Bailout Update: GM, Chrysler Dealers Edge Toward Resolution

September 24, 2009
U.S. Capitol

U.S. Capitol

To say that the federal government's bailout of Chrysler and General Motors has been contentious is a little like saying that the Bugatti Veyron is kinda fast -- an understatement at best, cause for a righteous uproar at worst. But roughly a year since the Big Three began wooing Washington, the dust has begun to settle: Ford seems to be doing fine on its own, Chrysler and GM have emerged from bankruptcy, Chrysler and Fiat finally hooked up, and surprisingly, the world hasn't ended. (Yet.) However, there is one very long, very loose string that still needs to be tied up: the not-so-small issue of dealers summarily terminated from GM and Chrysler networks during those companies' restructurings.

For a while, it appeared that Congress might force the two automakers to reinstate eliminated dealers across-the-board. That effort lost steam over the summer, but the National Automobile Dealers Association picked up the ball and began pushing for out-of-court mediation, which would reinstate dealers based on Chrysler and GM's pre-bankruptcy elimination criteria. Under NADA's proposal, any dealer that met the automakers' criteria would remain cut from the network, but if it appeared that one was cut unnecessarily, back on the roll books it would go. Unfortunately, Chrysler and GM weren't exactly thrilled with that plan (though given the alternative -- i.e. federal legislation -- perhaps they should've been).

The latest chapter in this saga takes the action back to Capitol Hill, where Congress is expected to hear testimony about the dealer cuts. Perhaps most ominously, Neil Barofsky, the inspector general for the U.S. Treasury Department's financial bailout, will be auditing the terminations. Much like the mediation proceedings suggested by NADA, Barofsky's audit "will examine the process used by General Motors and Chrysler to identify which automotive dealerships should be maintained or terminated", with a goal of determining "the extent of government involvement in management" of Chrysler and GM. Which sounds like a big and complex job to us -- not to mention a potentially painful one for GM, Chrysler, and Obama's auto industry task force.

Perhaps not coincidentally, Chrysler and General Motors have suddenly agreed to negotiate with NADA. (Pressure from Senate majority whip Richard Durbin [D-IL] likely helped change the automakers' minds.) They haven't fully signed onto mediation, there's no meeting scheduled yet, and GM seems very bitter about the whole thing -- but again, it beats the alternative.

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