June the 12th, June the 13th saying, "Fellows, we did our darndest and we just couldn't get her done. Good luck." And what are we supposed to do at that point?
MR. LOPEZ: Or, if they sold them for $12,000 and they're $25,000 cars. And we have to pay off our floor plan.
SEN. HUTCHISON: Mr. Press.
MR. WHATLEY: Yes, because on the report it also says that dealers will pay for any loss or deficiency on the final sale of the vehicle.
MR. LOPEZ: Absolutely.
MR. WHATLEY: I'm scared that that means we'll just end going to the auction, and whatever they bring, you pay us the difference and there you go.
MR. PRESS: We --
MR. PRESS: -- the difference.
SEN. ROCKEFLLER: Sorry gentleman.
SEN. HUTCHINSON: Mr. Press.
MR. PRESS: We have published to those dealers who have signed the release exactly how much money they'll be paid. They're paid everything that they have in the car except for a charge for inspection and transportation, and in fact we do not plan to have the dealers left with the cars. 1= We must take them so we can control all of the residual values and put them back into our system. And as I said, right now our inventory is the lowest it's ever been since we've kept track, since we're not building cars. There's a substantial demand for these vehicles. And I think the disconnect may be only talking to those dealers, trying to preserve a legal case who have not signed the release. That would be the same information. But the bulk of these dealers who have signed the release, they would have information, and I would love to keep communicating with these gentleman.
MR. WHATLEY: Senator Hutchinson, I did sign the release, and I was informed by the business center mine was the very first one in. So they've had plenty of long enough to get me a report.
SEN. HUTCHINSON: Can I just count, Mr. Press, on your word today that you have made in this public forum to every dealer who has signed the agreement that they don't have to sell at fire sale prices, and they don't have the fear that has just been stated by both of these dealers?
MR. PRESS: Absolutely yes.
SEN. HUTCHINSON: Thank you.
MR. PRESS: Thank you.
SEN. ROCKEFLLER: We have been joined gloriously and happily by Senator Bill Nelson who has not even had a chance to ask a question, much less make an opening statement, which I know he's not going to do.
SENATOR BILL NELSON (D-FL): Mr. Chairman, I did not make an opening statement. I'll submit it for the record. But I just have one question, and I'd like to address this to the two CEOs.
Between the two of your companies, you received $80 billion in bailout, and you have now, between the two of your companies, requested another $36 billion. That's $116 billion. Now, if you quibble with the numbers, whatever it is, it's large. And so what I would like you to address, because of the failures of the management of your two companies, a lot of people are losing their jobs. And I would like for you all to address the mechanics that are losing their jobs, the clerical workers, the kids that do the detailing of the cars, the salesmen, and please share with them where did all of that bailout money go.
MR. HENDERSON: In the case of General Motors, the monies that have been received so far, Senator, have been used to finance the losses that we've incurred this year and late last year. And with respect to the monies that will be dispersed to us pursuant to the bankruptcy, it would be our expectation to use it to both fund losses and restructure the business. That's how the monies will be used.
MR. LOPEZ: I can't confirm the amount. I think our company is around $15 billion or so, so I'm not sure what the amount is that would sound much bigger there. From our standpoint, we're spending about $100 million a day of dip financing through the bankruptcy. That's one of the reasons we need to get through that. That's taxpayer money. And we utilize the initial funds for the fact that because of the meteor hitting the industry and we're in a depression, there's insufficient volume to be able to pay the costs to keep the companies afloat. We did find and were given the approval for an alliance and a new company to be formed with Fiat that will give us a new product line, a new company, a new start, and a return on that investment to the taxpayers that will be much better than most investments will have.
MR. HENDERSON: Senator, just to clarify, also, our number is big, so your second point is absolutely right. I understand where the first number came from, but that's beside the point. Your point is absolutely right. It is our responsibility, as it is in Chrysler's case, to justify not only the support we're provided by the U.S. taxpayer, the Canadian taxpayer, the taxpayer of Ontario that is going to be the principal shareholder of the company as well as the beneficiaries of a healthcare cost to get their healthcare from the stock, if you will, to justify that confidence, to perform, to deliver value for them, and to make the sacrifices that are being made today worthwhile so we only do it once. Thank you.
SEN. NELSON: Well, you see, we have to ask ourselves the question in trying to protect the interests of the American people. We committed an awful lot of taxpayer money to try to save all of those jobs that are now being cut. And a lot of the condition that you find yourself in is because the executives were too hardheaded over the course of the last three decades, when many of us were begging with you to make higher miles per gallon, to do cars that would be revolutionized -- the transportation system of personal people, and that would compete with what you saw was happening, but you wouldn't do that.
And each year, when we tried a simple little thing like raising miles per gallon, a combination of the automobile lobby, aided and abetted, I might say, by the dealers, in combination, in cohort with the oil industry, beat us back every time. If it -- if it had anything to do with higher miles per gallon, we got beat. As a matter of fact, on most of the innovations, the automobile industry of America was the last to bring in innovations, and let me give you an example.
Back in the early 1980s, we had forced the automobile industry to start experimenting with airbags, and there just happened to be in one of those experimental vehicles that the owner did not know, because it was put in there for that purpose, a grandmother and her granddaughter in a head-on collision on highway A1A in Satellite Beach, Florida, and the grandmother and the granddaughter walked away from the wreck. What dramatic testimony on behalf of airbags. And yours truly who was a member of the House of Representatives at the time begged and begged to get airbags because there was demonstrable truth that it worked. But no, it was too costly. The American public didn't want it and so forth. It's another indicator of the choices of management that have led us to this day where $116 billion of taxpayer money is going in and people are still losing their jobs.
So Mr. Chairman, I get a little worked up, but I don't like to see our people suffer like they are. I don't like see -- it was earlier talked about -- Tam-Ami (ph), Chrysler Dodge. Now, as I understand it, you all are working something out. They're Hispanic. You want them to move to another location. But you're still going to put them on the list next week. I don't like to see Sunshine Dodge going out with all of those jobs. This of course is personal to us because we live in those communities. And here we are, the United States government having been seduced and cajoled and fooled, Mr. Chairman, for years and years, and it's led us to this point.
SEN. ROCKEFLLER: Very well said. Senator Klobuchar.
SEN. AMY KLOBUCHAR (D-MN): Thank you very much. I'll be brief here. I just wanted to make one point that I'd heard from some of my colleagues here about being uncomfortable because of this unique situation. And I just want all of the witnesses to know we've had hearings like this before that don't involve a company that have received government funds. We've had hearings about -- I was thinking back -- we just had one in the newspaper industry and how we could try to figure out if there's changes to the laws to help them. We've had hearings on the Delta-Northwest merger hearings, on Chevron hearings, on pro-sports players and their pension.
So I just wanted to say to the chairman I don't think it's uncomfortable to be talking about this; we'd rather not. We'd rather not be here right now, but our job as the Commerce Committee is to deal with people's jobs and companies and the livelihoods of people. So I just wanted to make that point because people have kept saying about their level of discomfort. This is what we're supposed to be doing.
And along those lines, my focus here are on -- I've mentioned some of our dealers here -- Laurel Nelson. I will say there's a lot of women dealers as well. And George McGuire from -- (inaudible) -- to see these people, and I'm very focused, as I've noticed Senator Hutchinson is, on the nuts and bolts of this. Or maybe we should say the windshield wipers and the tire rims, just trying to figure out what we can do here. And so just to summarize here, what we have here is some commitment that we will -- a commitment that -- from Chrysler, that in fact it's very clear you're going to redistribute these parts, and they're not going to have to pay cheaper prices, is that right? And you can tell them that they're going to be sold?
MR. PRESS: We will tell them that they will be redistributed, both the vehicles, the parts, and the special tools.
SEN. KLOBUCHAR: But you're not -- you can't commit that they will be sold, even though they bought them, some at your urging? There were a number of our dealers that were told please buy these to keep Chrysler alive back earlier in the year, so they bought more cars than they might have otherwise.
MR. PRESS: And we will -- redistribution would be selling those cars from the dealers that are not going forward to the dealers that are going forward. They'll be sold to those dealers.
SEN. KLOBUCHAR: And what do you think the chances are that they're going to be sold? So redistribute to you means 100 percent commitment that they'll be sold?
MR. PRESS: They will all be redistributed.
MR. PRESS: They will be -- all redistributed -- they will all be sold to other dealers. I don't want to get caught up in --
SEN. KLOBUCHAR: So they will get their money.
MR. PRESS: They will get their money for all of the cars that are redistributed.
SEN. KLOBUCHAR: Let's just -- I'm just going to get what I can here. Mr. Henderson, also you said that you would commit that these -- that this appeals process will happen and that you've already said that a few of the decisions had been reversed. I don't think anyone is Pollyannaish about this; they don't think every decision will be, but you will -- but GM will be looking at these decisions and in good faith.
MR. HENDERSON: Senator, you have our commitment in that regard.
SEN. KLOBUCHAR: All right. And then your situation is that if these people sign the agreements that they then -- the cars -- you're going to buy back these cars and parts.
MR. HENDERSON: In the case of -- if they sign (?) the Y09 (?) agreements, we have every confidence that they will down -- over a 16- month period, they will sell down the cars and the parts.
SEN. KLOBUCHAR: And then -- we don't want to get here, but if they are closed down and you do reopen, you won't commit to them that it will be then, but they will be in the running to be a new dealer. Is that what you're saying, both of you? I'm just trying to figure out Senator Hutchinson's Wako example where you're shutting down all three dealerships, and my guess is they're going to have Senator Hutchinson's Wako example where you're shutting down all three dealerships, and my guess is they're going to have a dealership in Wako.
MR. LOPEZ: Excuse me, Senator. He just guaranteed that to Senator Rockefeller 10 minutes ago.
SEN. KLOBUCHAR: Very good. Well, thank you, Mr. Lopez. I'm just summarizing everything because it's always good to get it once, twice, or three times, don't you think, like all of those signatures you guys require when you buy cars. (Laughter.) So the plan here would be that they would be able to be a dealer and we have some profitable dealers in Minnesota that would be very interested in doing that. So that's -- any other commitments that we can get here for helping these guys?
MR. HENDERSON: We will do as I said, is on our continuation agreement for those dealers who will be going forward with us. Thank you.
SEN. KLOBUCHAR: Okay, very good. And one last question just for you, Mr. Press. I know it's getting late for -- did Fiat require you guys to reduce the number of dealers?
MR. PRESS: Fiat did not require a number. The agreement does have a new dealer organization. Viable organization going forward is one of the requirements, and we're producing that. They did not require a reduction.
SEN. KLOBUCHAR: All right. Okay, thank you, thank you for your time.
SEN. ROCKEFLLER: Thank you, Senator. And final question will be from Senator Johans.
SENATOR MIKE JOHANNS (R-NE): Mr. Chairman, thank you. How many -- Mr. Press, how many minority dealers are going to be put out of business by your action here?
MR. PRESS: The minority dealer reduction is exactly the same of the total dealer body reduction. Actually the share of dealers that are minority dealers increases a small amount.
SEN. JOHANNS: Not interested in -- (inaudible) -- raw numbers. Tell me how many are going to be out of business.
MR. PRESS: Thirty-eight.
SEN. JOHANNS: Mr. Henderson, how many minority dealerships will be out of business because of your action?
MR. HENDERSON? Of our 230 minority dealers who are in the brands that will go forward with us, 44 will be affected by this action or 19 percent, which is less than the average, sir.
SEN. JOHANNS: Okay. You talked about the auto taskforce putting pressure on you to close more dealerships. The report on March 30th criticized you for not being aggressive enough. Did you have a plan or a notion prior to March 30th as to how many dealerships General Motors would close?
MR. HENDERSON: Two things changed, sir. One is we actually accelerated our brand rationalization. So, for example, we've dropped the Pontiac brand which brought forward a series of actions that we otherwise would have taken later, number one. And number two, our plan called for us arriving at about the same level of dealers -- at the end of our business plan period which was 2014. And the deal with that was too long. You needed to actually move faster in this, which we did, and so we will arrive at roughly the level that was in our original plan of 2014 by the end of 2010.
SEN. JOHANNS: Okay, so you've aggressively accelerated as a result, partially at least, to the criticism that you've received from the taskforce?
MR. HENDERSON: We knew what the right business decision was. The question was what time. So, yes, we took the action because we thought it was the right thing to do but in fact we needed to and did take into account the findings of the taskforce.
SEN. JOHANNS: So as a result, how many dealerships that might have been given three, four more years were now accelerated?
MR. HENDERSON: Well, some part of them, again, as I said, Senator, were driven by our brand decisions. So those were company decisions that had nothing to do with the taskforce. And with respect to acceleration, it would be hard for me to actually put the number on it, but I think you would say probably 500 to a thousand.
SEN. JOHANNS: Five hundred to a thousand.
MR. HENDERSON: Yes, sir.
SEN. JOHANNS: And I'm assuming -- you know, today, although I would prefer not to say this -- today I represent 1.7 million people in Nebraska who own your company -- 60 percent at least when it's all said and done. I don't think most of them want to own your company. But having said that, I'm assuming that when the government now speaks, you're going to pay attention. After all, we are the owners.
MR. HENDERSON: In our case, sir, with 60 percent held by the taxpayer, we absolutely need to respect that, yes.
SEN. JOHANNS: Okay. Now let me ask you another question, if I could. State franchise laws -- I'm a former governor. We worked with these dealers. You know, they worship with us, they buy groceries with us, they're a part of our community. And I will tell you personally I buy vehicles based upon the trust they create, not on the fanciness of their dealership, to be very blunt about it. I think most people feel that way.
So when you look at going forward, how are you going to factor in small communities where maybe they're not selling a lot of cars but they're contributing to the community. They do support the softball program or are they just out of luck now?
MR. HENDERSON: Senator, as I said in the case of General Motors, of about 3600 dealers in the midpoint of the range I've talked about 1500 of them will be in small towns in the U.S. and we will have by large the largest footprint still, even with the reductions.
SEN. JOHANNS: Those jobs are nearly impossible to replace. Having been a governor and mayor, I can tell you that. Let me wrap up with this, and I'll ask you both this question. I've heard what you've kind of represented and promised, but I have to tell you, just to be honest with the dealers in the room, I think you're going to walk out of this hearing today, and 95 percent of what was decided before this hearing started isn't going to change. They're still going to lose their dealership. We may work with them. You make work with them -- not me -- you may work with them a little bit more, but in the end, they're going out of business, aren't they? Mr. Press? And don't give me a long answer. The gavel is going to come down. Just give me a yes or a no.
MR. PRESS: Yes.
SEN. JOHANNS: Mr. Henderson?
MR. HENDERSON: Yes, sir.
SEN. ROCKEFLLER: Those were thoughtful and helpful questions. In closing, I should point out that Senators Lincoln, Senator Nelson of Nebraska, and Senator Cole of Wisconsin have asked for the committee to pursue a line of questioning surrounding the closing of the dealerships, presumably, in their states. Without objection, these statements, questions on their part will be a matter of the record.
Also without objection, all full statements of committee members will be included in the hearing record. And at the advice of my distinguished ranking member, if members have questions, further questions, they would like to be able to get them to you and have them -- and this may be hard, but it can be done -- have them answered by Friday.
MR. PRESS: Yes, sir.
MR. HENDERSON: Yes.
SEN. ROCKEFLLER: Finally I want to thank everybody for being here. It's a long hearing, a lot of emotion. A lot of things weren't said that people wanted to say. It was a tough hearing, but it was sort of at the very fulcrum of where we are going in America or where we're not; who's going to make it, who isn't; how are our systems working; how are we paying attention. And I consider it as a very valuable hearing. I considered the audience a very courteous audience, and the panel, all of them, helpful and straightforward with us. Having said that, this hearing is adjourned.