Chrysler, GM Defend Dealer Cuts on Capitol Hill

(MoneyWatch)  Chrysler and General Motors were on Capitol Hill today defending their dismissal of thousands of car dealers between them.

"We simply cannot undergo this sweeping transformation without a comparable effort to reshape our retail network -- one which was largely created in the 50s and 60s," said Fritz Henderson, GM president and CEO, in written testimony.

GM anticipates reducing its U.S. dealer count from 6,246 in 2008 to 3,605 by the end of 2010, a reduction of 42 percent. Chrysler plans to cut its dealer network by about 25 percent, from 3,181 to 2,392.

The Commerce Subcommittee for Oversight and Investigations of the U.S. House of Representatives called Henderson and Chrysler Vice Chairman Jim Press on the carpet today to explain the cuts.

Many dealers are not taking this lying down. Dealers and their biggest lobbying group, the National Automobile Dealers Association, are trying to rally grass-roots support for the dealers that are on the chopping block.

Dealers pay billions of dollars in local sales taxes, and they generally swing a lot of weight in local and state politics. State franchise laws are written almost exclusively to protect dealers from being terminated by the car companies, and to prevent the car companies from arbitrarily appointing new dealers. In the early years of the auto industry, those were favorite tactics of the car companies, to punish or reward dealers.

Chrysler's Press said in written testimony that his company intends to cut only the smallest, least profitable dealerships. He said that the 789 "discontinued" dealers make up 25 percent of the total, but only 14 percent of the sales volume for Chrysler, Dodge and Jeep. He said half sell fewer than 100 new vehicles per year, and 84 percent sell more used cars than new.

Press conceded that the affected dealerships employ 29,982 people, but he said many of the dealerships will stay in business because the dealerships also have other, competing franchises.

"The job loss is painful and tragic," Press said. "But (it) is much better than the alternative of all dealers closing as a result of liquidation."