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Government audit critical of GM and Chrysler dealer cuts

by Bill Cawthon on

A report released today by the Office of the Special Inspector General for the Troubled Asset Relief Program questions the criteria General Motors and Chrysler LLC used to terminate thousands of dealers last year. The report was requested by members of Congress who had doubts about the standards and the automakers’ claims the cuts were needed to restore profitability.

While the SIG’s report says Chrysler did uniformly apply its criteria on a case-by-case basis, it criticized the company for failing to provide an appeals process. General Motors, on the other hand, was found to have applied its standards inconsistently, cutting some dealers that met the benchmarks while retaining some that didn’t.

The report also questions the need for so many cuts. Even though both Chrysler and GM said their rapid return profitability made the terminations necessary, the number of dealers the two companies subsequently reinstated, even before the federally mandated arbitration program, indicates the number of terminations, along with the consequent job losses in one of the worst job markets since the Great Depression, were arbitrary rather than based on actual need.

In a response to the report, General Motors issued the following statement this afternoon:

The events depicted in the SIGTARP’s report have since been overtaken by a new GM and a stronger dealer network to match. More than a year since its bankruptcy, GM is showing substantial progress. The company’s business performance is stronger, sales of its four brands are up 32 percent, and it is investing billions of dollars in its plants and bringing several thousands back to work. The new GM is also moving forward to improve dealer relations and has already reinstated several hundred dealers and completed the arbitration hearings for the remaining dealers who filed cases. With the right size dealer network, GM expects to continue to realize greater operating efficiencies and increased dealer throughput and profitability and overall cost savings. GM believes a strong, profitable dealer network selling the world’s best cars and trucks gives us a market advantage.

Throughout its review, GM cooperated fully with the SIGTARP to best document the company’s efforts, as well as the criteria and numerous business factors used in GM’s dealer wind-down and appeals process. The GM which existed at that time did its best to develop and implement an objective dealer consolidation process under extraordinary circumstances. As former GM officials noted in various public comments, business conditions required GM to undertake difficult and urgent actions that would require sacrifice among all stakeholders. Since then, GM, its employees and dealers have a renewed sense of confidence in a bright future.

We appreciate the SIGTARP’s important work to examine the past. But, for all of us at GM our full focus and energy is directed straight ahead, return the company to profitability, and repay our nation’s support.

Chrysler has not yet released an official response.

Bill Cawthon grew up in the auto industry in the 1950s. His Dad worked for Chrysler and Bill spent a number of Saturdays down on the plant floor at Dodge Main in Hamtramck. Bill is also the U.S. market correspondent for just-auto.com, a British auto industry publication, and a member of the Texas Auto Writers Association, which has named the Jeep Grand Cherokee the “SUV of Texas” several times and named the Ram 1500 as the “Truck of Texas” two years running.

Bill has owned five Plymouths (including the only 1962 “Texan”), one Dodge and one Chrysler and is still trying to figure out how to justify a Wrangler. He also has owned at least one of every 1:87 scale model of a Chrysler product. You can reach him directly at (206) 888-7324 or by using the form.


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