Government assistance has helped first Chrysler Group LLC and soon General Motors Corp. through quick-rinse bankruptcies. But these companies that have received so much aid from the White House now face a threat from another branch of government, with legislation working its way through Congress that would force the automakers to reverse dealership cuts made while in Chapter 11.
An amendment to a spending bill that would restore the 789 dealers cut by Chrysler and 1,300 by GM
passed the House Appropriations Committee on Tuesday, amid a growing tide of outrage among lawmakers over what is being perceived as an unfair attack on small business. Republican lawmaker Steven LaTourette, who sponsored the amendment, said GM and Chrysler "have never made the case" as to why the dealers have to be kicked out onto the curb.
It is unclear how such a law would be enforced if passed. Washington sources say the amendment appears unlikely to survive a barrage of expected challenges in Congress, and the White House is not expected to support the proposal even if it does. The most likely outcome is that Congress will find some other method to compensate defunct dealerships, allowing lawmakers to declare victory to their constituents without derailing any restructuring efforts.
Of course, the dealers
do have a point. They aren't the ones who brought GM and Chrysler down. But the automakers have one too. The plethora of dealerships in large markets leads individual showrooms to devote precious marketing resources to one-upping rival dealers. While GM dealers tend to use the airwaves to tout their sales compared to other GM dealers, Toyota Motor Corp. dealers are more likely to run ads encouraging consumers to buy Toyotas over Chevys.
So while there is a consensus that the Detroit automakers would benefit from having fewer dealerships, there's no clear proof that a quick reduction of dealers is necessary for them to be viable. Absent bankruptcy, which gives GM and Chrysler broad leeway to terminate franchise agreements, the automakers would most likely have allowed most of these dealers to continue rather than battling state franchises laws, letting the weakest slowly die a more natural death.
But the fact is that the bankruptcy tools are available and are being used as they were intended be when they were created -- to give GM and Chrysler, now taxpayer owned, the best chance to flourish post-filing. It's true that the executive branch may have bent these tools a bit when the Auto Task Force
leapfrogged some creditors past others earlier in the process, but there's precedent for a DIP lender to apply a strong hand. For Congress to pass a law that would junk the tools altogether (even if it could) would be extremely foolish. -
Lou Whiteman
Lou Whiteman is a senior writer covering the automotive, transportation and industrial sectors. Follow him on Twitter @louwhiteman
Join Corporate Dealmaker's LinkedIn forum
Adele Gulfo
And the winners are...
