The chiefs of General Motors and Chrysler told Congress on Wednesday they have too many dealers to support their slimmed down operations and sacrifices must be shared as they fight to overcome bankruptcy and survive. They acknowledged that slashing car dealerships is causing pain in communities around the U.S.
After hemorrhaging customers for decades and losing market share to foreign competitors, the two automakers said their companies need to scale back all their operations to become leaner and to hopefully return to profitability.
But car dealers are a powerful political constituency, contributing more than $9 million to federal candidates in the 2008 elections. They also are a significant source of tax revenue to communities and counties, employ hundreds in local communities and fulfill civic functions by sponsoring sports teams and contributing to charities.
GM is aiming for "fewer, stronger brands as well as fewer, stronger dealers," GM President Fritz Henderson said in testimony prepared for the Senate Commerce Committee. "These are tough times for everyone in the GM family."
Chrysler President James Press told the panel in prepared remarks: "Poor performing dealers cost us customers...If they don't sell cars, we don't either."
Pointedly reminding car makers they are now reliant on taxpayer money, senators of both parties complained about the impact of the dealerships being abruptly shut down, reports CBS News correspondent Bob Fuss.
Committee Chairman Jay Rockefeller, a Democrat, suggested both companies were abandoning customers and dealers, some of whose families have been in the business for decades.
"I don't believe that companies should be allowed to take taxpayer funds for a bailout and then leave local dealers and their customers to fend for themselves with no real plan, no real notice and no real help," Rockefeller told the automakers. "That is just plain wrong."
Those dealers "are looking into a black hole right now," while companies seem to be implying "that the dealers themselves are responsible for the companies' problems," Rockefeller said.
More than 2,700 dealerships are in line to lose their franchises. Two small-town dealers invited to appear before the committee spoke of the anguish ahead.
Russell Whatley, a Chrysler-Dodge-Jeep dealer, said his grandfather opened the business in 1919. "A 90-year investment is just gone," he said, "and neither my family nor my employees have any say about it."
Peter Lopez, a GM and Chrysler dealer, said in his prepared testimony: "I have met every financial obligation put forth by Chrysler and GM." Now, he said, "they want to shut me down."
"I'm a taxpayer," he said, "and they're (automakers) getting taxpayer dollars. It just doesn't add up."
The executives of the struggling companies said there are too many dealers, with many often competing with each other for sales. They suggested many of the dealerships date to the 1940s and 1950s, when motorists lived farther apart and Detroit automakers led the world in sales.
Chrysler is expected to emerge from bankruptcy protection within the next few days. General Motors filed for Chapter 11 protection on Monday and its officials said they hope to be able to emerge as a new company in 60-90 days.
Lawmakers contend the dealership closings will put thousands of people out of work and offer few savings to GM or Chrysler, which have received billions in federal aid as they attempt to restructure and return to profitability. The industry, in response, says taxpayers' investment is best protected by shedding unprofitable operations and strengthening the bottom line as fast as possible.
"It's not our place to change your decision," Sen. Kay Bailey Hutchison, a Republican, told the auto executives. "But it is our place...to make sure that everyone is treated as well as can be in these circumstances."
Chrysler LLC has identified 789 dealerships it plans to close next week, about a quarter of the company's dealership network. Its plan has drawn fire from lawmakers because dealers received only three weeks' notice.
General Motors told 1,100 dealerships it does not plan to renew their franchise agreements in late 2010 and expects to shed an additional 900 dealerships through attrition and by selling or discontinuing its Hummer, Pontiac, Saab and Saturn brands.
Chrysler dealers have only until June 9 to close down. "That termination date is needed to ensure that our new dealership structure will be firmly in place at or about the time the new company is formed with Fiat, something understandably important to Fiat," Press said.
Greg Signore, who owns Elm Dodge in Kearny, N.J., says he feels backed into a corner. And he's angry.
"We're the road kill in all of this," Signore told CBS News correspondent Michelle Miller.
He's one of nearly 800 Chrysler dealers nationwide given notice they will be closed. On top of that bad news, Chrysler ordered Signore to clear out his show room by June 9, reported Miller.
"After 60 years, they don't give me the decency to have a longer period of time to get rid of my inventory," Signore said.
Chrysler says its departing dealerships have resold or redistributed about 90 percent of their inventory and parts through a company program. But dealers being let go want the Obama administration to give them more time.
"We have an eight-month supply of vehicles and only three weeks to clear them out," Whatley told the committee.
GM said the dealers it's not renewing are being given until October 2010 to close.
Meanwhile, a group of Republicans distressed by the Obama administration's temporary nationalization of GM is proposing that congressional approval be required before money from the Troubled Asset Relief Program is used to buy a stake in a company.
The lawmakers complained that Congress had no opportunity to review the Obama administration's decision to take a 60 percent ownership of GM.
"General Motors needed a real bankruptcy, not a political bankruptcy," said Sen. Jim DeMint, a Republican.
"We end up owning 60 percent of the stock and not a single vote was cast on that plan," said Sen. Mike Johanns, a Republican. Johanns said the amendment, which they hope to consider Thursday, would apply to any money provided after May 29.
The third Detroit automaker, Ford Motor Corp., has not filed for bankruptcy protection and has not taken any federal bailout money. It has also not announced widespread dealership closings.