White House: Hands off Detroit's dealer plans

updated 2:09 p.m. ET July 21, 2009

WASHINGTON - The Obama administration warned the U.S. Congress on Tuesday that a House-approved plan to restore shuttered General Motors and Chrysler dealerships would threaten the auto companies' bankruptcies and recovery.

Ron Bloom, the leader of the White House's auto task force, told a House Judiciary subcommittee that the plan would set a "dangerous precedent" and raise legal concerns that could force the companies to intervene into a completed bankruptcy.

"By all measures, these companies had far too many dealers relative to the number of cars they were selling," said Bloom. He noted that the average Toyota dealer sells four times as many vehicles as an average Chevrolet dealer.

If Congress gets involved, Bloom said, it could jeopardize the ability of taxpayers to recoup billions in federal aid to GM and Chrysler. The government has provided about $65 billion to keep the companies afloat and reorganize it through bankruptcy.

The House approved a measure last week that would force GM and Chrysler to restore about 3,000 dealerships expected to be closed through the bankruptcies. The Senate has not yet considered the plan.

Dealers support the bill, arguing that nearly 200,000 workers could lose their jobs. Lawmakers said the decisions were made in an arbitrary manner that undermined family-owned dealerships and workers.

Left in the dark
"We don't want a bailout of the auto industry to become a washout for the auto dealers," said Rep. Dan Maffei, D-N.Y., who complained that "the Congress and American people were left in the dark" during the reorganization of the Detroit companies.

Rep. Lamar Smith, a Republican, said the government's involvement with GM and Chrysler was part of the administration's work to "bully businesses into government-run deals that benefit political allies."

Bloom countered that the "administration's decisions avoided a devastating liquidation and put a stop to the long practice of kicking hard problems down the road."

"These companies would have been liquidated and all of their dealer franchise agreements would have been terminated and just about all of their dealers would have failed," he said.

GM is reducing its 6,000-dealer network by more than 2,000 by not renewing franchise agreements next year and winding down stores with outgoing brands such as Pontiac, Saturn, Saab and Hummer. Chrysler cut 789 of its dealers as part of its restructuring plan, reducing its dealer count to about 2,400.

The dealership reductions were part of the GM and Chrysler bankruptcy agreements. Chrysler emerged from bankruptcy in June and GM exited bankruptcy on July 10, helped by billions in federal aid. The government now owns nearly 61 percent of GM and 8 percent of Chrysler.

Bloom said it was too early to know whether the auto industry restructuring would work but cited positive signals. "We believe these companies are positioned for success," he said.

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