WASHINGTON -- A group of activist dealers rejected in the Chrysler and General Motors bankruptcies is contemplating going back to Congress to seek justice after a federal audit questioned the criteria used to terminate dealers, as well as the automakers' claims the moves were necessary to help restore profits.
The report issued today said GM failed to apply the criteria uniformly. It also said cost savings were not the reason for the dealership closings, even though GM and Chrysler told Congress the terminations would speed recovery from their 2009 bankruptcies.
Dealer arbitrations ended last week and the decisions are binding. The Committee to Restore Dealer Rights helped pass legislation making those appeals possible. Now it's discussing its options in light of the critical federal audit, said Tammy Darvish, one of the committee's leaders and a National Automobile Dealers Association director.
Darvish, vice president of Darcars Automotive Group in the Washington area, said the federal Auto Task Force and the auto manufacturers should be accountable for their behavior before Congress and in the federal bankruptcy court.
“It's not about recourse or arbitrations,” she told Automotive News. “It's about holding people accountable that clearly exercised abuse of power -- government officials who were charged with the responsibility of protecting taxpayers' best interest and manufacturing executives that were everything but truthful. Raising your right hand in federal court and in Congress and swearing to tell the truth should mean something.”
The report comes from the Office of the Special Inspector General for the Troubled Asset Relief Program, which provided more than $80 billion in loans to keep the automakers and their finance arms afloat. Members of Congress asked for the review of the dealership terminations because of confusion over the criteria used to reject dealers and questions surrounding the automakers' claims of benefits resulting from the closures.
“This report would have been incredibly important to dealers in arbitration,” said Mike Charapp, a McLean, Va., dealer attorney involved in the arbitration cases. “These arbitrators came in with a predisposition that the manufacturers' business plans were solid. Now we find out they were just pressured by Congress to do it.”
$2 billion question
Former GM CEO Fritz Henderson, for example, told Congress last year that the dealer shutdowns would save the automaker more than $2 billion.
The fact that GM and Chrysler offered to reinstate some dealers following the passage of mandatory arbitration legislation and GM's statement that restoring dealers wouldn't hurt its recovery suggests “the number and speed of terminations was not necessarily critical to the manufacturers' viability,” the report said.
The report also said the automakers should have considered the impact the closings would have on employment “in the face of the worst unemployment crisis in a generation” and while the federal government was spending “billions of dollars on a stimulus package to spur job growth.”
The report found that Chrysler, which made decisions on a case-by-case basis, followed the criteria for targeting dealers for termination. But it criticized Chrysler for not providing dealers with an appeals process.
GM was taken to task for inconsistently applying its criteria for termination. For example, GM said it would close a dealer with either annual sales of fewer than 50 new vehicles in 2008 or a score less than 70 using its “Dealer Performance Summary” formula.
Two of the wind-down dealerships scored above the thresholds on both measures and others exceeded one of them. GM offered to retain 41 percent of the 858 dealerships that had DPS scores below 70 and nine of the 394 dealerships that sold fewer than 50 new vehicles in 2008.
In the weeks before the audit was begun, the two automakers had announced they were shutting down about 2,100 dealerships to save costs and become more competitive. President Barack Obama signed a law in December that required the automakers to offer binding arbitration to dealers whose outlets were being closed.
GM said in March it planned to reinstate 661 dealers after the company began re-evaluating the closing of 1,100 retailers.
Chrysler said that same month it was offering new franchises to 50 dealers who applied for arbitration, in addition to 36 previous offers or new agreements. Chrysler terminated 789 dealers in June of 2009 and said in January that 409 had applied for arbitration.
Automaker responses
Chrysler, in a statement today, continued to defend the terminations, calling it "rightsizing" the dealer network.
"This optimized dealer network is already contributing to improved vehicle sales for Chrysler and will be a vital part of the Company's success as we continue to deliver outstanding products to our customers," the statement said.
GM, in its statement issued today, sought to distance itself from the decisions, saying the events in the federal report "have since been overtaken by a new GM and a stronger dealer network to match."
"The new GM is also moving forward to improve dealer relations and has already reinstated several hundred dealers and completed the arbitration hearings for the remaining dealers who filed cases.
"With the right size dealer network, GM expects to continue to realize greater operating efficiencies and increased dealer throughput and profitability and overall cost savings. GM believes a strong, profitable dealer network selling the world's best cars and trucks gives us a market advantage."
GM said it cooperated with the federal auditors.
"As former GM officials noted in various public comments, business conditions required GM to undertake difficult and urgent actions that would require sacrifice among all stakeholders," the statement said. "Since then, GM, its employees and dealers have a renewed sense of confidence in a bright future."
