The Whitehouse has announced that it “strongly opposes” any attempts by Congress to reverse GM and Chrysler’s closing of nearly 2,200 of their dealerships. Any actions to do so, the Obama administration claims, would “set a dangerous precedent.”
A provision attached to a budget bill that is expected to pass on the House floor on Thursday would restore the automaker’s dealer contracts to pre-bankruptcy status. If passed, the legislation will restore 789 Chrysler dealerships that had been slated for closure and would release some 1,300 GM dealerships from their agreement to wind down operations by next year. The bill would also nullify contracts between 4,100 GM dealerships the automaker had chosen to maintain.
Under the new legislation, dealerships that were slated for closure would have the option of remaining open or negotiating higher severance payments as a condition of their closing. In either event, claim critics of the bill, the ultimate costs to GM and Chrysler would be significantly higher than those stipulated in their respective restructuring plans.
Estimates provided by GM as a part of their restructuring plan estimate that their goal of closing 1,300 dealerships would save the company $2.4 billion annually in reduced advertising and marketing support, incentives, dealer subsidies and other associated costs.
The Whitehouse, in its first official position statement concerning the provision, stated that nullifying the dealer franchise agreements was a key component to the reorganization of the two automakers and claims that the cuts in dealerships was a "critical part of their overall restructuring."
According to the administration, “The decision to invest taxpayer dollars into these companies required all stakeholders to make difficult sacrifices, and it would set a dangerous precedent, potentially raising legal concerns, to intervene into a closed judicial bankruptcy proceeding on behalf of one particular group at this point,”
The House Appropriations Committee approved the legislation in its present form earlier this week before sending it to the full House.
The bill has strong support among many House members including Majority Leader Steny Hoyer (D-MD). The Senate is expected to vote on a similar bill, but the dealers have not yet gained the widespread support they have found among House members.
According to Greg Martin, a GM spokesman, the proposed legislation "would put our long-term viability at risk." GM’s vice president of North American Sales commented that "Everybody acknowledges, every dealer acknowledges, we have too many dealers in aggregate," and Chrysler Motors has issued a statement that the legislation "would jeopardize the viability of the new company."
The White House did not issue a veto threat against the entire bill over the provision. The bill must still be considered by the Senate, where the dealers have not won as many backers.
House Judiciary Committee chairman John Conyers (D-MI) has scheduled hearings for next Tuesday and Wednesday to review the proposed dealer cuts.
Although President Obama could veto the bill if it passes both houses of Congress, the Whitehouse has not publically indicated that he would do so. The president’s auto task force is negotiating with lawmakers and auto dealers in an attempt to reach a compromise and kill the bill before it goes to a vote but has reportedly made little headway.