types of scenarios, and i look forward to hearing the information. >> thank you, senator. and now senator? >> thank you. mr. chairman, and also let me say, great to have you back, and senator hutchison, thank you for your amendment on the floor that i think provided -- tried to provide a more orderly process to dealership closings. . we need to ask tough questions regarding geel dealer closings. there's no doubt that it's become an integral part of the stroir. if you ask any american, they'll remember fondly their first car, even if it's just the old family truck. it's tough for me to believe

it's tough for me to believe we're here today with two america's automakers in bankruptcy. for folks across the country, jobs depend on chrysler and gm. because of the workers and thousands of others who depend on the auto industry, i support efforts to get the auto companies back on their feet. but i'm concerned about the process. i want to make sure that we're going to save as many american jobs as possible and taxpayers are going to see a return on their investment. there are towns that depend on local dealership for jobs and economic activity. we need to keep those communities in mind as we move forward. i hope today we can look into dealership closings in mind. i look forward to hearing from the panelists and having them

talk about those issues. thank you. >> thank you. finally, senator pryor. i. >> i each not going to give an opening statement. i would like to submit a letter from one of my car dealers into the record if that's possible. thank you. i thought you would like that. oh. >> i'm sorry. i didn't see you walk in. we welcome your statement. >> thank you. i will try to be merciful for our analysts, too, who have been here far long time and submit a statement to the record. but do look forward to hearing from the panelists today about their plans with respect to the dealers across the country. many of us didn't support the

auto bailout, but the fact remains taxpayers are now a very big part of this industry. and we have an op ligation to make sure those resources are used well and also to make sure that they're in the -- when we make decisions that support the manufacturers, we also give consideration to the thoufs car deerls across the country who are impact ed and could be losig livelihoods through no fault of their own. i'm anxious to hear from the panelists today and look forward to posing questions later on. thank you. >> thank you very much, senator. i would just like to say to the panel, you've waited some time for this and it's not every hearing that all of the members speak. but this is the largest turnout that i can remember in 24 years on the congress committee.

so there's some deeply held feelings here for them to say what's on their mind and in their heart. they have done so. i was just introducing the panel. mr. james press who's president of chrysler, mr. fritz henderson who's chief executive officer of the general motors corporation, mr. john mccelaney, and mr. russell aubrey watley iii, owner dealer, russell watley motor company. and i'm going to do a little switch here. i would like to start by calling on the two auto dealers. and i think they will help us set a tone and it will be helpful to all concerned.

so mr. lopez, if you would be willing, sir, we call on you for your comments. try to hold them to five minutes. >> we want toities cuss how dealerships by gm and chrysler are drastically hurting small businesses. my name is pete lopez, from censer, west virginia. a small rural town of approximately 3,800 people about an hour out of charleston, west virginia. i'm the owner of spencer auto gl group, which is made up of two dealerships on main street america. chrysler, jeep, dodge, plus chevrolet and buick dealerships. we stfs six county areas in west virginia, and i am the face of

chrysler and general motors to my community and my customers. mr. chairman, within the past three weeks, i have been informed that both of my dealerships will be closed. my chrysler deepership will be closed within six days now, while chevrolet dealers franchise agreement will be terminated by the 12th if i don't sign the new contract, which i haven't been there to see. i have learned about my chrysler dealership closer by a friend of mine who called me at 9:00 one morning while he had the new york times on his computer and that's how i found out that we were losing our chrysler dealership. i did not receive a call from chrysler. i called our representative three or four times. finally at five till 6:00 that evening, i got a call from one of our chrysler people and they told me i knew more than they did. that we were being closed and

they were not to comment on it. my investment was approximately $1 million. we paid $ 500,000 for the store. when i bought the dealership, they wanted us to capitalize it with $ 300,000. we did with $500,000. when i purchased doolership two years ago, there were nine employee. i currently have 18. 15 full time and three part-time. my monthly payroll is $36,000 to $38,000. being in a small town by spencer, we don't sell large amounts like many dealers in metropolitan areas. last year spencer auto group sold 57 chryslers and 44 gm new vehicles. given the size of our market, i also sell used chrysler from chrysler financial and gm vehicles. approximately 15% of our total revenue for the town of spencer

comes from spencer auto group. like most of the small town dealers, my investment goes beyond the show room. . we support 4-h camps, clubs, active. we even donate a car to the county high school for their driver's education. by the way, i want to show you an award that mr. bob nardelli sent us, thanking us for how we participated in the nardelli challenge. in a flat market, they asked us to buy extra cars, sell extra cars and we did exactly that. this is one of two that we received. >> i don't want to disturb your presentation, but we do need to

keep presentations to about five minutes. and so those who would simply, you know, read their written. your statements are already in the record, all of them. so you just pick and choose what you want to talk about. >> okay, i will do that. number one, i will say there are many, many people. we have a senior citizen base. our community, spencer, wav wav, the people, if you take my dealership, if they take my dealership, if general motors and chrysler takes my dealership, my customers -- and i'm a customer there also -- will have to drive an hour to an hour and a half away. there's one old lady that i love dearly. she's 79 years old. she lives 30 mile ace way from me. i pick her car up, service it, take it back to her. how many metropolitan area dealers are going to do that. we are the face of the community and we participate in everything. we have a wonderful community.

i invite everybody to come to spencer and see exactly what i'm talking about. and i thank you. we're located 40 miles from ft. worth with pa populationf 17,000. today, over 200 towns in texas have chrysler, ford or gm stores. that is over two thirds of our texas towns with dealerships. my grandfather opened this dealership in 1919 and has kept it open through the depression, world war ii and countless economic setbacks. in the 90 years that we have been here, 36 other new car dealerships have come and gone in our town. we have stayed open because we are committ eted to customer

service. we have five new hotel chains under construction. new schools, restaurants and many corporate relocations. to meet the needs of a growing city, we have purchased five ache oefrs land on a busy highway. we hired a builder and have drawn up plans for a new building. all these plans have been shown to the legaler placement people for chrysler. no dealership is a cost to chrysler. we pay for everything we use and we take all the risk. we are chrysler's cust mer. in a typical month, we pay chrysler over $2,500 in fantasticed e eed -- fixed expe alone plus parts and vehicles paid for in full and up front. we sponsor school events, little league, pea wee football, rodeo and many other events. we are a teeny small store but our dealership has gross sales of $18 million or $443,000 per month. we have collected and paid the state and county over $805,000

in taxes and fees or $20,026 per month. plus, we have paid the county $52,668 in property taxes. all of this and it does not include income or payroll taxes. i was told our area enjoyed a 20% market share. while we did not sell every customer, we serviced 1,548 vehicles per year on average. i was told by the factory that if we were not here, another dealer certainly would be. to be arbitrarily closed with no compensation is wasteful and devastating. there's absolutely no reason to close profitable dealership which is contribute to chrysler's bottom line. but another issue here is the three-week time frame. you just cannot close a dealership in three weeks. it is not possible. over the past three to foo four

four months, we were forced to order heavy inventories. we were told chrysler has no cash flow and they rely on the dealers. and if we do not order vehicles, we mr. all be out of business. we were also told explicitly, we will remember who did not help us. now we have an eight-month supply of vehicles and only three weeks to clear them out. other dealerships are full, chrysler financial is gone, gmac is not onboard yet. there's just no place to go with these cars. chrysler says they will try to put buyers and sellers together, and that they will endeavor to assist in selling these cars, but the contract we had to sign clearly states they have no responsibility and no obligation to do anything. after june 9, we cannot sell these cars as new, used or even to other dealers. we need a firm, real plan, not just what they will try to do. plus we have warehouses full of

parts that will go unidentified after june 9. they will be impossible to sell, just a total loss. ive employees with families who worked for this dealership for years. a 90-year investment is just gone. and neither my family nor my employees have any say about it. we have done nothing wrong here and should not be suffering this loss. i certainly hope you can help us. this is a pretty terrifying time, and i want to thank you for your time and your interest. >> thank you very much, sir. i would call now on mr. james press, the president of chrysler. >> thank you, mr. chairman, i appreciate it. i want to discuss kwhie and how eyes ler is realigning its

dealer network. i can surely empathize with the deerls not brough,@@@@@@@@@ @ @ to be made, they were gut- wrenching, and absolutely necessary for chrysler's survival. it is a well-documented opinion of the administration and many members of congress over the year, chrysler has not moved fast enough to make the choices necessary to remain competitive. the two main elements that we can control as automakers elements that we are can control as an automaker to make those changes. it's our products and our dealer network. chrysler is already investing in the fuel efficient vehicles consumers want, but unless we also complete a significant realignment of our dealer network, neither chrysler nor

our customers could benefit. chrysler maintains multiple distribution channels which is an inefficient legacy of being in business for 80 years. this decreases our cost of product development, contribution, marketing and advertising as well as dealer administration by more than several billion dollars every year. as an example, we have to build and market two similar minivans, the chrysler town and country and the dodge caravan to satisfy multiple dealer networks. any separate dodge and chrysler franchise in close proximity competes with each other, not other makes, in order to sell and later service what is basically the same vehicle. while the dealer network as a whole is not viable and not profitable. in 2008, the average chrysler

dealer lost $3,431, selling 405 new vehicles. when you look at autoall to makers together, they made a profit on 525 sales. why is this important? unprofitable dealers can't afford to invest in advertising, facilities, people, training or a high level of customer satisfaction. as a result of the credit crisis and the global automotive industry depression, there's simply not enough business to go around. with projected annual sales in the u.s. this year of only $10 million to $10.5 million, compared to historical levels, chrysler is not support the same number of dealers than we have in the past. the time frame for discontinuing dealers as driven by the chapter 11 process, includes the requirement to complete our strategic alliance with fiat by june 15 or we liquidate the company. it's important to note that prior to may 1, chrysler had

been working to avoid bankruptcy, only after filing on may 1 did we begin the necessary process of identifying which dealers would go forward with the new company. the dealers were selected by a process that was rig louse, robust and rational. the methodology was consistently applied to every dealer in the united states. it included factors such as sales, customer satisfaction, buying and service, facilities, market potential, whether a dealer in large markets also competing mark makes out of the same show room. the dealers represent 14% of our volume. 44% of the discontinued dealers sell competitive vehicles, so they have other brands to sell. half of the discontinued dealerships sell less than 100 oa year and 84% of the dealers sell many more used cars than new and hopefully those dealers will continue to sell and service used cars. chrysler is working hard to

ensure a soft landing for all the discontinued dealers. every dealer was contacted by a representative from his or her business center. we offered help in disposition of vehicles, parts, inventory and tools. on may 14, there were 42,000 vehicles in stock at the discontinued dealers. today i'm very happy to report that 97% of those vehicles have been sold or we have commitments in place to redistribute them from the affected dealers. we're grateful to the loyal chrysler customers who have supported us and it's important to our future that we take care of their needs throughout this process. all chrysler vehicle owners will receive a letter assuring them that warranty claims will continue to be honored and we have a toll-free hotline to answer any questions. i would also like to note that congress can give a significant boost to the success of or re-aligned dealer network by passing the fleet modernization legislation discussed earlier. to summarize, there's no question that chapter 11 has been a painful process in which many of our stake holders were

required to make unprecedented sacrifices, including our dealers. facing that reality, we used a thoughtful, fair process to select dealers for the new company and are working hard to minimize the impact on everyone. together, the new chrysler group and fiat will bring exciting, stylish and fuel efficient vehicles to the north american consumers. our realigned dealer network will be much stronger and make the company stronger and more profitable, preserving hundreds of thousands of direct and indirect jobs in every community across the united states. i thank you for this time and i look forward to answering your questions. >> thank you, mr. press. i call now upon mr. henderson, mr. fritz henderson, who is the chief executive officer of general motors. >> good afternoon, mr. chairman, senator hutchison. i welcome this opportunity to testify today. it's our obligation to be open and transparent in all we do to reinvent general motors, particularly with the american taxpayer as our single largest

investor. before i explain why and how we go about restructuring and consolidating our dealer network, i want to talk about the human story behind our plants. our actions have forever changed the lives of people, families and whole communities. for our dealers, they are valued partners, friends and the face of gm tour customers. personally and professionally, i feel strong, deep ties to dealers. i personally have worked at dealerships in my summer in college. my father, 39 years calling on buick dealers. my brother, 25 years. it's in my family. through my career and over my career i visited dealers in 48 countries around the world, including the united states. i have walked through stores, i have shared stories with them, i've had dinner with them and we celebrated their success and good times. and dealt with bad times together. i don't see dealers as dots on the map or lines on a spreadsheet. they are members of the larger gm family which makes this process so heartwrenching for me and for the corporation. a dealer closing is as painful as a plant closing.

but we have no choice. we are all being called upon to sacrifice in order to build a stronger, more viable general motors. this is our last chance to get it right, to fix permanently those parts of the business that have diverted us from consistently matching and building winning cars and trucks and a consumer experience to match. our dealer network must match a smaller, stronger, leaner gm built for today's market and competitive realities. historically, much of gm's dealer network that occurred throughout the '50s and '60s when we held a dominant share of the u.s. auto market. since that time, strong new competitors have entered this country and the market share has shrunk, leaving us with too many dealerships and in many cases in the wrong locations. over the years, many gm dealers could not earn enough profit to renovate their facilities and retain top tier sales and service staffs. for those who could raise capital, it made little business sense for them to invest in a market already saturated with gm dealers. everyone agrees, even our dealers themselves, that a restructuring of gm's dealer network must take place.

we set out to do this restructuring as carefully, responsibly and objectively as we could. we started with a thorough analysis of every market and every dealer throughout the u.s. to assess individual market requirements and dealer performance, especially in the matrix of sales and customer satisfaction. we also carefully considered our dealer network coverage in rural areas. we wanted to make sure that we maintained the strong competitive advantage we have in rural areas, in some cases and on average, more than ten points in market share above our national average. we also took great pains to ensure that minority dealers were considered equitably and proportionately. most importantly, instead of terminating agreements immediately, or providing advanced notice and wind-down agreements to dealers who we could not retain in the network long term. if and when those agreements are executed, those agreements will allow dealers to stay in business with us until october of 2010, the expiration date of their current dealer agreement, so they can sell down their vehicle inventories and provide

warranty service and roll down their parts inventories over time. we want to support our dealers to help them wind down their business in an orderly fashion. and have a structured package of transition incentives that intends to benefit them relative to their alternatives. of the 1380 letters that were sent early this year, 647 have been returned already signed. we have had ten who said they are not able to sign it and the remainder of them, we're working with them every day. we also have an appeal process to consider one by one if we made mistakes because we rightfully recognize we do make mistakes and we deal with each and every one of those individually. yes, consolidations will bring cost savings, a smaller more healthy dealer network reduces gm's cost, primarily related to support we provide for information technology, salesperson incentives, sales service and training, parts and advertising. our total cost of distribution is roughly $1,000 per vehicle or a multi billion dollar expense for the company. but this effort is all about creating a healthy, stronger and profitable dealer network, one

that improves a brand image and increases the opportunity for sales and service provided by our high performing dealers. it's about focusing our resources on our top performers and core brands so we can attract and retain more private capital and the best dealer operators and yes, new customers from our competitors. the end result will be between 3500 and 3800 u.s. gm dealers by tend of 2010 depending on attrition levels with a retail share of a little over 17% and our objective is in 2010 a retail market of just over ten million units with fleet on top of that. that means that the number of units sold per dealer would nearly double. compared to today's levels, and provide a greater return on the investment. even with the cut-backs, gm will still have the biggest, most extensive dealer network in the country, more than any of our competitors, including toyota, honda, nissan, ford and chrysler. to conclude, this is one of the most difficult and painful times in gm's history. but we see a path to a better

future, where gm -- where at gm we not only survive but thrive. we want our employees, communities and especially our dealers to thrive with us. we are grateful for your support during this critical time. we understand our responsibility to the american taxpayer and we take that very seriously. a new gm will contribute to america's economic strength and competitiveness and this, of course, starts and ends with great cars and trucks and great dealers. thank you very much. >> thank you, sir. finally, mr. john mceleney, chairman of the national automobile dealers association. >> thank you, mr. chairman. mr. chairman, senator hutchison, i am chairman of nada and the national automobile dealers association. i am also an automobile dealer. my dealership is mcelenen center in clinton, ohio. we have actually been in business 95 years. we provide jobs for 140 people. my family also held a chrysler franchise between 1984 and 2007. mr. chairman, we commend you and

we thank you and senator hutchison for convening this hearing. in three face-to-face meetings with the president's auto task force, and at numerous meetings with the manufacturers, no one has explained why dealer reductions will make chrysler and gm more viable. over 90% of chrysler and gm's revenue comes from the dealer, because the dealer buys the cars, the parts, and even the dealership signs from the manufacturer. the retail network, the land, the building, the employees, the dealers pay for all of it. dealer cuts won't save any money, because dealers don't cost the manufacturers any money. when a dealership closes, the manufacturers will tell you that they lose market share. where is the objective standard and where is the public accountability for these decisions? 789 chrysler and 1350 general motors dealerships face terminations. these dealerships employ over 100,000 people. these people deserve more. the chrysler dealership terminations are particularly

harsh. these 789 dealers were given 26 days to wind down. also, chrysler's refused to buy back vehicles, parts and special equipment. no manufacturer has ever done this. just four days after chrysler dealers received their termination letters, media reports said that chrysler already was planning to re-enter some of the very markets that they were abandoning. with respect to gm, the effects were actually broader. yesterday, gm delivered to my dealership a quote, participation letter which every gm dealer must sign. even though i am one of the quote, go forward dealers, i will have to make significant changes that could threaten the viability of my dealership and my employees. actually, gm's letter is a 24 page binding legal contract. senator snowe referred to a 12-page agreement. mine is 24. if i sign it, i will be committing my business to spend hundreds of thousands of dollars that i know about today and committing to millions of

dollars of potential financial obligations in the future. i will also be subjecting my business to sales performance standards that are not specified in the contract. even worse, gm can alter the terms of these requirements at any time at its sole discretion. the final blow, i must waive any right of protest to any action taken by the manufacturer. the contract actually says this document shall be null and void if the dealer changes any term or provision or if it is not executed by the dealer on or before june 12th. that's next friday. that's seven days from now. so my choice is this. sign the completely one-sided open-ended legal document, give up all my basic rights as a dealer or face the consequences of cancellation of my franchise during the pending bankruptcy. the other 4,000 go forward dealers have the same choice. this really is no choice at all. it's a classic example of