US watchdog questions GM, Chrysler dealer closings

* Report says job loss not fully weighed by US task force

* GM did not fully document decisions on dealer shut downs

* GM, Chrysler agree to reinstate some dealers

* US officials say dealer closings helped save automakers

By John Crawley

WASHINGTON, July 18 (BestGrowthStock) – The Obama administration
may have acted hastily in demanding that General Motors Co
[GM.UL] and Chrysler accelerate the closing of dealerships to
ensure their viability, a government watchdog found on Sunday.

A report by the watchdog, the special inspector general for
the U.S. Treasury’s corporate bailout program, said the task
force established to oversee the automakers’ restructuring did
not sufficiently consider the impact of accelerated dealer
closings on job losses.

GM was not always consistent in its approach to determining
which franchises to terminate, the report also said.

The automakers’ decisions in 2009, which initially affected
more than 2,400 GM and Chrysler showrooms, were so
controversial that Congress, under pressure from the
politically potent dealer lobby, forced the automakers to
arbitrate appeals.

As a result, steps have been taken this year to potentially
reverse a third of planned closures — mainly at GM — with
more judgments possible.

Within the task force, there was disagreement over where
and how quickly to close the dealerships, the report said.

Initial plans to gradually close 1,600 GM dealerships and
789 at Chrysler over several years were rejected by the task
force on grounds the companies needed to be more aggressive in
their restructuring to ensure continued government support.

GM and Chrysler, whose bankruptcies in 2009 were
facilitated by the task force, received more than $80 billion
in bailout and restructuring assistance.

Internal task force memos — reviewed by Neil Barofsky, the
special inspector general for the Troubled Asset Relief Program
— showed that members of the task force “knew there might be
difficulties” with accelerating dealership closings, the report

But to benefit taxpayers and in the interest of the
automakers becoming viable as soon as possible, they wanted the
companies to take full advantage of unique laws in expedited
bankruptcy to “reject dealership franchise agreements without
significant upfront costs.”

Barofsky’s central criticism of the task force, run by
Steve Rattner and Ron Bloom, was that it did not fully weigh
the impact that dealer closings would have on job losses.

In one task force memo, GM estimated that short-term job
losses could total 43,000, while the task force assumed
Chrysler, which at the time did not have a suitor deemed
essential for its survival, would probably go out of business
with a loss of 72,000 jobs.

Barofsky concluded that the task force’s decision
conflicted with the administration’s multibillion dollar effort
to create employment through economic stimulus programs.

“It is not at all clear that the greatly accelerated pace
of the dealership closings during one of the most severe
economic downturns in our nation’s history was either necessary
for the sake of the companies’ economic survival or prudent for
the sake of the nation’s economic recovery,” the report said.

Treasury should have “taken every reasonable step” to
ensure that accelerating dealership closings was “truly
necessary” and more closely weighed the impact of job losses on
the sagging economy. “The record is not at all clear that
Treasury did either,” Barofsky concluded.

Treasury officials disagreed strongly with a number of
Barofsky’s conclusions, saying in a letter that the alternative
to aggressive restructuring was “almost certain failure and
liquidation” of both companies, and the direct and indirect
loss of “hundreds of thousands of jobs.”

Senior administration officials, in a conference call with
reporters, said the findings took the decision out of context
and that tough decisions to save the companies were necessary
and consistent with the White House goals of shared sacrifice.

GM responded to the task force’s concerns with a new plan
that would cut roughly 1,400 dealerships by October 2010 —
down 200 from its original proposal. Chrysler’s revised plan
would cut 789 dealerships within months with no appeal.
Treasury officials approved both approaches.

Dealers complained the decisions were arbitrary, and
Barofsky’s review found that GM “did not consistently” follow
its criteria and provided little or no documentation in an some
cases, making it impossible to effectively analyze the
company’s decision making.

The review found that Chrysler’s criteria were more
transparent but criticized its decision not to allow appeals,
an option adopted by GM. The review did not affirm some
complaints that dealership closings were personal score
settling or otherwise political in nature.

GM said in a statement the company, at the time, “did its
best to develop and implement an objective dealer consolidation
process under extraordinary circumstances. Chrysler said it
would not comment on the findings.
(Reporting by John Crawley; Editing by Steve Orlofsky)

US watchdog questions GM, Chrysler dealer closings