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tv   [untitled]  CSPAN  June 13, 2009 3:30am-4:00am EDT

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years, providing good service in the community and they get a letter telling them no. wade walker is here from o ÷ they have to sign a contract and i guess it's a 10-year contract they got to pay for that. 3200 bucks to service training,
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$10,000 to hook up to the computer, $5,000 for the brochures. so it's money out of their pocket that supports the manufacturers so it's very hard for us to understand why it is these guys are, quote, a drain on the business model. secondly, i think what you're hearing from all of us is there's something wrong with the business model that basically says in order to survive we've got to crush our local dealers. we've got to take out of the community some of the folks in the community that have been doing the most to create a sense of community and to provide local jobs. i mean, the economy has to be about making a living in our local communities. and we are going dead wrong if we can't have a business model that rewards local success and gives people in a community -- they're willing to take a risk, to do a job, provide a service, related to their customers. if they don't have a place in the economy in the auto future
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of this country. you know, it's almost as though each one of the manufacturers wants to have one dealer on steroids that can sell to everybody in the country over the internet and it just ain't going to work. so mr. chairman, and mr. walden i appreciate you having this hearing. my hope is that we can find a way where there is a place that includes our local car dealers who have been doing so much for so many for so long. thank you very much. >> thank you, mr. welch. you have time? if you have an opening statement, a 3-minute opening statement. now would be the time. give yourself a second and get situated there. >> thank you, mr. chairman. i appreciate this hearing and the circumstances that bring us here today. it's really unfortunate.
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despite signs the economic downturn has slowed and maybe even turning around, many americans are still unemployed or fearful of losing their jobs and for some, this fear is -- for many, this fear is very real. two iconic companies here today, chrysler and gm, are closing more than 2,000 dealerships nationwide with potential job losses numbering in the hundreds of thousands. this move will impact every state and city in the united states. on tuesday, 789 chrysler dealerships closed their doors including some in chicago. about where i'm from, about 2500 gm dealers closed by the end of the year. there are three gm dealers in my district and another four nearby that my constituents depend on. there's been no public announcement of whether any of those businesses will close but the employees and their families go to sleep every night wondering what the news will
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bring in the morning. and i'm glad that this committee will have the opportunity to review how the decisions are made to close certain dealerships, closures of local businesses of this magnitude will severely harm communities and local economies that are already strained nationwide and these closures having a larger effect. we have to determine whether the process used for deciding whether and which dealers to close was fair to all involved. we also have to begin to think about how to assist those who have lost or will lose their. in addition we must look to the future of our nation's historic auto industry. i have no doubt that these branches will be able to make a comeback building and selling the cars and trucks of the future. ones that are energy efficient, innovative and uniquely american. also while this may not be the primary focus of this hearing, it has been brought to my attention that there are concerns about how gm and chrysler's restructuring will affect injury and liability for
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its current customers and it's something we may want to consider in the future. thank you, mr. chairman, for your indulgence and i yield back. >> thank you. that concludes the opening statements of all members of the oversight investigation subcommittee. let me introduce our first panel of witnesses, some of the members have asked to introduce some of them. i'll yield to them at that appropriate time and keep your comments brief. but first we have mr. james press who's president of chrysler, llc. mr. fritz henderson, chief executive officer of general motors corporation. mr. braley, you want to introduce john? >> i'm pleased to have john who's president of the auto dealers president in clinton, iowa, in my district and also has another franchise in iowa city, welcome, john. >> mr. spitzer -- betty help me
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out elyiri a. >> he has been in the business a long time in eylira and the surrounding years. 100 years i believe in the auto dealership. [inaudible] >> well, those are pretty deep roots and i am honored and i'm grateful, mr. chairman, that you brought mr. spitzer to share his experience not only in obviously providing our communities with the cars they need to drive but helping to shore up so much within our community by sponsoring organizations and contributing to the quality of life there. >> next we have mr. bob thomas, mr. walden, would you like to say a few words there. >> thank you very much, mr. chairman. mr. thomas is a constituent of mine from bend, oregon. his grandfather formed the dealership for general motors in 1918. he served as lieutenant in the u.s. marine corps from 1969 to
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1972. he's a graduate of stanford university. serves on the boards of the united way, greater bend rotary, st. charles hospital foundation, boys and girls club, bend chamber of commerce, oregon state university, cascades campus and the central oregon visitors organization. the kind of person you'd want to represent your company in central oregon. >> next is mr. daniel. he was requested by mr. -- am i saying your name right or wrong? [inaudible] >> okay. thanks for being here. and mr. dicks asked that you be here. mr. james gollac, mr. doyle, you want to say a few words. >> thanks, mr. chairman. it's a pleasure to welcome my friend at today's hearing. jim and his family have been at the same location in pittsburgh since 1935. a business that's still owned and operated by his family. they started with a hudson franchise and then they sold
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cars from amc, jeep, and later eagle. several mergers later, they were a successful jeep dealer until 1999 in 2000 they acquired the chrysler franchise and now they are a chrysler jeep dealer and have sold over 10,000 new and used vehicles over the last few decades. they have consistently held the highest customer satisfaction rating for sales and service in the state of pennsylvania. and i welcome you, jim. >> next is mr. duane paddic of new york thanks for being here. last but not least, is mr. frank blankenbeckler iii of waxahachie, texas. frank is here with his son, austin and thank you for coming. joe, do you want to say anything about your witness? >> is it time to introduce them? >> it is. i just did a half-hearted i have. >> thank you, mr. chairman. i've been down in the
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electricity hearing. it is my honor to introduce frank blankenbeckler. he is a native of waxahachie, texas, graduated from waxahachie high school. went to the university of texas where he lettered in basketball. he came back home to waxahachie and entered the business that his grandfather started in 1926. he is one of the civic leaders in waxahachie. they have -- he and his family have been major donors to every civic improvement in the last 50 years in that community. and as i said in my opening statement last year, his business and the 40 employees generate revenues in interrupted $1.3 million in taxes to various state, local and federal entities. he is considered one of the leading entrepreneurs, businessman, philanthropist of his hometown and i consider him to be a personal friend so we're honored to have him here and as
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i said earlier, i think he represents hundreds if not thousands of family-owned dealerships that have been in business for decades and most of those dealerships, hopefully, want to continue in a positive business relationship that is positive for themselves and for general motors and chrysler and ford who's not here. thank you, mr. chairman. >> thank you. and it's also my understanding, mr. blankenbeckler's son austin is here. he's also in the car business. thank you. okay. that's our first panel of witnesses. it's a policy of this subcommittee to take all testimony under oath. please be advised that you have the right to be advised by counsel during your testimony. do any of you wish to be represented by counsel? everyone is shaking their head no. if any at time wish to be advised by council let me know before you answer a question. we'll accommodate that. therefore, since we take our testimony under oath i'm going to ask you all to rise, please raise your right hand to take
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the oath. do you swear or affirm the testimony you're about to give to be the truth, the whole truth, and nothing but truth in the matter pending before this committee? let the record reflect that the witnesses replied in the affirmative. you're all now under oath. we're to start with our opening statement, which would also be under oath. i'm going to ask you to please limit it to 5 minutes. we have an unusually panel because of all the interest in this hearing. mr. press, we'll start with you and then we'll do mr. henderson, then mr. mr. paddock and mr. kekanap. mr. spitzer and mr. golic. that will be the order. mr. press, 5 minutes. >> thank you. chairman stew pack, ranking member walden and members of the committee i appreciate the opportunity to discuss why a dealer realignment is important
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to the new chrysler group. despite completing a painful restructuring, the new chrysler group will retain 86% of its dealers by volume and 75% by location. i empathize with the dealers who are not the brought forward into the new company and i surely understand their disappointment. this has been the most difficult business action i've ever personally taken. i'd like to begin first by answering the four questions that i have been asked most often while i've been here in washington. first, was distinct these dealers really necessary for chrysler's survival? the answer is absolutely yes. today's automotive industry cannot support the number of dealers currently in the marketplace. we've gone from 17 million new vehicle sales in 2006 to less than 10 million today. as a whole the chrysler dealer network is not profitable. it's not viable. in 2008, the average u.s. auto dealer sold 525 vehicles and made a profit of $279,000. the chrysler dealer average was 405 vehicles and lost $3431.
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without profits, dealers can't invest in people or training, facilities. as a result sales and customer satisfaction suffers. the old chrysler's multiple dealer channel was too costly to support. i'll give some examples of that in a moment. and to complete our bankruptcy process and our alliance with fiat we needed a realigned new dealer network for the new company to emerge on day one on june 9th the bankruptcy court authorized the discontinuation of our dealer agreements as part of optimumization plan. the judge said it was, quote, an exercise of sound business judgment made in good faith and for legitimate commercial reasons, unquote. the judgelso said in his ruling the dealer reorganization was, quote, appropriate and necessary. on june 10th, the fiat chrysler alliance was launched with a right sized new dealer network. second question, dealers don't cost the company anything, do
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they? well, in fact, they do. the cost to chrysler of an oversized dealer network includes both lost sales and excessive spending. first of all, dealers have a minimum sales responsibility every year. it's realistic and conservative and based on their average sales of chrysler sales. underperforming dealers cost unit sales as well as in 2008, of the 789 discontinued dealers, 80% of them were below their minimum sales responsibility which translated into 55,000 lost sales, $1.5 billion in lost revenue. second, the old chrysler dealer network included many dealers that sell only one or two of the three brands. this has led to tremendous redundancies in product development and brand strategy. for example, we spent $1.4 billion in the last product cycle in engineering and development costs for sister vehicles that did not return one
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cent of incremental profit or sales. for example, chrysler currently supplies dealers with two å dealers in the network. å on average the discontinued lost $73,000 last year, of course, some of them are profitable,
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yes, some of them are profitable. but their new chrysler business may not be. .. this dealer is profitable but also sells in europe, pontiac, isuzu, and of his new car sales abroad represents 3 percent of his sales for his dealership
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last year. that is a good example of the situation that we face. so while some of the 789 dealers may be profitable, chances are they are making money selling used cars, competitive vehicles and by our assessment their drag on the network in total. the last page of my presentation is in here but i will paraphrase quickly and that is that this is a very painful process, going through bankruptcy was not our choice. the company is no longer a functioning organization. we've had to make some very difficult decisions in business that would assure by making these tough calls for 789 dealers we've got 2391 dealer is not represented here, in small towns with little leagues and a lot of employees to jobs and business save as long with the full enterprise of our company, the suppliers and the rest of the nation. this was a very difficult decision that we have made, it
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is one that we want to share with you in terms of transparency. we have taken every step to make this a soft landing for the dealers involved and will find out soon that all of the vehicles and the discontinued dealers have been redistributed along with most of the parts and almost the equipment. we stand ready to answer your questions and respond to any suggestions that you may have, they give very much. >> thank you, mr. press. mr. henderson, your opening statement. >> thank you chairman stupak and ranking member, walden. >> teeone to move that closer. >> on each action out to reinvent gm there is a human story, our dealers and parts of the larger gm family. there are valued business partners and for many consumers the face of general motors. however, the sacrifices all painful that we're all making are necessary to put gm in a better path to long-term viability and success and we owe
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this to the u.s. taxpayer. in essence this is our last chance to reduce debt, to operate under competitive labor agreements, to have the manufacturing capacity that matches realities 10 and partly to continue to design and build trucks with the leading technology. we simply cannot undergo the sweeping transformation without a comparable effort to reshape its retail network, one which was largely created in the '50s and '60s. we have been called upon to make tough commercial decisions and will do so responsibly and compassionately. and in the case of our dealers to act as carefully responsible and objectively as we can come to help the wind down their businesses in an orderly fashion was structured assistance package that benefits them relative to alternative. this approach is in stark contrast to a happens in most wear typically simply rejected with no assistance and unfortunately we are a company today in bankruptcy. let me first discuss cost and
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sales opportunities that are relevant to these decisions. a concentrated -- highly profitable dealer network will reduce cost for gm at a time when every dollar is precious. the savings come into categories: a rightsize network of strong dealers will allow gm two systematically and this is over time produced direct dealer support programs which today and bawl for general motors about $2 billion in the u.s. or approximately a thousand dollars for retail sales and this is a gross savings of a little less than a million dollars for discontinued dealer. this however does not take place immediately because the support programs are, in fact, subsidies have been incorporated over many years to help dealer profitability in the network is unfortunately weak financially. to the best of our knowledge our best in class competitors today bear few if any of these costs. our consolidation will also provide an estimated $450 million in gross fixed cost savings potential.
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items like guaranteed local advertising -- excuse me, assistance, service and training technology systems or potential of across mali $180,000 per dealer. second, our dealer consolidation is not just about saving money by trading opportunity and revenue growth. it is about to dealers augmenting evers to really enhance consumer perception in our products, brands and general motors directly on a daily basis and as wine every other aspect of the retail business from harley-davidson to apple stores and, yes, toyota and honda you see that a premium is placed on crating the distinct consistent and top-notch retail experience. that's why we're building a profitable business plan for between 3500 and 3800 u.s. dealers by the end of 2010 which was a retail sales market over 10 million units and conservative share assumption would allow our dealers to approximately double the throughput. for dealers this is a greater return on investment, better profits and ability to attract
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and retain new customers and the best people to serve as vehicles. finally even with the cutbacks and gm will have a large network in the country more than any of our competitors and in our case around 3600 verses, for example toyota at 1200 and this would include an extensive oral network of 1500 dealers nationally in markets where we hold today on average more than 10 points and manage and market share. while we're operating with a high sense of urgency is equally important and get the process right considering the personal and financial stakes at hand and we recognize we wanted recall rights and as why we're listening in working with the dealers and with the nada to get a better understanding of their concerns. as a result we sent our dealers a letter clarifying various edges and a participation agreement most notably dealing with competitiveness and performance standards. so what is the current status of our work in the support from? we have in place an appeals process and have considered and a 56 appeal requests as of
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yesterday granted 45, will continue to evaluate all gm dealers against a common set of performance standards to ensure selection process is fair and robust. as of today's deadline, we are encouraged by the progress made in the overall dealer response strong. approximately five -- 99 percent have signed or verbally agreed to a participation agreement almost 96 percent have done so with the wind out agreements. in closing we are deeply grateful for the support of the steelers. they're helping to create viable gm that will preserve over to 1,000 jobs at remaining dealers along with hundreds of thousands of jobs with gm direct manufacturing and supply network. we're grateful for the support for your support during this critical time and we take our responsibility to the american taxpayers very seriously and promised to be open and transparent and all we do every step of the way. thank you and i look for two questions. >> thank you, mr. henderson. john mceleney of national auto
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dealers association. >> [inaudible] [inaudible] [inaudible] the jim of dealers throughout this ordeal. in the initial viability submissions chrysler mention nothing other than continuing our current program to facilitate dealer consolidation. yet bankruptcy has less on
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hundred 89 chrysler dealerships without franchisees on 26 days' notice without even buying back their vehicles, cars and factories specific tools. it no manufacturer has ever done this. gm original liability submissions reflected desire to eliminate some brands in his call for additional dealer consolidation over an extended time. now besides the brand eliminations, 1350 additional gm dealers face terminations on a much more aggressive time line. why this dramatic shift? in response to a question before the senate banking committee on june 10th, ron bloom of the auto task force said and i quote, we did not give the companies in the miracle targets but we certainly did say regarding plants and dealers regarding white and blue caller head count, regarding all these matters that you need to be more aggressive, closed quote. everyone agrees that these companies need to decrease costs and increase revenue by dealer cuts did not achieve these
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goals. it the other key elements of the restructurings provide direct and time and cost savings to gm and chrysler. in sharp contrast terminating a dealership does not provide any material cost savings. in the retail an hour, the land, the buildings, the employees, training, the dealers pay for all of this. as detailed in my written testimony we dispute the notion the dealer network imposes a significant per vehicle cost or any significant administrative costs on the manufacturers. indeed, company officials have been widely quoted as saying the manufacturer's cost do not very whether 6,000 dealers or 3,000 dealers. moreover the faster deeper approach of the auto task force will actually reduce manufacture revenue at this critical juncture. in over 90 percent of chrysler and gm revenue come from the dealers because the dealers buy the cars, the parts and even the dealerships signs when the manufacturers. the automakers will tell you that it takes least 18 months to
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begin the sales of a close dealership and that's the best case scenario in short the dealer termination will cost revenue losses for the manufacturers without any corresponding cost savings. as such, we do not see how these cuts make economic sense. not for the companies, not for the dealers, not for local communities, and certainly not for the struggling u.s. economy. now i will turn to the status of the gm agreements both participation for those going forward and the wind down agreements for those who lose their franchises. last week during my testimony to the senate commerce committee i voiced nada concerns about the extremely one-sided participation agreements it delivered to 4,000 dealers of the new gm. during that hearing mr. henderson committed to meet with nada to discuss our concerns. gm followed through on that commitment. in our leadership met with senior gm officials last friday and we had a very frank
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discussion. as a result, gm has agreed to make significant improvements in the participation agreement. additionally, gm is committed to clarify some of the terms of the wind out agreements. and nada will continue to work with jim to improve the agreements. we appreciate gm efforts to end iraq's with nada on these matters. in conclusion it mr. chairman i want to thank you again for giving me this hearing because we still have fundamental concerns. this government negotiated bankruptcy's continue to threaten to their rights under state motor vehicle franchise laws. these laws inject balance of the inherently on balance economic relationship between a dealer in the manufacture and they also provide consumers a reliable convenience and competitive on a retail network. therefore congress should insure that the franchise laws of 50 states apply with full force and effect especially when the new chrysler and the new gm are operating outside of bankruptcy. we urge members of congress to
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support h.r. 2743 which would restore a fundamental rights to dealers. we stand ready to work with you to achieve this goal. thank you for holding this import hearing and thank you for the opportunity to testify. >> thank you. we now go from left to right with dealers, mr. thomas, which led to begin. a pull the mike over thomas began to its so we can hear you and i can pick it up. >> thank-you, chairman stupak. [inaudible] >> is or might on a price -- is your my god? >> thank you. may 15, 11:00 a.m., employs watch as a driver has with thin cardboard envelope that contains our destiny. i received an unsigned letter from general motors, the total was vague and referred to criteria but not specific methodology neither stating the relative importance of regional how great a time was being referenced. the letter stated quote, we don't think we'll be able to renew your contract

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