Report: GM, Chrysler Too Hasty in Dealership Closures

Posted: July 19, 2010

When General Motors and Chrysler began closing dealerships last year, many dealers protested that the closings weren't made with enough consideration, and that there would be negative effects on local economies.  A new report says those dealers were right.

The New York Times says, "President Obama’s auto task force pressed General Motors and Chrysler to close scores of dealerships without adequately considering the jobs that would be lost or having a firm idea of the cost savings that would be achieved, an audit of the process has concluded."

"A report released Sunday by the special inspector general for the government's bailout program raised questions about whether the Obama administration's auto task force considered the job losses from the closings while pressuring the companies to reduce costs," writes the Associated Press.

If you recall, as part of the terms of the government bailout, both GM and Chrysler had to submit restructuring plans to the Troubles Asset Relief Program (TARP) administered by the Treasury Department. But, "the plans were rejected because Treasury deemed that the car makers weren't moving to close dealerships at a rate fast enough to keep their businesses viable," reports CNN/Money.  "So the auto manufacturers accelerated the process, with the help of bankruptcy laws that let them cancel dealer contracts. Chrysler terminated 789 dealerships last summer and General Motors announced plans to wind down 1,454 dealerships by October of 2010."

The closures were met with massive protests from dealers and dire predictions about local economies. However, the companies went forward with the closures in an effort to cut costs. Still, the Los Angeles Times says, "The audit said it is not clear whether this strategy resulted insignificant cost savings for GM or Chrysler. Moreover, it hurt the automakers by closing dealerships in rural areas where the domestic manufacturers had a competitive advantage over import brands."

"The report does not make any recommendations, and serves more as a review of the process. It does not carry the authority to initiate any corrective action," reports the New York Times.

Not everyone thinks the report is correct. Administration officials said "they 'strongly disagree' with the report’s conclusions, arguing that the administration’s actions toward G.M. and Chrysler 'not only avoided a potentially catastrophic collapse' but also 'saved hundreds of thousands of American jobs,'” writes The New York Times.

Still, some jobs were sacrificed in the closures. The Los Angeles Times notes, "The average dealer employs close to 50 people and pumps $16.5 million a year into the local economy, including payroll, taxes, payments to vendors, advertising and charitable giving."

Have there been dealership closures in your area?  If so, how have they affected the economy?  Do you think the Obama administration moved too quickly?  Leave a comment to let us know.

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