Chrysler: Washington meddling could kill us

Lawyer testifies before congressional committee of dire consequences of being forced to renew contracts.

EMAIL  |   PRINT  |   SHARE  |   RSS
 
google my aol my msn my yahoo! netvibes
Paste this link into your favorite RSS desktop reader
See all CNNMoney.com RSS FEEDS (close)
By Peter Valdes-Dapena, CNNMoney.com senior writer

New Hyundai and Ford cars hit home runs
Successful new model launches are critical for car companies. Here are five that worked and five that didn't.

Find your next Car


NEW YORK (CNNMoney.com) -- A Chrysler Group executive, testifying before a congressional committee hearing on Chrysler and General Motors' auto dealership cuts, warned that being forced to reinstate dealers could force Chrysler out of business.

The House of Representatives recently passed a bill that would require GM and Chrysler to reinstate the contracts of dealers that were recently dropped as part of their separate bankruptcy proceedings.

Louann Van Der Wiele, Chrysler Group general counsel, testified Tuesday before a sub-committee of the House Judiciary Committee. She warned that forcing Chrysler to reinstate the 789 dealer contracts it had left behind in bankruptcy court earlier this year would force "new" Chrysler into bankruptcy again. This time with no buyer to bail the company out.

"Complete liquidation, with all of its dire consequences, could follow," she said, according to a transcript of her testimony.

Auto dealerships are separate businesses from auto manufacturers. Both GM and Chrysler have argued that having too many dealerships has hurt profitability by spreading sales too thinly and forcing dealers to compete with one another.

Chrysler announced in May that it was cutting off business ties with 789 dealerships, or about a quarter of its dealer network. According to Chrysler, the dealers being cut off accounted for only a fraction of the automaker's actual sales.

Later, GM announced that it was severing ties to 1,100 of its 6,000 dealers.

While both GM and Chrysler have been working for years to trim their dealer networks, it's usually a process that requires individual negotiation with each dealership and often hefty buy-out fees to end a contract. That's because dealers are usually protected by strong state franchise laws.

Bankruptcy court allowed both GM and Chrysler to avoid those negotiations. The new companies that took over the Chrysler and GM names and businesses simply declined to purchase the unwanted dealer contracts as part of the new company's assets.

A bill similar to the one the House passed faces stronger opposition in the Senate where Majority Leader Harry Reid said earlier this week the measure is not a priority.

President Obama has also voiced opposition to the bill, saying it would derail the administration's hard work to save GM and Chrysler. To top of page

Features
They're hiring!These Fortune 100 employers have at least 350 openings each. What are they looking for in a new hire? More
If the Fortune 500 were a country...It would be the world's second-biggest economy. See how big companies' sales stack up against GDP over the past decade. More
Sponsored By:
More Galleries
The 13 most WTF gadgets From the weird to the gross, these 13 gadgets will make you wonder why they even exist. More
Best-loved cars in America These cars and trucks topped J.D. Power's APEAL survey, which measures how much owners like their new vehicles. More
America's most powerful cars A new 'horsepower war' has erupted among U.S. automakers and these are the most potent weapons in their arsenals. More
Worry about the hackers you don't know 
Crime syndicates and government organizations pose a much greater cyber threat than renegade hacker groups like Anonymous. Play
GE CEO: Bringing jobs back to the U.S. 
Jeff Immelt says the U.S. is a cost competitive market for advanced manufacturing and that GE is bringing jobs back from Mexico. Play
Hamster wheel and wedgie-powered transit 
Red Bull Creation challenges hackers and engineers to invent new modes of transportation. Play

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.