tv [untitled] CSPAN June 7, 2009 2:30pm-3:00pm EDT
of hearing. i think that's why we're in such a difficult deep problematic situation today. but we -- the government is the big owner now here so we 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 had the dealers again in my state and where i bought my town and country chrysler minivan, he says, look, we don't cost these guys a penny. i don't cost these guys a dime. yet obviously you have enumerated some costs that i think in mr. johanns' case, you were saying this is what they are. why not go bankruptcy a different route on this. instead of cutting free the dealerships, why not say to your lower performing ones that you articulated and found them, we can't afford to subsidize t support you. so therefore we are not going to provide the network of money and backing to you that we're going
to provide to a higher performing category, so that you're not just cutting them free on this, because you had two guys over here saying, that, looks like they're good salesman to me, frankly. >> they don't subsidize us. >> they are saying they 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 so you have the network out here that is important to many communities and very important to rural communities, but you see costs associated with it. why not look at it that way? >> maybe i can start, sir. i appreciate the question. it is not a cost issue. that's not the basis. in our situation, the dealer body we're working with, the 3100 dealers was established roughly at a time -- >> i'm going cut on time here,
but it is not a cost issue, then why are you even messing around with it? >> if i could -- i'll get to that very quickly. this dealer body number was established when we were selling over 2 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 2 million revenue, the dealer body isn't -- >> 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? >> okay, because, first of all, we're 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. we'll no longer spend the money. they will not have individual products. second -- >> we are under one roof. >> second, in is a number of dealers not under one roof. second, it is important to note that the deficient volume dealers were costing us
substantial money in markets that we should be doing a lot more business in, and, third, i think even more importantly, a weak dealer that is 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 organization. >> if that's the case, why not let them fight it out? that doesn't matter that much to you. >> great point, sir. >> does it? >> for the last ten years, we have told the dealers who -- which dealers would be in our genesis program going forward and which ones wouldn't. a number of dealers made their deals and have gone through the process, slowly we have done 100 or so a year. we're out of time because of an -- a large factor in our bankruptcy is an inefficient, ineffective dealer body. we're now bankrupt. the new company will not have the same problem going forward and that's in the taxpayer's best interest. >> mr. henderson, your wage and benefits structure is going to be down now with where toyota
and honda is and your labor structure through your bankruptcy? >> yes, we believe we will be competitive with toyota, sir. >> your numbers will be the same roughly on your wage and benefit structure? >> yes. >> 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 when a lot of us don't like that idea anyway. but this is a catastrophe. but then you go out and really exacerbate it and 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. >> see if i can address each of the points, senator. first, in our case, with all due respect to my colleagues and partners here, 67% of the dealers have received winddown agreements were unprofitable and substantially so last year. second is, we 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 this has been the exactly where our past has been, this has been our past. we 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 principled competitor toyota and we greatly
underperform because no singer 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. there is no way i'm going justify putting capital into a general motors franchise, we'll put it into a toyota franchise. that's what's been our history and that's not a method over time we can operate in. because in the end, there are a whole host of issues. we have very good market position in world markets. i fully understand that we may have made some mistakes. but the lion's share of the sales in the united states are in major metro markets there we grossly underperform and in part because our dealer system is not properly structured. >> thanks. >> thank you, senator. senator mccaskill. >> thank you, mr. chairman. i think mr. press, one thing we 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. these two gentlemen have said they didn't know it. i'm betting there is others that don't have all the accurate information so i think one of the things you -- we have learned from this hearing is you have 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 have communicated clearly with all of the dealers that you have, in fact, moved 97% of the vehicles and are on a path to provide some kind of specific assistance as it relates to tools and parts. >> 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. >> fair enough. quickly, mr. wattly and mr. lopez, what brands do you sell, mr. wattly? >> chrysler, dodge and jeep. >> and mr. lopez? >> chrysler, dodge and jeep, chevrolet, pontiac and buick. >> okay. and mr. mceleney, is it mceleney? >> yes, that's correct. >> could you give me what percentage of your dealers in your association are multipoints
across manufacturers? >> i'm not sure i can answer that. i can tell you, for example, 45% of the toyota dealers also have general motors franchises for one example. the average dealer has roughly two dealerships on average. >> 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 under capitalization and the problems and struggles and i know the ongoing fights between the mothership and the dealers. there have been lots and lots of battles over the years. i understand the passion and the pain here. i think we vall to acknowledge that these companies are broke and they're not going to succeed unless they get smaller. we got to figure out a way forward that is fair. let me ask this for -- this is a difficult question, mr. press. i looked in the -- i have -- we
have gotten some information that came to us back channel about the dip budget, and this is the debtor in possession budget of -- in the bankruptcy. and -- it talked about the budget for the old company. what troubles me in there, there is an acknowledgement 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 are doing hard work, but if there is $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 pitch forks would come out and i think there, you know, there would be a real problem and i want -- i know i ask you about this yesterday, have you learned anything more about that and can you shed any light on that? >> no, senator.
i did make an inquiry, we were not able to find testimony. i can only speculate. 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. >> well, i misspoke yesterday, it wasn't in testimony but it is in a preliminary d.i.p. budget, that has been circulated and talked about. i believe your cfo referred to it in various meetings. 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 plrk he, mr. hen going forward, i understand you're going to try to do a bankruptcy similar to chrysler? >> yes, ma'am. >> also in an unprecedented fashion there has been a decision made that if somebody buys a chrysler car six weeks ago, and there is a defect in
that car, they -- there will be liability in the new company for the recalled 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 is 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? >> that would be our expectation, yes. >> 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, there's no liability. >> they'll come back on us dealers. >> and that's another entire issue that needs to be discussed. i think that is something we need to continue to ask questions about and i think that it probably is something. by the way, i've understood that since this happened, we had several companies go back and make filings for 363s now, thinking that they can come in and absolve themselves of any immunity they -- 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. >> senator mccaskill, if i may follow-up, when you said that would be our intention, that doesn't get you very far in west virginia. it is either yes or no. >> yes. >> that helps. senator thune. >> thank you, mr. chairman.
thank you, all very much for being here today and to mr. press. mr. henderson, it has got to be uncomfortable for you have to come here. it is 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 exception, 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, 535 members, and you have to be subjected to all of 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 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 is not only -- you go there to buy cars, but in my hometown, it is where people go in the morning to have coffee to talk about the game last night. it really is so important in terms of the just not only the economic vitality of the 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 you intended to re-establish the 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 in some of these communities, and they have an opportunity to obtain those dealerships, which 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. >> yes. they will have the opportunity. >> what's the rational for completely closing dealerships now if you plan to have a larger presence in the same area in the near term? >> what that does is it provides the opportunity to put it in the 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, you bring in the revenue of jeep and dodge in a chrysler dealership, you have a much more profitable, much stronger dealership going forward. >> is it also -- i mean, do you want to end relationships with some of the 789 dealers that are on your list to close?
is that -- >> some of the criteria does include very substandard performer that is costing us a -- quite a bit of volume and revenue by underperforming the market. and in some cases that exist and those dealers are begún @ @ @ @ that are now being made, we have the task force, you've got, of course, u.s. treasury secretary tim geithner, white house, a lost folks involved in the decision-making 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 -- 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 underperforming brands, nameplates and the inaccess 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? >> senator, i think i responded to senator johanns earlier. certainly in the march 30th report, among 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 have not been involved in. they made the comment it was their observation that we were in the aggressive enough in this
area and they felt we needed to do more and we have. >> 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? the gm plant was announced well before you entered into bankruptcy. i added to that now. but can you reaffirm that this is not a way -- not just simply a way to void dealership contracts? >> first, i'd like to respond to your question on the treasury -- >> i'm sorry, go ahead. respond to that. >> the treasury was not involved in any way of the selection or the development or 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 in the a bankruptcy is not a way that we're using to void contracts. in our case, it is a little --
it is 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, selection of the dealer body for that new company is being made. those are the dealers that are going forward. >> if i might just have -- i don't know how much time i have left, mr. chairman, direct one question -- >> actually none. >> none? okay. all right. then i would yield back and -- >> i don't want you to feel bad. >> i won't. don't worry. i don't feel bad. and in spite of your answer, i welcome you back, mr. chairman. >> thank you. >> i have a question i want to ask. there are a few of us here, there is a meeting that we have got to go to, but i've just got to ask this. i, mr. press, unless the
automotive news is some, you know, 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. that's been pointed out. you can either help us or burn us all down. why? how? get 78,000, buy 78,000 cars, chrysler. by 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 is a whole question of was there any ethical consideration on your part? you knew exactly what you were doing.
january is different from june 12th but now it is all very clear as mr. wattly 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 terminator dealerships to sell those vehicles in 26 days, which is six more days. you say that you made a lot of progress in reassigning those vehicles. you 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? >> i must address the automotive news comment at some point. is this the time? may i have approval to do that? >> the floor is yours. >> thank you, sir. i appreciate that. i want to be responsive to your question, but i think it is 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 that 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 of 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'll well 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 at 70% of the dealers had already taken the challenge, it is like a fire. a bucket brigade. 70% of the buckets have water in them. 30% don't. don't burn us down. let's all get in this and let's in the get bankrupt, let's not have to do this to 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 the dealers and add more. >> 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. >> it did work. we did not go broke and liquidate in the month of february. >> quite as quickly. >> no. we did not -- we did not
liquidate. and i think it is important to note the reason we're here, senator, is a meteor hit the industry, and it is 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 got bankruptcy, d.i.p. financing and soon 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. >> but the car dealers will be -- and i'm thinking of mr. lopez right here -- spencer, west virginia, 3800 people are going to be left with the inventory and the parts and they're not going to have any help whatsoever from you. >> we will -- we have taken the challenge and we will redistribute the inventory of cars and parts and will continue to do work with them after june
9th. and, yes, senator, we're committed to take virtually every car we can and redistribute it. and the 97% we have already gotten commitments for is a pretty good signal that we're serious about delivering on that, yes, sir. >> and continue to work with them. >> yes, sir. >> means what to you, mr. lopez? >> i just don't know. right now what i want to respond to was 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 have asked me to make some changes for software, i have. if i have to make some change for my building, i will be glad to do that. i'm looking out -- it is not personal. it is not just for me or my income. we are a profitable store. but our community, just like you said, and that's -- and i want to thank you for everything you do for us, senator. you look out for us and that's why we're here today. and if i seem intense it because
my livelihood and my community cares about what happens to spencer auto group. thank you. >> i thank you. senator hutchison. >> thank you, mr. chairman. i just want to come back, because i hear you saying 90%, 97% are going to be transferred and you that out, you have the information out, and yet i've heard from these two, from mr. wattly and mr. lopez, but also from other dealers. 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 ten 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? >> i know only mr. lopez's situation. i don't know about mr. wattly. 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. 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'd be more than happy today to discuss that directly with mr. lopez. i think it is important that
this transparency be known. >> well, you know, you said earlier that you appealed to the dealers and because mr. wattly took everything you asked him to take, every time you asked, you're not -- you didn't go into bankruptcy earlier this year. you are now. but here's mr. wattly. i hear what you're saying. i hear what they're saying. and it is not the same thing. so do you want -- >> i just don't understand the 97%. i don't doubt mr. press at all. i think they may have identified 97% of the vehicles. but i have talked to -- i talked to 10 to 15 dealers a day from east texas to west texas, no one has heard a thing from the business center. nobody has seen a report. no one has been ininquired about their inventory. no one has asked what inventory they have. i don't know where this 97% is coming from. >> can you today tell every chrysler dealer that got 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 arranged for 90% or whatever the percentage is for the transfer, so they know? can they count on that right now? >> absolutely, yes. and as soon as the dealers who haven't signed a release allowing us to take that responsibility will provide that to them directly as well. >> but, see, everything about this is a request to other dealers to buy. there is no actual firm -- they're requesting of the dealers buy the inventory and will try to assist in the sale but there is no actual plan. 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, in rebates, no warn tiranties, the just planter boxes on june 9th. then we get a call about june